March 2020 marked a chaotic period, with empty store shelves and a frenzied demand for essentials as consumers adapted to remote work and quarantine. Company leaders worldwide scrambled to expedite orders, highlighting the seemingly boundless demand. Fast forward three years, and the aftermath of this demand surge is evident. Suppliers are grappling with an excess inventory problem, especially in the tech sector, where outdated semiconductors clog warehouses.
According to the Harvard Business Review, this issue, costing over $250 billion in the U.S. alone, poses an environmental and economic challenge. Notably, excess inventory is not confined to the pandemic era; new demand spikes are imminent, as evident in the electric vehicle battery and AI-driven technology sectors.
Amid this scenario, leaders have a unique opportunity to shape a sustainable industry ecosystem, involving players across the value chain, from component suppliers to manufacturers. The key is to address the root causes of excess inventory and establish collaborative solutions.
Inventory challenges have historically plagued industries like electronics, such as the dot-com bubble burst in 2001 and the 2009 financial crash. Excess inventory can occur at any supply chain stage, often stemming from shifts in demand and technological advancements. The solution lies in the initial order, as demand is never infinite, necessitating close collaboration between manufacturers and customers.
One manufacturer tackled excess inventory by employing the concept of “Inventory Momentum,” measuring the rate of inventory change. They reduced incoming materials, refined planning parameters, disposed of excess inventory, collaborated with customers, and prioritised revenue for customers with large orders. The result was a 10% reduction in total inventory and a halt in inventory momentum.
This real-world example underscores the pervasive issue of excess inventory, necessitating a shift in thinking. Leaders must acknowledge the limits of “infinite” demand and optimise inventory in alignment with value chain partners. Suppliers should redistribute surplus components for alternative applications.
As new industries like AI and electric vehicles emerge, it is crucial to build sustainable ecosystems, avoiding overproduction. Inventory management is a critical challenge, demanding collective solutions and a broader perspective of the interconnected business ecosystem.
Astute have created the Astute Intelligent Marketplace to provide meaningful insights into how best to manage your excess inventory. The AIM will provide you with Smart data which allows professionals across Materials, Finance and Supply Chain to mitigate inventory liabilities.
Partner with Astute – we are the prime vehicle for disposition of E & O material. We will provide feedback on ‘the state of the market’, with detail including how to sell at the peak of demand to maximise return.
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For more help with looking at supply chain options, contact Astute Electronics