Why Is Excess Inventory Management Important for Electronic Component Sourcing

About Us · Events · / 2024-02-21 16:17:31

With the increasing frequency and severity of supply chain disruptions, it is not uncommon to see the global semiconductor industry face substantial challenges. Often triggered by unforeseen events such as the COVID-19 pandemic, these disruptions may escalate to shortages, adversely impacting industries that depend heavily on semiconductor chips for their production. In response to these hindrances, excess inventory management plays a part in ensuring a resilient semiconductor supply chain. Let’s take a look at how it aids in overcoming the problem.

Learn more: The Impact of Digitalisation on Electronic Components Distribution Industry

1. Mitigating Financial Risks

Excess inventory management involves maintaining surplus stocks of semiconductor components to reduce financial risks. It ensures electronic component distributors have additional inventory as buffer stocks to help cushion against sudden shortages, providing a safety net for unexpected demand fluctuations, supply chain disruptions, production delays, and other issues. While maintaining additional inventory may incur holding costs, it solidifies a distributor's competitiveness by maintaining consistent product availability.

2. Maintaining Customer Satisfaction

Like any other industry, the electronic component sector prioritises customer satisfaction to ensure sustained success. This can be achieved by offering Just-In-Time (JIT) delivery through excess inventory management. JIT delivery entails ordering goods exactly when they are needed. During this process, the combination of both strategies minimises the reliance on immediate production and last-minute manufacturing, granting distributors extra inventory and pre-stocked items to fulfil orders promptly. This streamlines the fulfilment process and speeds up responses to customer orders, especially when faced with uncertainties like demand spikes or chip shortages.

3. Ensuring Production Continuity

Another notable aspect of excess inventory management is its contribution to uninterrupted production. With the ability to secure product availability across regions, this strategy approach copes with electronic component shortages or surpluses, providing solutions against sudden shifts in demand and supply. As such, suppliers can use pre-stocked goods to handle unexpected changes.

4. Reducing the Effects of Market Volatility

By strategically maintaining excess inventory, electronic component suppliers can navigate through the volatile market, ensuring a stable and reliable supply chain. Market volatility refers to the degree of variation and unpredictability in the prices, demand, supply, and overall market conditions for electronic components. It reflects uncertainties in factors that influence the industry, such as dynamic technology trends, geopolitical events, global economic conditions, and shifts in customer demand. When market conditions are unpredictable, having surplus stocks allows for quick responses to customer orders. This is where excess inventory management becomes beneficial, increasing distributors’ adaptability in dealing with market dynamics without compromising operational efficiency.

While the semiconductor shortage has posed challenges for businesses worldwide, excess inventory management comes in handy to transform these adversities into opportunities. At Briocean, we leverage inventory turnover, market insights, and customised inventory solutions to mitigate excess for optimal surplus inventory.