Who said spring cleaning only had to be done once a year? Kicking off the new year strong means saying goodbye to unwanted stressors and hello to new resolutions. Over 2023, the electronic component market saw a significant downturn in orders as consumer demand tapered off. Macroeconomic shifts had been building in late 2022, working against the explosive growth the industry saw during the peak of the global shortage. Then, it all came to a head.
Over the last year, companies have suffered across the electronic component supply chain. Original component manufacturers (OCMs) were often prompted to initiate strategic production cuts–especially for memory manufacturers in DRAM and NAND–to keep from further hemorrhaging capital. Original equipment manufacturers (OEMs), contract manufacturers (CMs), and electronic manufacturing service (EMS) providers alike quickly watched their safety surplus transform into a liability. After weeks and months under threat of shuttering production lines from insufficient components, many were left up to their neck in orders they could no longer return.
Overall, 2023 was a challenging year for many industries, with macroeconomic pressures contributing to a downturn in consumer confidence. The market is expected to rebound in 2024 but much slower than the explosive growth in 2021-2022. The electronic component industry is notoriously cyclical; eventually, it will turn around.
However, just because excess inventory results from a usual market downturn doesn’t mean holding on to it is a good idea.
Why 2023 Was the Year of Excess Electronic Component Inventory
During the semiconductor shortage, an often used but not highly recommended option for companies to try and circumvent production stalls was through double ordering. Double ordering is the process of placing the same orders multiple times to increase inventory and often canceling all but the necessary orders later. While OEMs, CMs, and EMS providers double order to prevent manufacturing shutdowns during component shortages, it prolongs constraints and increases the risk for excess challenges later.
During the 2018 multi-layer ceramic capacitor (MLCC) shortage, Joseph Moore, an analyst at Stanley Morgan, explained that double ordering was inflating the market with fake demand indicators. In a report by Stanley Morgan, 70% of distributors thought that chip sales were up in Q1 from the previous quarter, compared to the 57% who predicted growth in Q1 of 2017. When one looked at the actual findings, the figures were far less promising, pointing to increased double-ordering activity overshadowing true industry growth.
Over the 2020-2022 global semiconductor shortage, much of the same occurred. Double ordering by manufacturers happened on a much grander scale due to the widespread constraints impacting almost every industry. Demand was at an all-time high, but it was hard to determine where genuine orders ended and double orders began.
Market demand trends in the electronic component industry are vital in determining production capacity for the coming years. For OCMs, if demand grows, then steps must be taken to ensure production capacity is available for clients in the next year, with some room for projected growth. Same for vice versa. OCMs will lower production capacity and prioritize more lucrative lines when demand falls.
During the semiconductor shortage, double ordering gave false demand signals to OCMs. Believing there was more demand than there truly was, OCMs increased their output, and some even made orders non-cancelable to prevent further client cancellations of other double orders. When consumer demand suddenly dropped off in late 2022 as macroeconomic pressure led to declining consumer confidence, many OEMs, CMs, and EMS providers were left with up to 6 months of excess electronic component inventory.
The Added Costs of Excess
Excess electronic component inventory is a problem that needs quick mitigation. Unfortunately, for many OEMs, CMs, and EMS providers, holding on to excess inventory is not a task they can manage or afford. Electronic components must be appropriately stored to be safe from weather or electrostatic discharge (ESD). This means having warehouses and staff that can store excess inventory correctly without putting it at risk of faster deterioration.
That is costly.
Specialized warehouses, trained staff, and extra protection are additional fees on top of the initial stock purchase. The longer a company holds onto surplus inventory, the more capital is diverted to maintaining storage conditions instead of going elsewhere to fund new organization initiatives. Restricted cash flow can be a significant stumbling block for any company, especially post-global shortage, where the financial power of many companies has been minimal.
Should components become obsolete or deteriorate beyond use in storage, some companies can only write off the occurrence as a loss. That can be a monumental setback.
With the current restrictions on financial power from the macroeconomic downturn, many organizations do not have the extra capital to waste on storing excess inventory. Similarly, offloading excess usually comes at a cost to companies that could use a return on lost cash flow.
Early last year, TSMC offered clients the ability to return orders, but it was at a price. Organizations could compensate TSMC for accepting the returned orders or renegotiate pre-existing deals. While some large OEMs, CMs, and EMS providers have the capital to choose, small and mid-sized manufacturers do not. Mitigation methods are limited for organizations that can’t cancel orders with their suppliers.
The best way to eliminate excess electronic component inventory that helps companies shed their excess quickly and return some capital is through selling it. The stumbling block that impacts organizations of all sizes trying to sell their surplus is that many manufacturers don’t have the marketing presence a component distributor does. To catch the attention of professional buyers, a website must have indexed product description pages (PDPs) that will turn up in searches.
Companies that don’t do business selling components won’t have the time or resources to build up recognition or presence quickly, making it more difficult for procurement teams to locate their offers. That can make a big difference when excess inventory builds up additional costs for every day it sits unused.
You need a distributor with an online presence, marketing resources, and easy-selling models for OEMs, CMs, and EMS providers to sell your excess inventory fast. There are only a few distributors that offer everything you need to begin selling your excess inventory.
Selling Your Excess with the Leading Marketplace for Electronic Components
Last year, Sourceability’s leading e-commerce platform for electronic components, Sourcengine, became the premier site for OEMs, CMs, and EMS providers to sell their unwanted excess inventory. To start the year with a clean slate, companies can quickly turn their excess into cash flow by beginning their sales journey on Sourcengine.
The best place to begin your excess inventory sales journey is by first uncovering the maximum return you can achieve by selling your excess. Sourcengine’s Excess Estimator is a free-to-use calculator that leverages Sourcengine’s real-time market and transactional data to determine how much your excess can sell for on the electronic component marketplace today.
For many organizations, it can be hard to uncover the actual sales price for excess inventory when inflation and other macroeconomic shifts enter the mix. The Excess Estimator is the only tool in the industry to give an accurate maximum return price based on historical market data. Once obtained, organizations can sell their excess using the estimator’s suggested price or sell on Sourcengine.
With over 100,000 professional buyers using Sourcengine for procurement, organizations can quickly expand their digital presence, having their excess stock be placed among other offers buyers search. With Sourcengine’s indexed and discoverable PDPs, your excess can be found on popular search engines like Google, Bing, and Baidu.
To get started selling your excess electronic component inventory, all you have to do is visit Sourcengine’s Sell Your Excess feature. Once there, you can sell your excess in four ways depending on your company’s needs.
The market is starting to enter a period of recovery as artificial intelligence (AI) demands help bolster sales in different areas of the semiconductor market. While growth is on the way for the semiconductor industry, the first few months of 2024 are still expected to be marked by excess. There’s no time like the present to say goodbye to unneeded excess stock than the first month of a new year.
Start selling your excess inventory and get ready for the new challenges and opportunities that come your way this year.