Inventory Liquidation: You Can Be a Hero!

If you’ve ever been in charge of liquidating excess inventory, you know what a thankless job that is. No matter what you do, somebody’s going to be unhappy. Why?

• First, and foremost, no matter how good you are at making the deals, you are never going to get all the money back!
• Too much excess inventory points to bad purchasing decisions, and that can create internal friction and turn colleagues into enemies.
• Chances are disposing of excess inventory isn’t your only responsibility -- or even your primary job.
• Whoever signs off on the disposition will always wonder if you could have negotiated a better deal.

A major change in the electronics industry is having a significant impact on excess inventory liquidation: The independent distribution industry has matured significantly over the last five years, mostly as a result of its increasing value in the supply chain and the levels of accounts now being served, particularly aviation, medical, and defense. Working with these industries has made it imperative for companies to have the tightest possible QC measures in place -- and this includes materials sold as “excess.” So how can you make managing excess inventory -- board level components and embedded computing products -- a process that won’t burden you, create enemies, or look like you’re giving the material away? A few best-practices can take this job from “Too bad, you were in the wrong place at the wrong time” to “You’re on the fast track to Employee of the Year”!

Where to start? First, ask yourself, “How can I maximize my return?” The following are some things companies that are very forward thinking in their excess disposition strategies know and factor into their plans:

• Date codes are important. Most excess is deemed valueless when date codes exceed 24 months.
• Traceability matters. Maintain accurate records on when materials were acquired and from whom. Most buyers of excess want this information.
• Buyers of excess usually expect the materials they buy to be available for same-day shipment.
• When analyzing the value of your excess inventory list, most passive components should not be given a value. (There are a few exceptions.)

Once you’ve addressed how to maximize return, ask, “How do I get rid of my excess without having it take over my life?”

One of the first steps is to get agreement from senior management that excess inventory is an everyday business issue, not something you deal with every five years. With that key bit of business out of the way, you may determine that the best way to handle liquidating excess inventory on an ongoing basis will be to consign your material with a partner. If you choose this route, there are a few things you need to know before you enter into an agreement:

• What insurance does a potential partner carry on material while in its custody?
• Are its warehouses and staff ESD certified?
• Is the facility where your materials will be stored humidity controlled?
• Is your potential partner a qualified independent distributor that can give you an honest evaluation of your material in today’s marketplace? Ask it to analyze the list line by line for probability of sale.
• Does your potential excess disposition partner have the capability to give you 24/7 access to the material via a secure server, so that you can track sales history, recall parts, and communicate with it?
• Can the supplier manage excess both domestically and internationally?
• Does the supplier has a dedicated team to sell this material?

Some additional best-practices:

• When you’ve moved the initial backlog, set up a simple process to move excess inventory every six months to prevent material from piling up again.
• Make documentation (traceability) available for as much of your excess inventory as possible and at least for high-dollar line items.
• Give your partner the ability to sell material at today’s market value. This can fluctuate daily.
• Avoid “front end” gimmicks that pay you to get control of your excess material. This kind of deal is not usually in your best interest in the long term.
• Find out if your supplier can also move finished goods through alternative channels such as eBay, Amazon, and Overstock.

Excess material is always going to be a part of business. You can turn it into a proactive business process with six-month reviews and by transferring stranded and obsolete material for disposition on a regular basis. This will allow you to recapitalize your material while it has fresh date codes and is most likely to have the largest active customer base.

I’m sure that everyone who has had to deal with any aspect of liquidating excess inventory knows a few things about what works and what doesn’t. I hope you will all take a minute to share your experiences, challenges, and successes.

I look forward to your comments.