September 28, 2011

Three Ways to Recover Value from Surplus Inventory II

Part Two of Series: Consignment

In our last post, we discussed the benefits of using an outright buy option to recover value from your surplus inventory, which includes finding someone to buy obsolete parts. Now let’s take a look at the consignment option. To simplify, we will start with a comparison.

In the last decade, consignment shops have become a popular way for families to resell expensive and unused child-rearing gear that they no longer need. The family leaves the unneeded items in the consignment shop. If the store is able to sell the items, the family receives a percentage of the sale. Buyers are delighted to find valuable items for less than retail cost, and the family is pleased to recover value from the unneeded items with almost no effort.

Consignment of surplus electronic components works very much the same way. If you find yourself with excess electronic parts, but you don’t think that you can maximize its value through an outright sale, you can consign the products to Converge. We receive, reconcile, inspect, and stage the products, while your company retains ownership, complete visibility, and control of each line item – down to the resale price if you choose. Then our commodity experts put their
market intelligence to work for you, scanning the globe for buyers who may need the parts you have in surplus. When we find a buyer, we take care of the details. Then your company gets the majority of the proceeds, which enables you to recover a significant amount of value from items that otherwise may have been scrapped.

The consignment option is very similar to Converge’s third option for recovering value from surplus: taking advantage of our leverage program, also known as “demand” opportunity. What is the major difference between the two, and which option would work best for your company? We hope to answer those questions in Part Three of this Series: Consignment. 

If you missed Part One: The Outright Buy you can read it now.

September 14, 2011

Three Ways to Recover Value from Surplus Inventory I

Part One of Series: The Outright Buy

Every OEM and contract manufacturer has been down the same road at least once: you order the parts needed to build a specific product and then the plan unexpectedly goes off track. The forecasts change, the customer cancels, newer technology is introduced…whatever the reason, you are suddenly left with surplus inventory that you can no longer utilize. Now it becomes a liability on your books. The challenge is, what is the best way to handle the situation?

You can try to return surplus inventory and obsolete electronics to the manufacturer or franchise distributor, and you will likely end up paying a restocking fee if you are able to return it at all. If that doesn’t work, you can check to see if the materials can be used by another internal project. If those two options don’t pan out, some companies will resign themselves to taking a loss on the inventory and go into scrap mode.

OR…you could partner with an independent distributor like Converge to consider other possibilities. Converge offers
three different ways for companies to recover value from surplus inventory: outright buy, consignment, and our leverage model, also known as “demand” opportunity. In this blog series, we will explain and differentiate these options, starting with the outright buy.

In an outright buy, a manufacturer sends Converge its surplus inventory list. Converge’s commodity managers review the list, determine what the products are worth on the current market, and then may make an offer to buy the inventory outright. This is the perfect option for a company that wants to unload the surplus immediately. Keep in mind that if you are an OEM that owns surplus sitting in a contract manufacturer’s warehouse, you are probably paying storage costs for that inventory.

In addition, there is the potential for depreciating technology due to price erosion and product freshness factors. So the longer the inventory sits, the more money you stand to lose. With the outright buy option, Converge takes the excess electronics component inventory out of your hands and off your books, and you are free to focus on other matters.

One drawback of the outright buy is that your product mix may be moderately liquid, which could negatively affect your buyout amount. If your independent distribution partner is unsure about the return on investment due to market conditions, product condition, date code, or other risk factors, the buyout offer will be lower than if the risk were being shared by both parties. If this is the case, risk-sharing options such as consignment or demand opportunity might be a better choice for recovering value from your surplus. We will explore the topics of consignment in part two and demand opportunity in part three of this series.