How EMSs Can Help Their OEMs with E&O Inventory

Excess and obsolete (E&O) electronic component inventory often accumulates quickly given the sometimes complex relationship between Original Equipment Manufacturers (OEMs) and Electronics Manufacturing Services (EMSs).

These two parties enjoy a mutually beneficial relationship, where the OEM designs and owns the product, while the EMS takes care of production, assembly, and supply chain management. This allows each company to focus and perfect what they do best. However, sometimes, challenges arise regarding inventory.

E&O inventory management depends on several factors, including ownership, location, and partner relationships. In some cases, the OEM may own the inventory outright and store the stock in their own manufacturing sites or warehouses. This is typically the case for manufacturers that perform printed circuit board assembly (PCBA) in-house. 

Alternatively, the OEM and EMS might share ownership and rely on the EMS for storage and inventory management. If an OEM outsources their PCBA to their EMS provider, the EMS usually owns (or partially owns) and stores the parts.

EMSs often over-forecast demand to safeguard production, on the other hand, OEMS sometimes change product designs mid-process. Both scenarios leave EMSs with unused stock. This guide will explore ways OEMs can support EMSs in managing excess inventory to ultimately reduce electronic waste (e-waste) with insights from excess and obsolete expert, Morag Dine.

Risks of poor inventory management

While holding on to surplus stock may seem like a safe approach, in the long term, this stockpiling can create issues.

• Financial risks: Components cost resources to store. Plus, electronic parts are a quickly depreciating asset.
• Storage headaches: Excess parts that are unlikely to be used take up valuable warehouse space that could be utilised for higher-value components.
• Environmental harm: If left untouched, E&O stock is highly likely to be disposed of and contribute to e-waste.

"Some EMSs charge OEMs monthly storage fees, ranging anywhere from 0.01% to 2% of total inventory value. If E&O is not sold quickly, it becomes a financial liability instead of an asset for OEMs," explains Morag.

Ways EMSs can support OEMs with E&O

Understandably, OEMs can be reluctant to redistribute excess inventory as it does not directly impact their profitability. For them, redistributing stock takes time and resources, and they perceive it as risky if they still need the parts in the future. Disputes over responsibility for surplus stock can occur between both parties, straining relationships.

"EMSs often push the excess stock back to their OEM. However, OEMs generally hesitate to take the inventory back, hoping it may be useful for another future project, but this is usually not what happens," outlines Morag.

At Component Sense, we have experience working with OEM and EMS clients to redistribute E&O electronic component inventory. Here are some considerations for how EMSs can help their OEM customers with their E&O to save money and warehouse space. 

Balancing profitability and long-term relationships

Instead of prioritising short-term gains, OEMs and EMSs should collaborate to manage excess inventory effectively. The lifetime financial value of a fruitful partnership with an OEM significantly outweighs taking storage fees and potentially losing business in the short term.

Flexible storage agreements for surplus stock can make it easier for E&O to be redistributed and also build the trust of your OEM to encourage repeat business. Do not fear — there are ways to replace the storage fee revenue stream for EMSs. More on that soon.

Transparent pricing and communication

Some EMSs purchase large volumes of components through franchised distributors and chip makers to benefit from economies of scale and better pricing. However, this stock, purchased at a discounted price, is sometimes resold at market value — or, screen price — to their OEM customers.

In some cases, EMSs may not be transparent about pricing and hesitate to share supply chain information with OEMs because they purchased the parts at a lower price. This closed-book policy and the preference for one-off inventory payments can lead OEMs to assume a conflict of interest and feel hard done by.

"Instead of presenting a large final bill for E&O stock, EMSs could offer monthly instalment plans for OEMs to reduce financial strain and allow for inventory to be sustainably redistributed over time," explains Morag.

Ultimately, transparency and a more supportive partnership discourage practices that may result in excess inventory accumulation. Regular stock reviews to align on forecasting and transparent pricing will also minimise overage.

Leveraging inventory management specialists 

Companies like Component Sense specialise in managing and redistributing E&O component stock for both OEMs and EMSs. A traditional broker will typically cherry-pick high-value items and may provide a cash bid of 5-30% of your stock’s actual value. However, Component Sense addresses your entire E&O problem by redistributing stock over time for optimal returns.

"Component Sense can take full responsibility for managing E&O stock on behalf of EMS providers. We can act as mediators to ensure the best possible outcome for both parties," says Morag.

Component Sense’s Consignment solution can recover up to 60% of your stock’s market value. Selling excess at actual cost (the original bulk purchase price) accelerates sales.

With Consignment, we can uplift your inventory within 48 hours for storage in a local warehouse at no extra cost. This means stock can be retrieved quickly if needed, and your warehouse space is freed up, whether the E&O is being managed by the OEM or EMS.

Collaborate to reduce e-waste

Prioritising long-term relationships with OEM customers fosters collaboration in managing E&O inventory. Strategic inventory management prevents excess and ensures timely redistribution while stock retains value.

In many cases, Component Sense works with EMSs to assist with redistribution across all of their OEMs. This improves efficiency and is a great way for an EMS to prove its commitment to its supply chain partners and the environment.

At the end of the day, E&O component stock is a shared responsibility. By working together, we can prevent the creation of unnecessary waste.