Feature


Testing dictates which components are for sale and which for scrap


swampeD by surpLus


Don't get inventory


Inventory stockpiles are worryingly high and rapidly losing value. OEMs need to get excess stock back into the supply chain now, advises America II's AntonWurr


A turbulent year in the electronics sector draws to a close, with the electronics industry experiencing some extraordinary fluctuations over the last 12months.


TheMarch Tsunami in Japan triggered a loss of confidence in the


reliability of the electronics supply chain. Companies, expecting a shortage of supplies, bought components in larger than usual numbers, however, it soon turned out that the expected shortage was short-lived and overall the ‘Japan problem’ was overhyped. Unfortunately, by that stagemanymanufacturers had already increased their production capacities.


Recent figures report whatmany OEMs and distributors already


know. Gartner has indicated that, although plateauing, inventory figures aremoving into Q3 at ‘worrisome levels.’ Beyond the Tsunami, the root cause of these disproportionately high levels of inventory is that demand has fallen in the second quarter, decliningmuch quicker than expected.


Another key trigger that led to this oversupply is that OEMs


have not been able to react nimbly to cut production as fast as they would like. This has been due, amongst other factors, to supply chain stringencies and shorter cancellation windows with subcontractors and component suppliers.With predictions for production schedules set too high andmanufacturers unable to react fast, the resulting excess inventory backlog was only a matter of time.


Increasingly erratic fluctuations are a signal formanufacturers to


bemore cautious with regards to the next year. Nonetheless, with previous supply chain constraints resulting fromthe Japan quake disaster largely resolved, and general production capacity now being available, suppliers are expected to be well-prepared, matching demand nimbly as it rises or falls in themonths ahead.


Manufacturers are now slashing their production capacity in


light of anticipated weak demand for the rest of the year, according to an IHS iSuppli Inventory Insider report, yet the key issue remains: how to liquidise the huge excess stockpiles that remain fromthis year’s crisis?


Liquidise stockpiles


With supply chain visibility overshadowed by global economic uncertainties,manufacturers find themselves with short time order cancellationsmore frequently, leaving themwith a large amount of valuable stock.


The solutions available to OEMs looking to liquidise their stock


range from selling stock online, often via dubious channels, to scrapping the parts altogether. Excess stock has, in the past, been a recurring inconvenience manufacturers had to accept by writing the loss of excess inventory off their sales targets. The current levels of excess inventory however, are too big


November/December 2011 | 23 p24


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