Thursday, July 18, 2024

Deadstock Or Forgotten Treasure?

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In a world where technology is advancing at a breakneck speed, are the deadstock electronics components in your warehouse on the verge of becoming obsolete relics?

A typical warehouse of an electronics OEM or an EMS (electronics manufacturing service provider) is stacked with unused components—like buried treasure waiting to be discovered. But instead of riches, this treasure represents tied-up capital, logistical headaches, and missed opportunities. This is the reality faced by electronics manufacturers grappling with deadstock, a challenge that extends far beyond the confines of their storage facilities.

“Non-moving electronics components are akin to gold or currency which is just boxed up and unutilised! We have around ₹10 million worth of unutilised inventory lying in its store,” reveals Indian electronics contract manufacturer TESCOM’s Director Nandini B. The bound capital in unnecessary stockpiles hampers the ability of electronics manufacturers to fulfil orders promptly, disrupting the supply chain.

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At its core, deadstock is more than just surplus inventory—it is a financial burden that weighs heavily on the bottom line. Tied-up capital that could fuel innovation or drive operational improvements is instead immobilised, trapped in a labyrinth of excess components. The costs of storage, depreciation, and missed opportunities loom large, casting a shadow over profitability and growth prospects.

Electronics technology is rapidly evolving, raising the fear of obsolescence of components which could today be the creme de la creme of electronics innovation. With rapid technological advancements, short product life cycles, increasing competition, price pressures, and environmental regulations, electronics manufacturing is no fool’s errand. So naturally, every penny saved counts!

Tracing the treasure

So how did this excess stock come into existence in an EMS? For that, one needs to understand the basic categories of on demand production that an EMS encounters—prototypes, pre-series, and series. Shamim Alam, Assistant Manager – Sourcing, Cyient DLM, told EFY, “Prototype demand is obviously lower, with pre-series falling in between, and series being the highest. This determines the inventory strategy of the EMS.”

Elaborating on the distinct types of inventory management, Alam continued, “For prototypes, EMS manufacturers mostly rely on just-in-time inventory management, with some buffer for potential failures or losses. You can’t afford to keep excess inventory because components might get upgraded, rendering them obsolete. For pre-series and series demand, a good inventory management ratio involves maintaining around 30% of the required components in stock.”

“Your inventory management strategy should align with the type of demand you are catering to and the current market scenario,” says Alam.

In an EMS company, there are two approaches to stocking inventory—made-to-order and made-to-stock. Manufacturing is primarily driven by demand rather than producing goods and then trying to sell them in the market. If the guidelines are clear, one wonders what might be filling up the inventory shelves of EMS companies?



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Yashasvini Razdan
Yashasvini Razdan
Yashasvini Razdan is a journalist at EFY. She has the rare ability to write both on tech and business aspects of electronics, thanks to an insatiable thirst to know all about technology. Driven by curiosity, she collects hard facts and wields the power of her pen to simplify and disseminate information.

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