Smith Market Blog

Waiting to Exhale? Inventory strategies are critical in 1H12


2012 has gotten off to a rough start, as we've been reporting, and the reasons mostly stem from the lingering aftermath of 2011, despite a decent ending to the year for many along the supply chain thanks to a reasonably good holiday sales period.  Supply chains are returning to normal after the significant disruptions last year, but the full return to "normalcy" will take time to be fully realized.  As iSuppli recently reminded the industry here, inventory pricing and supply for HDDs continue to be volatile, which is something we continue to see borne out in Smith & Associates' data also.

With the volatility and supply shortages experienced, other components have also experienced swings in both pricing and availability, increasing the importance of effective asset management.  One example related to the disruption from the flooding in Thailand is the boon to automotive MEMS, as iSuppli reported here earlier.

While the dust continues to settle, and while we await what is being forecasted as a 2H12 strengthening, assuming macro-economic instability follows the quieting path we hope for, among the most important moves right now is good risk and asset management.  The fluctuations in component costs (and availability) increases the need for working with a strong supply chain partner with the agility to quickly respond to market changes that can help shield your investments from potential losses and help you realize additional value in your end-of-life assets.  Two of the programs that Smith offers are directly designed to help you best manage your assets, from purchase through disposition, PPV Plus (see here for a recent article in Supply & Demand Chain Executive) and our asset disposition services, Cycle IT.

As analysts across the industry are echoing, demand is expected to really pick up during the early summer period, and the EMS sector is working to best manage the current sluggish but stabilized demand situation with the (hopefully) increasing demand as we move into 2H12, as discussed in detail in the most recent issue of Manufacturing Market Insider (MMI).  As MMI underscores in their cover story, improving margins and financial performance is essential during low- to moderate-growth periods such as the current situation.

Because of the stark reminders from last year's natural disasters, risk management and careful inventory management will be at the top of OEMs' manufacturing strategies.  MMI expects to see increases in supplier consolidation and OEMs minimizing sole-sourced parts in response.  For the EMS sector, these strategies are likely to result in consolidations and an increase in regional manufacturing, particularly for items other than the hottest selling devices, although the lower costs of manufacturing in Asia will mean that regionalization is only likely to increase slightly, according to the same MMI article (pp. 1-5).

What we hear from these market dynamic analyses is that given that significant investment represented by manufacturing inventory and the ever present importance of cost management, supply chain solutions are still of great importance to manufacturers.  Two areas of particular importance in this setting are the day-to-day component costs and effective return on end-of-life assets.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 14 February 2012 14:26 by Lisa Ann Cairns, Ph.D.

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