July 13, 2010

Inventory optimization strategies

The risks associated with carrying excess inventory have persuaded a number of major technology OEMs and contract manufacturers to implement asset reallocation programs. The financial risks can be quite significant and certainly warrant a closer look at the benefits of inventory optimization.

The underlying problem is simple: Companies tend to pile up excess material for too long. As I've mentioned before, technology companies just don't have the dedicated resources necessary for proper inventory assessment. Because of this, many aggregate all excess product together, regardless of its value or condition, in order to balance the books. This unfortunately causes companies to lose a significant amount of revenue if and when they sell excess product to the wholesale market.

This situation can be significantly improved. The burden of inventory liability should be removed from technology companies and transferred to reverse supply chain specialists that have built asset reallocation strategies specifically designed to address excess inventory, and have developed strong channel relationships. Supply chain specialists such as Converge work with their partners to incorporate different levels of the supply chain and a range of unique services into inventory optimization strategies.

To effectively manage excess inventory, supply chain specialists can employ the following strategies on behalf of EMS providers, OEMs and service depots:

  • Asset reallocation
  • Testing and screening
  • Data destruction
  • System teardown and parts harvesting
  • Refurbishment
  • Spare parts management (SPM)
  • Product returns management (PRM)
  • Vendor-managed inventory (VMI)
  • Kitting programs
  • Market intelligence

Within the range of reverse supply chain strategies, three services stand out for their potential impact on the bottom line:

Product ID, Classification, Testing and Refurbishing: These tasks help to identify the product, its quality and restrictions. This service implements the strict multipoint quality control tasks necessary to refinish and test a product to ODM or OEM specifications and maximize value.

Reconciliation and Reporting: Supply chain specialists will offer the ability to reconcile any given shipment at any stage of the process life cycle, and provide real-time reports for an end-to-end chain-of-custody view.

Reverse Fulfillment: This service steers excess inventory or customer/depot returns back to the supply chain to be used in the service spares environment. Centralized stock views are updated in real time, enabling a more efficient, cost-effective organization.

There are, of course, scores of reverse supply chain services that could add value to the bottom line. The takeaway I'd like to leave you with is that even a small shift in focus can turn an excess inventory issue with floating values and interpretations into a solid financial asset. By optimizing excess inventory through a supply chain partner’s asset reallocation program, organizations can reduce inventory liability and exposure, maximize revenue recovery, and reduce operational costs – all while maintaining total customer satisfaction.

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