Recouping value from excess stock.
If manufacturers understood the true value and opportunity of their excess and obsolete (E&O) electronic component stock, they would take a much more proactive approach to ensure this surplus inventory is not written off and sent to landfill.
In reality, E&O inventory is not an operational inconvenience but a financial opportunity and sustainable responsibility. Provided E&O stock is brand new, unused and in the original manufacturer’s packaging, manufacturers can likely redistribute the parts on the secondary market to another manufacturer for use. This not only recoups value for the redistributing company, but also promotes a circular economy, extending the lifetime value of the materials inside.
Generally, an electronics manufacturer sits on about 10% of its annual revenue in the value of E&O inventory. This stock may be a combination of obsolete parts, active excess (components only recently labeled as surplus to immediate production requirements) and everything in between.
Redistributing E&O inventory instead of scrapping it recoups much of its value and avoids fees for unwanted upkeep and disposal. When it comes to redistribution, earlier delivery to market is better. Such parts have a more desirable date code, among other factors, and are likelier to recoup more of the original cost price.
By utilizing an E&O redistribution model that resells the stock over time, manufacturers can make a profit on the parts in some cases. This approach allows time to market the parts and find a suitable buyer in a given sector, and sellers receive monthly installments as stock sells. If time is of the essence, a cash bid, like what a component broker may offer, is another option to recoup a small margin. Depending on market conditions, a broker may be able to offer 5-15% of the cost price.
Recycling Challenges
Electronic waste is rising five times faster than documented recycling, and only 22% of e-waste was formally recycled in 2022. This waste may include electronic components, used consumer devices, wiring and more. E-waste not only contains valuable rare earth elements (REEs), but also hazardous materials like lead, flame retardants and mercury. Nothing in e-waste belongs in landfills, where it can seep into the ground or make its way into waterways.
Figure 1. It doesn’t have to be like this.
While recycling e-waste is better than dumping, current e-waste recycling methods are arguably challenging. While some options, like pyrometallurgy (smelting), can recover metals like copper and gold, they are very energy-intensive and emit toxins into the air.
Hydrometallurgy (using acid or solvents) to separate e-waste requires less energy often relies on hazardous chemicals. Promoting circularity should be the primary focus of reducing e-waste. This involves reusing, repairing and redistributing electronics and materials. While recycling is part of a circular model, it should be the last resort.
Electronic manufacturers can contribute to a circular electronics sector by redistributing their E&O component stock. This way, another company can use the parts as originally intended. As regulatory changes continue to pressure companies to act more sustainably and take responsibility for their entire supply chain, both upstream and downstream, redistribution is a powerful tool to show commitment to the environment.
The Cost of Doing Nothing
When evaluating the true cost of surplus component stock, one must also account for the hidden costs of holding parts that are unlikely to be used. These costs include storage fees in warehousing, expenses to maintain the right temperature and cover security for the parts, and opportunity costs. If warehouse shelves are full of E&O stock, there is less room for higher-value parts and reduced flexibility to respond quickly to changing market and production needs.
It is a misconception that redistributing E&O component stock requires a high upfront investment of time and resources. Starting the process is simple and should not cost anything. Instead, consider the cost of doing nothing. Another key factor is that most electronic components are quickly depreciating assets.
While the secondary market for electronic components may have a negative reputation for counterfeit components, these concerns can be easily mitigated by partnering only with trusted companies with a proven track record and a robust quality assurance procedure in place. Given the crucial role of secondary marketing in promoting a circular economy, redistributing and sourcing components here should not be overlooked.
In many cases, E&O component stock is seen as a hindrance that may be left to a junior team member to sort out. If parts are not scrapped, a list of surplus stock may be sent out to multiple brokers for small cash offers. This is not the most financially viable and sustainable approach.
If managed correctly, E&O stock can be a financial opportunity and an additional revenue stream. Money aside, redistributing this surplus inventory can also be an opportunity to prove to supply chain partners and customers that you are committed to sustainability. A circular economy is key to reducing the electronics sector's negative environmental impact.
Ed.: Listen to Component Sense CEO Kenny McGee discuss component circularity and inventory management on the PCB Chat podcast.
Liam Kilmister is the former senior marketing strategist at Component Sense (componentsense.com). For information, contact Morag Dine; This email address is being protected from spambots. You need JavaScript enabled to view it..
