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Tight Inventory Management Pays Off

Inventory management is arguably one of the most difficult aspects of the supply chain. Even the experts sometimes feel insecure in it. Too much inventory and you're overstocked; too little and you miss out on demand. It was a lesson many members of the supply chain learned the hard way during the 2008 recession and years that followed.

But now, at least according to a supply chain inventory market brief from IHS Inc., the supply chain seems to have it in line. And, as such, 2013 is looking to be a solid year for OEM revenue.

The semiconductor and electronics OEM industries are set to enjoy significant revenue growth in 2013, thanks in part to their tight management of inventory levels, according to IHS. Revenue growth in the first half of the year was near flat, but stable. But calendar Q3 saw OEM revenue climb 7 percent quarter over quarter to $493 billion. Estimates for Q4 call for 10 percent sequential growth, putting revenue at $540 billion.

Industrial electronics was the strongest of the six segments being counted in the third quarter, but wireless communications will finish on top during the fourth quarter, IHS reports. The other OEM sectors included in the revenue count are data processing, wired communications, consumer electronics, and automotive electronics.

“Inventories have been lean throughout the channel in 2013, following a correction from oversupply in 2012 as demand unexpectedly fell in the second half of the year,” said Sharon Stiefel, senior analyst, semiconductor market intelligence, for IHS. “This leads IHS to believe that revenues are tracking with actual end demand, rather than to build or drain inventory.”

We're not out of the woods yet, though. The holiday season often adds a measure of uncertainty to inventory management. This is of particular note for the 2013 holiday season, which could see impact of the year's government shutdown on wages and holiday shopping, not to mention end-of-year corporate buying, as the government is not only a major employer in the US but a significant purchaser of IT goods, including PCs and smartphones.

But IHS anticipates that those companies with seasonal holiday shipments, like handset OEMs, most likely ramped up inventory in the third quarter to meet holiday demand in the fourth, to be followed by a welcomed decline in stockpiles during the fourth as products are shipped out.

IHS backed that suggestion by noting that wireless semiconductor company revenue peaked in Q3, driven by OEMs ordering wireless chips for smartphones, tablets, and 4G wireless adoption.

IHS also noted that the introduction of Windows 8.1 in mid-October coincided with the release of new laptop and tablet models. That should strengthen some categories, such as PC OEMs and consumer electronics makers.

Further, on the consumer electronics side, IHS reported that OEMs sales of game consoles and handheld video game players are expected to enjoy an increase in revenue as new-generation players hit retail shelves after a seven-year period that did not see any major upgrades.

Of course, now the trick will be to keep up this tight inventory management for similar or even better results next year.

What do you think about inventory management and the twists and turns of 2013? Are we in for a positive end to 2013? And will that be managed into 2014? Share your thoughts below.

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