Ravin Electronics Detailed Explanation for Excess Management
Three Ways to Recover Value from Surplus Inventory
Part One of Series: The Outright Buy
Every OEM and contract manufacturer has been down the same road at least once: you order the parts needed to build a specific product and then the plan unexpectedly goes off track. The forecasts change, the customer cancels, newer technology is introduced…whatever the reason, and you’re suddenly left with surplus inventory that you can no longer utilize. Now it becomes a liability on your books. The challenge is, what is the best way to handle the situation?
You can try to return surplus inventory to the manufacturer or franchise Distributor, and you will likely end up paying a restocking fee if you are able to return it at all. If that doesn’t work, you can check to see if the materials can be used by another internal project. If those two options don’t pan out, some companies will resign themselves to taking a loss on the inventory and go into scrap mode.
OR…you could partner with an independent distributor like Ravin to consider other possibilities. Ravin offers three different ways for companies to recover value from surplus inventory: outright buy, consignment, and our leverage model, also known as “demand” we will explain and differentiate these options, starting with the outright buy.
In an outright buy, a manufacturer sends Ravin its surplus inventory list. Ravin’s commodity managers review the list, determine what the products are worth on the current market, and then may make an offer to buy the inventory outright. This is the perfect option for a company that wants to unload the surplus immediately. Keep in mind that if you are an OEM that owns surplus sitting in a contract manufacturer’s warehouse, you are probably paying storage costs for that inventory.
In addition, there is the potential for price erosion due to aging technology and product freshness factors. So the longer the inventory sits, the more money you stand to lose. With the outright buy option, Ravin takes the inventory out of your hands and off your books, and you are free to focus on other matters.
One drawback of the outright buy is that your product mix may be moderately liquid, which could negatively affect your buyout amount. If your independent distribution partner is unsure about the return on investment due to market conditions, product condition, date code, or other risk factors, the buyout offer will be lower than if the risk were being shared by both parties. If this is the case, risk-sharing options such as consignment or demand opportunity might be a better choice for recovering value from your surplus. We will explore the topics of consignment in part two and demand opportunity in part three of this series.
Part Two of Series: Consignment
In Part One, we discussed the benefits of using an outright buy option to recover value from your surplus inventory. Now let’s take a look at the consignment option. To simplify, we will start with a comparison.
In the last decade, consignment partners have become a popular way for companies to resell expensive and unused inventory they no longer need. The company leaves the unneeded items in the consignment partner facilities. If the partner is able to sell the items, the customer receives a percentage of the sale. Buyers are delighted to find valuable items for less than retail cost, and the customer is pleased to recover value from the unneeded items with almost no effort.
Consignment of surplus electronic components works very much the same way. If you find yourself with surplus inventory, but you don’t think that you can maximize its value through an outright sale, you can consign the products to Ravin. We receive, reconcile, inspect, and stage the products, while your company retains ownership. With complete visibility, and control of each line item – down to the resale price if you choose. Then our commodity experts put their market intelligence to work for you, scanning the globe for buyers who may need the parts you have in surplus. When we find a buyer, we take care of the details. Then your company gets the fair majority of the proceeds, which enables you to recover a significant amount of value from items that otherwise may have been scrapped.
The consignment option is very similar to Ravin’s third option for recovering value from surplus: taking advantage of our leverage program, also known as “demand” opportunity. What is the major difference between the two, and which option would work best for your company? We hope to answer those questions in Part Three of this Series.
Part Three of Series: Demand Opportunity
Ravin offers three valuable ways for manufacturers to recover value from surplus inventory. In this 3 part series, we have already learned about the outright buy and consignment options. Now we will take a closer look at the third option, which is taking advantage of our leverage program, also known as “demand” opportunity.
The demand opportunity option is very similar to consignment in that the seller receives the full benefits and expertise of Ravin’s market intelligence, operational expertise, and extensive global network. In both arrangements, your company sends its surplus list to Ravin and then we work to match the inventory to the demand that exists throughout our network. However, unlike the consignment program, Ravin does not take physical possession of the inventory being sold. The products stay with their owners until Ravin finds a potential buyer for them. If proposed terms and conditions of a sale are accepted, the products must come to Ravin to undergo quality inspections before sales are finalized and the items are shipped to the buyers. All financial reconciliation and reporting are managed by Ravin.
The demand opportunity is ideal for a company that has not previously worked with Ravin. Perhaps you would like to evaluate our capabilities and performance on a smaller scale before you consider consignment? We completely understand which is why we offer this program. Quite frequently, companies who start down this road will switch to the full consignment program as time goes by.
However, there are a few drawbacks to the demand opportunity option that companies should be aware of. Since Ravin does not actually have the inventory in our possession, we rely on the accurate descriptions that the sellers provide. Products received by Ravin must be in the exact condition expected; otherwise, the status of a pending sale could be compromised. The seller may also be required to provide additional company resources to facilitate the flow of information and approvals during the negotiation phase.
In addition, valuable time (and potentially, money) can be lost in a leveraged transaction, because it takes longer for the product to get from the seller to the buyer. The consignment program does not face these challenges, since Ravin has the chance to inspect, sanitize, and prepare inventory for shipping before it is ever remarketed. When consignment products are sold, they can be shipped out the same day, which maximizes value for the seller.
There is no one “best” option for recovering value from surplus inventory. The one you should choose depends on your company’s specific situation. The important thing to remember is that there likely is value in your surplus parts, even if you can’t use them. So before you scrap your surplus, give Ravin a call. We will help you find a solution to recover the most value in the right amount of time. All programs are completely customizable to fit your company’s business model, situation, and needs.