The shortage will come to an end. While the past few years have seemed everlasting, one thing is certain. Shortages, no matter how terrible, do not last. For some industries, there will still be a few months to a year of supply constraints but softening demand and negative sales growth across component markets mean one thing.
Scarce inventory will no longer be a problem. That doesn’t mean the industry is out of the woods yet. A bigger and more complex challenge lies just around the corner.
It is excess inventory.
What is Excess Inventory?
Excess inventory is exactly what it sounds like. It is possessing more inventory than is necessary to meet current product demand. For certain industries, excess inventory while troublesome is not inherently damaging to a company’s bottom line. That is not true within the electronic components industry.
Why? Every electronic component has a lifespan. These lifespans vary depending on the electronic component. Consumer electronic components have shorter lives than automotive or medical components. Consumer products have fast turnaround times, such as Apple iPhones where new models are released every year. Medical components, such as pacemakers, are expected to reach 20 years.
One fact remains the same between them. These components, even if not used, deteriorate over time.
Eventually, again depending on the industry, they will need to be discarded. This includes components that have sat in storage, even if they never touched a production line. They too, once they reach their “best by” date, can no longer be used in products to go to market. Reliability and performance are the biggest issues in electronic components that naturally decay over time.
How Does a Shortage Cause Excess Inventory?
A shortage does not necessarily mean a period of excess is assured when it ends. What makes the 2020-2022 chip shortage special are the events that happened during the shortage. These occurrences have led to a greater likelihood of a glut arising after the shortage peters out.
The chip shortage we have been battling for the last few years started for a myriad of reasons. Some of the largest factors that contributed to its existence were the Covid-19 pandemic shutting down semiconductor fabrication plants, numerous industries canceling chip orders, demand skyrocketing for consumer electronics as the work-from-home (WFH) model rose, and many companies double ordering from various distributors out of panic.
These same reasons are why excess inventory is becoming an issue. Massive lead times for certain components resulted in organizations panic buying. Some chip makers, after having so many orders canceled through the early days of the pandemic, no longer allow the option to do so.
Semiconductor manufacturers worked around the clock to speed up production during 2021 and 2022 to meet demand. Despite the loss of qualified personnel to Covid-19 lockdowns and the Great Resignation, chip makers did all they could. Then as quickly as it came, orders started to drop. And boy, did they drop hard.
Worries about a global recession have led to blows in sales growth, especially for consumer electronics. The same industry that has electronic components with the shortest lifespans. Chip makers are frantically trying to slash production, to avoid too much glut, but dozens of companies are being left with orders they no longer need fulfilled.
Everyone is now asking the same question. What do they do with their excess inventory?
Selling Your Excess
Electronic components are, ironically, very fragile things. Most, if not all, electronic components cannot simply be placed in a box in a standard warehouse to sit. Electronic components require specialized warehouses that can properly store them in a way that doesn’t expose them to electrical static discharge (ESD), keeps them at temperature, and provides environmental protection from weather phenomena like humidity.
Most do not have dedicated warehouses or staff to manage and store their excess inventory. These facilities are an added cost that holds no worthwhile value during normal operating periods that aren’t marked by shortages or excess. That would be on top of the lost revenue that comes from having excess inventory during a period of negative sales growth.
This is without taking the price hikes chipmakers such as TSMC have recently put on components. These price hikes are in response to rising shipping and material costs for producing chips. After years of production stalls, worthless excess inventory could be the final nail in some OEMs' coffins.
Luckily, there’s a solution.
Excess inventory can be sold off. While some OEMs are facing negative sales with fresh orders arriving, others are still coping with chip constraints. Selling excess inventory kills two birds with one stone. Manufacturers that are selling the excess can regain some if not most of the lost profits spent on orders. Manufacturers buying excess will be able to get necessary chip orders at a discounted price over the inflated costs of new ones.
But how do you sell? If it’s a headache to manage excess inventory so it doesn’t deteriorate faster than its lifespan, can you imagine the pain that comes from selling?
As it turns out, there is an answer to that problem too.
Sourcengine Wants Your Excess Inventory
Sourcengine is one of the largest global component marketplaces for electronic components that allows users to sell their excess. For those that are short on time and with little budget to market their own products globally, Sourcengine does it for you.
Do you need all the information on your components or a lot of time to start? Nope. All Sourcengine needs is the part you want to sell and the manufacturer. With that information, Sourcengine’s knowledgeable and global team of sales experts will get your excess up and on the marketplace.
More details, such as the date code, always help but are not necessary to get started. Send us your parts and we’ll help you set the price. After shortage constraints, inflation, and geopolitical tension disrupting the global supply chain everyone deserves a break.
The shortage might be over soon, but that doesn’t mean the chip industry will get the stabilization it needs. During the oncoming chip glut, persistence will be key. Knowing when and how to sell off excess components during their short time frame will result in less damage to your company's revenue.
It’s a good thing that isn’t a problem with Sourcengine’s sell your excess feature.