The OEM (original equipment manufacturer) and EMS (electronics manufacturing services) model is tried and tested.
However, who in this partnership is responsible for excess and obsolete (E&O) component inventory? This article explores the answer with insights from Component Sense inventory management expert Monika Simionescu.
The relationship between OEMs and EMSs
The OEM designs, develops, and owns the intellectual property (IP) of the end product (think Apple), while the EMS takes care of assembly and manufacturing and manages the supply chain to ensure smooth production (think Foxconn).
The EMS typically does PCBA (printed circuit board assembly) for the OEM, so the OEM can focus on innovation while the EMS handles production, managing the supply chain, and component sourcing.
"There is often a long back-and-forth process between EMSs and OEMs, negotiating how much excess stock can be taken back and at what price. OEMs sometimes believe their stock could be useful for another project, but this is often not the case," explains Monika.
There are many benefits for both sides of the arrangement from working together.
For the OEM:
- Lower operational, procurement, and warehousing costs by not having production in-house
- EMSs have set up production lines for a faster time-to-market
- OEMs can focus on research, development, marketing, and sales
- Having multiple EMS partners reduces supply chain risks
- OEMs benefit from the economies of scale and global supply chain network of the EMS for procurement
- OEMs simplify their supply chain by not coordinating with suppliers and managing warehouses
For the EMS:
- Long-term contracts with OEMs create consistent revenue for EMSs
- Diversification across OEMs reduces sector-specific risks and downturns
- EMSs can provide post-manufacturing services for various industries for additional revenue streams
- Bulk purchasing enables cost savings through economies of scale
- EMSs can focus investments on the latest cutting-edge production technologies to remain competitive in the marketplace
So, who owns the E&O stock?
"It depends on the company, the customer, and the project. The parts could be customer-owned (owned by the OEM) or EMS-owned. Once a project is finished, I often see both parties avoiding responsibility. Usually, the EMS pushes E&O stock back to the customer or OEM because they do not want to deal with it, and vice-versa,” says Monika.
Excess stock often arises due to sudden OEM design changes, leaving EMSs with unusable parts. OEM over-forecasting is another frequent cause of surplus inventory.
“In some cases, an EMS will hold onto stock for years, but they usually do not end up using it. If the EMS does choose to eventually sell the surplus electronic components, instead of scrapping, they often send excess stock to brokers who cherry-pick high-value parts. This is generally so that the broker makes a profit rather than addressing the actual E&O issue as a whole," outlines Monika.
The right way to manage E&O inventory
Electronic components depreciate quickly due to their delicate nature and rapid technological advancement. Thankfully, accurate forecasting and inventory management — as well as acting early to redistribute E&O stock — can help prevent it from becoming waste.
Electronic manufacturers often hold E&O stock worth 10% of their annual revenue. It is crucial to recover as much of the original component cost as possible. Maximising returns also incentivises OEMs and EMSs to manage E&O ethically and early. Agreements can be made to collaborate and handle surplus stock in a joint effort.
E&O redistribution is one of the most effective ways to manage excess inventory. Rather than incurring landfill fees and contributing to pollution, selling surplus electronic parts on the secondary market ensures components are used as intended while recovering value for their original owners. This also prevents unnecessary electronic waste.
"If parts are not for medical or automotive applications, they can usually be redistributed regardless of the date code. OEMs know approximately when a project will be completed. At this stage, they should contact Component Sense to think ahead, confirm demand, and allow us to analyse and begin the process early," explains Monika.
Turning E&O into revenue with Component Sense
The responsibility for E&O stock ultimately depends on OEM-EMS agreements. The best time to plan redistribution is as soon as a project’s completion date is confirmed, ensuring parts go to market early to maximise returns.
Component Sense is a trusted secondary market partner for tier-one OEMs and EMSs worldwide.
With our Consignment solution, we market and sell your excess slectronic components over time, while you receive monthly payments. You retain stock ownership, providing flexibility if your needs change. Our partnership with global logistics company DSV also means the stock can be stored off-site (but still local to you) at no extra cost.
"E&O stock can easily be redistributed to smaller companies with the help of Component Sense. We remove the hassle and take care of everything," says Monika.