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How to Determine Price to Sell Your Excess Inventory

How to Determine Price to Sell Your Excess Inventory

The Excess Estimator interface in use

The global semiconductor supply chain has been through a lot in the last few years. Extensive growth thanks to burgeoning technological advances, shortages born from Covid-19 lockdowns, and the rising number of components in automotive and other industries has lengthened the supply chain. The industry hasn't been able to catch its breath and probably won’t in the coming years.  

Throughout 2020-2022, everyone from consumers to supply chain leaders were waiting for a supply-demand balance. After years of demand outpacing predetermined chip production capacity at original component manufacturers (OCMs), equilibrium, or anything close to it, was eagerly anticipated. When consumer demand began falling in 2022, there was hope that lead times and component pricing would start to decrease.  

That did not happen. Instead, dropping demand quickly plummeted before OCMs and original equipment manufacturers (OEMs) could adjust. Chip-making giant TSMC warned clients in June 2022 not to double order and to be careful of excessive buying when demand was still relatively high. The bullwhip from insatiable demand to no demand came far more quickly than expected, with OEMs and OCMs scrambling in Q3 and Q4 2022 to cut production and cancel orders.

OEMs approached the 2022 holiday season with a flurry of sales and promotional advertisements to digest already-produced inventory. It was an attempt to quickly sell off stock before 2023 started, and spending would dry up. While there was impressive growth during Black Friday sales, it didn’t resolve the growing challenge the industry is now grappling with.  

Excess stock was building before 2023 but has been rapidly gaining since. According to experts, excess inventory is expected to peak later this year by Q3 2023. However, as with the shortage downturn, excess is affecting the semiconductor supply chain unevenly. Some OCMs, particularly those with a larger capacity for legacy nodes often used by the automotive industry, are still dealing with shortages–and will be until 2024 at the earliest. For those struggling with excess, the DRAM and NAND flash markets are seeing the most significant build-up.

South Korea is grappling with the largest influx of excess inventory as its main export is DRAM and NAND flash chips. Samsung Electronics and SK Hynix, two large memory OCMs, based in South Korea, have been forced to cut production–something the former never does–to avoid exacerbating the problem further.  

Consumer demand is still low, and as the primary driver of sales in the semiconductor market, recovery will depend on consumer spending. For now, macroeconomic pressure from inflation, geopolitical tension, energy crises, and more is keeping it subdued. Meanwhile, the voracious demand for automobiles, particularly electric vehicles (EVs), is feeding the automotive chip shortage.  

Those left with excess inventory are now struggling with mounting inventory holding costs to store components correctly. Components are susceptible to humidity, temperature, and electrostatic discharge (ESD); if not stored correctly, they degrade faster over time. OEMs are now left with a difficult choice.

Do they hold on to excess inventory, racking up further inventory holding costs and risk chip degradation, which will likely affect their products, or do they try to offload stock some other way? Many OCMs are refusing to take back excess inventory orders for this reason, especially now that many, including giants like TSMC, are facing a flurry of cancellations. TSMC has been offering clients a chance to cancel existing orders for compensation or renegotiation of previous production capacity deals. Some large OEMs can afford this offer, as it is cheaper to pay TSMC to accept the canceled order than pay for warehouse space while waiting for a demand uptick.

Many others cannot. Those that can’t are left with a limited range of options.  

OEMs, original design manufacturers (ODMs), contract manufacturers (CMs), electronic manufacturing service providers (EMS), and others can trade their excess inventory with another manufacturer. Manufacturers could utilize the excess inventory in other products experiencing higher demand if the excess acts as a form-fit-function (FFF) alternate. However, many industries with stringent requirements might not have the same leeway to replace components.  

Another option for manufacturers is to sell their excess stock. Unfortunately, for many, selling excess stock can be a lot more complicated than it sounds. One major stumbling block for OEMs and others attempting to sell their excess inventory is figuring out how to accurately price their surplus in a way that maximizes their return but is based on market pricing trends.  

Why is it Difficult to Decide Price for Excess?

Pricing trends in the semiconductor industry are in a rapid state of flux. The semiconductor shortage and sudden drop in demand have contributed to various price increases and decreases over the last several years. In June 2022, before the market started its downward trend, EPSNews reported that over the previous quarter, component prices had jumped between 5% to 40%. Over 2021-2022, foundries reportedly raised prices by 10% to 20% and were considered more in the latter half of 2022 by 5% to 10%.  

Through Q4 2022 and Q1 2023, many did. While grappling with excess, Samsung Electronics saw 10% price increases on some lines. Intel, like other OCMs, raised prices on specific processors by 10%, citing $500 million in lost revenue over 2022 as a reason for the price increase. Even with excess inventory growth set to continue, many OCMs are still looking at further price increases throughout the rest of the year, such as TSMC, which might raise prices an additional 6%.  

Raw material shortages, the European energy crisis, inflation, and other macroeconomic pressures will likely impact component market trends. All of which contribute to the current challenge for manufacturers with excess inventory. How do you price your stock if the market is continually fluctuating?  

Unfortunately, manufacturers cannot sell the stock for the same price it was bought for during the peak of the semiconductor shortage. Those prices are no longer an accurate reflection of what is a feasible selling price. For example, in 2021, Arista Networks and Juniper Networks reported prices across the market space increasing between 15% to 200% for some materials and components. Lead times on some lines reached up to 80 weeks for final delivery in May 2023. Now that stock is arriving, and may not be necessary, but the price it was bought for in 2021 won’t sell in 2023.  

To accurately price excess stock to maximize your return and do it quickly, one would need a way to monitor real-time market data to examine current conditions and forecast future changes. Many OEMs and others do not have the tools or time to determine the price and sell their excess inventory. Especially now when the industry is currently split between chip scarcity and glut. But who has the tools to quickly estimate the maximum price you can sell your excess for that is both accurate and inexpensive?  

Sourcengine does.  

Excess Inventory Estimator

It’s called the Excess Inventory Estimator. It is currently the only tool on the market to quickly evaluate your excess stock to formulate a price based on real-time market data. Rather than basing the selling prices on the original purchase price, which has been subjugated to previous inflation costs, it estimates prices based on market pricing at the time of your upload. That ensures the price you receive is a far more accurate outlook than other pricing methods.  

Better yet, the Excess Inventory estimator allows users to quickly estimate the maximum price of their part and what it could sell for as excess on Sourcengine’s global marketplace. Offers can still be listed on Sourcengine without a price if you choose to forgo our estimator, but set prices sell far more frequently than those without.  

Let’s say you have a better idea of what you want to price your components for based on your company data. You can set a “Target Sell Price” before running an estimate on your excess. Once calculated, you can see how your target sell price compares against market pricing. Likewise, you can also upload the amount of stock you have during your estimate by inputting “Quantity on Hand.” If that section is completed, you can see the total opportunity represented for the part and its stock through multiplication.  

Did we mention this estimate is given freely at no cost to the user? Once you obtain your estimate, you can easily export this information to share with your organization or utilize it in other tools, such as your estimate resource planning (ERP) system. You can also send this estimate to Sourceability to open a discussion on how to begin selling your excess. You can access the Excess Inventory Estimator through Quotengine, our BOM management tool.

The shortage and chip glut has been difficult for many within the industry, and the last thing we want to do is make it harder for manufacturers to reach the supply-demand balance we’ve all been chasing.  

Selling on Sourcengine

Now that you have your estimate on your excess stock, it’s time to sell it. The best way to sell it is on a global distributor’s e-commerce site, as they have the staff and marketing capabilities to quickly get your excess stock in front of interested buyers. Sourcengine is one of the largest component marketplaces offering four different selling methods for users.

The first is through a focused bid feature for excess material liquidation. Your excess inventory is uploaded to Sourcengine, among similar offers on our live site visited by over 100,000 professional buyers. Buyers can bid directly on your excess stock in one place. Buyers, like excess sellers, have a streamlined buying process to purchase excess.  

As the excess owner, you decide the final sales price from the bid. Once accepted the buyer will check out while Sourceability handles the logistics, quality control, billing, and shipping.

However, the bid option doesn’t work for everyone. So, Sourcengine offers three other types of participation models based on your needs.  

  • Model 1: You get to feed the price and availability, which Sourceability then buys at your set price, which we then sell without markup. Sourceability only receives the excess stock when a transaction occurs.  
  • Model 2: Sourceability purchases excess stock from you, the seller, at your set price, which is then marked up and sold. Sourceability only receives the parts when a transaction occurs.  
  • Model 3: You ship and consign your excess stock to our Sourceability warehouse. You will continue to own the excess inventory on the books until it is sold, while Sourceability sets the price.  

Sourcengine doesn’t need any technical information, date codes, sales price, and other component data to begin selling your excess inventory. We only need the component you wish to sell and the manufacturer. Everything else just helps our experts a little bit more. Sourcengine’s indexed and discoverable product detail pages (PDPs) can be found on popular search engines such as Google, Bing, and Baidu- all of which your excess inventory offers now get to enjoy.

Each component sold through Sourcengine is put through a three-step vendor qualification process to minimize the risk of counterfeit components so our buyers can buy confidently. Sourceability is certified with ANSI/ESD S20.20, ISO 14001, 1S0 9001, and ERAI with an excellent quality management system across our global distribution warehouses. Finally, Sourcengine’s liability insurance policy and comprehensive coverage plan protect you and your buyer.  

Excess stock is expected to peak later this year before demand starts to pick back up quickly. Now is the perfect time to sell your excess stock at the best price before the market recovers completely. Get started selling your excess on Sourcengine today.  

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Strategize for upcoming market shifts through lead time and price trends with our quarterly lead time report.
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