“The first rule of fight club: YOU DON’T TALK ABOUT FIGHT CLUB.”
“The second rule of fight club: YOU DON’T TALK ABOUT FIGHT CLUB!”
Every time the topic of excess materials is mentioned, I am reminded of Brad Pitt’s quote from the famous 1999 movie “Fight Club.” No one wants to talk about excess because no one wants to deal with it. However, when we don’t address the problem of excess early, it actually leads to more uncomfortable conversations about this perpetual supply-chain pain point.
In my many years in the contract manufacturing industry, I have attended countless meetings with customers and upper management to discuss and debate who ultimately owns the excess-inventory created by customers’ changing demand and how we could resolve this recurring issue. The constant struggle to determine who owned the excess-inventory strained customer/supplier relations and wasted valuable time on unproductive meetings, adding to a program manager’s already long 10- to 12-hour workday.
Sometimes customers agreed to assume responsibility for the excess materials, which helped clear space in my company’s warehouse. However, the excess problem just transferred and wasn’t really resolved, because the materials were moved to the customers’ facilities, taking up valuable space. They often ended being scrapped at a later date.
Today’s excess inventory process
The current procurement process of electronic components is this: The company orders materials based on customers’ demand forecasts, uses what it needs to make the products, then stores the excess parts in the warehouse. If there is no future demand for those excess parts, those materials usually sit there. When the excess materials accumulate to the point where there is no more extra room in the warehouse and the company can no longer ignore the issue, the excess parts are often scrapped, written off, or liquidated at a fraction of their original acquisition costs. And the process repeats.
Companies that try to do the right thing to save the environment and keep electronics waste out of the landfill by selling them to brokers usually find that the cost recovery is so low that they deem it not worth the time and effort. The other problem is aging and obsolescence. Since the materials have a shelf life, other companies may not want to buy these materials at all if they are too old or obsolete.
According to EPSNews, excess and obsolete inventory is a multi-billion-dollar problem. So why are companies ignoring this huge problem? Is it a resource allocation issue? Is it a cost-recovery issue? Is it the complex and time-consuming process of getting rid of the excess materials? There must be a viable/workable solution to eliminate or at least alleviate this perpetual supply chain pain point!
How does you company deal with excess materials? Maybe it’s time to talk about it.