Classic Components’ Mike Thomas explains how independent distributors are managing surplus inventory, offering financial solutions and helping reduce costs
With the supply chain disruption of recent years in the rear-view mirror, the market is beginning to stabilise. However, the work has only begun. With hard-earned lessons from the pandemic, many manufacturers are securing their supply chains and preparing for future disruptions. They want to do so at reduced cost and capital outlay after paying a premium for parts over several years.
Classic Components’ VP and global general manager, Mike Thomas, said: “We just went through one of the biggest supply chain disruptions in history outside of a world war. Now, things are starting to settle down. Interest rates have risen sharply, which is having the expected result of slowing the economy and so demand is down. However, the supply chain is still highly vulnerable to present and future disruptions.”
Covid related supply chain shortages were not the only disruption to affect global manufacturers in recent years. In 2018, there was a worldwide shortage of multi-layer ceramic capacitors when demand outpaced supply. At the time, 60 per cent of the world’s production of MLCCs was controlled by three suppliers. Even now, there are components in short supply due to the limited number of suppliers, geopolitical trade tensions and ever-changing technology.
Thus, manufacturers are taking steps to secure the supply chain over the long run. A key strategy is to be less dependent on China and more diversified in sourcing components.
There will also be a continued role for independent distributors. When franchised/authorized distributors were not able to supply the required parts, independent distributors played a critical role in helping keep many manufacturers’ production lines running. Independent distributors can leverage their expertise and strategic relationships to find alternate sources through regional authorized/franchised distribution, manufacturer direct or surplus/excess inventories.
Many manufacturers are sitting on excess inventory due to stockpiling and multiple ordering. After paying exorbitant prices over recent years to secure parts, many manufacturers are also looking to reduce costs further, even as prices drop. Some are exploring the financial services some independent distributors provide to minimise cash outlay while ensuring access to inventory.
Reducing excess inventory
When manufacturers faced long lead times, many double, triple or quadruple ordered since they did not know who was going to deliver first.
Thomas added: “Now that all these parts were delivered, some manufacturers have excess inventory and aren’t sure what to do with it.”
If it is true dead stock, an independent distributor like Classic Components can help liquidate the components and get them off the books through various arrangements. This type of service can be initiated with a simple email list of surplus items with the original pricing.
Classic Components then searches its database to see if other customers use those parts and can broker a deal.
Classic Components can also list and sell surplus inventory on consignment with, or without, taking physical possession of the inventory.
Thomas continued: “Essentially, after coming to a consignment agreement, the list of items is uploaded to our website. We offer complete transparency throughout the consignment process. As we receive inquiries, we share the information so you can decide whether to sell [your surplus] at the offered rate.”
Classic Components may even opt to purchase the inventory outright to resell later.
With costs rising and inflation still not under control, manufacturers are looking to reduce the expense of procuring parts. Some independent distributors have found ways to lower the cost of parts by leveraging their global relationships.
For example, Classic Components procures material in its local markets and is not bound by regional price constraints. With its global network, the distributor can purchase in local markets that offer the lowest prices and pass the savings on.
Thomas explained: “By using regional quality centres and logistic hubs, we have the flexibility to purchase components from any country, in any currency, and then ship them to anywhere they are needed.”
Customised financial services
To improve manufacturers’ cashflow, independent distributors like Classic Components offer tailored programs of vendor managed inventory, which can simplify logistics, reduce total cost of ownership and enable the redirection of capital to other spending categories. In some cases, they can make speculative purchases for a customer and/or provide financing to purchase inventory when a qualified client has capital constraints.
Thomas said: “Financial and logistical services can be customised to the manufacturer’s particular needs and situation, which may evolve over time. The goal is a win-win partnership that mitigates their capital and logistical concerns.”
Protecting against future disruptions
The up-and-down nature of the market means manufacturers need to prepare today, for whatever will come next
Thomas concluded: “What happens in a year when the Federal Reserve decides to lower interest rates? There is still an incredible amount of pent-up demand. When the economy begins to return to normal it may not be like it was during covid, but a spike in demand will cause shortages again.
“You want to have that relationship with a partner that is flexible enough to shift gears in a moment’s notice. You may be in shortage mode on Monday, and then Tuesday, you have excess and want help selling it. Then on Wednesday, you decide you don’t want to sell any more and prefer we loan you money against it.”