Last Time Buy – Manage and Prepare

warehouse-management-system-wmsIt can happen to anyone at anytime.  Your product has been in production for years, and suddenly you get the message from one of your suppliers and a component is on its way to obsolescence.  Once you hear this, you suddenly have an elephant in the room sitting next to you named Last Time Buy.  Unfortunately this name is not uncommon in the manufacturing world, especially when dealing with ICs (integrated circuits).  But there is no need to panic in this situation.  Regardless if it’s a standard component or an ASIC there are companies like EDX out there to help you manage through it.  Below is a case study conducted by EDX that outlines how the process works when confronted with a last time buy situation. 

A prominent medical device manufacturer (OEM) contracted a well-known component manufacturer (OCM) to develop and produce an ASIC for use in the production of its medical devices. The contract period was reaching its end; consequently, through an End of Life notice, the OCM announced a Last Time Buy (LTB). The OEM utilizes contract manufacturing companies (EMS) for its production. The OEM and the EMS debated who would be responsible for the $3M purchase of the components. The purchase represented enough components for the 5 year forecast of production. Neither party wanted to spend the capital for the purchase and/or carry the inventory on their books. Some other distributors offered to hold the inventory; however, their 12 month offering wasn’t nearly long enough considering the production forecast of 5 years.

Through the EDX Inventory Ownership Solution, we provided purchase order administration and purchased the entire forecasted quantity and provided a 5 year delivery schedule. The process was simple. The OEM and EDX entered into a Supply Agreement. The cost of the program was simply rolled into each part price. Best of all, the OEM did not have to purchase the parts directly; they instructed their EMS to purchase the parts on the agreed upon 5 year schedule.

The OEM computed that EDX’s Program actually saved them money considering their own cost of capital and the extra infrastructure needed to properly inventory the components. The OEM was able to preserve their working capital, lower inventory carrying costs, secure inventory for years of future production and lock in the component costs for the duration of their production.

Value:

EDX’s Inventory Ownership Solutions improves the working capital positions of our customers while reducing annual inventory carrying costs by as much as 50%.

EDX will purchase, own, warehouse and fulfill inventory anywhere in the world for a period of up to 10 years.

Advantages:

  • Preserves working capital
  • Saves inventory carrying costs
  • Allows cash flow budgeting over multiple years
  • Eliminates lead time
  • Guarantees the cost of the components over multiple years
  • Secures the inventory for production and service over multiple years
  • Protects quality by avoiding open-market buys- counterfeit prevention
In conclusion, Last Time Buys are very common and everyone should have a plan for how to execute them.  Since inventory is the biggest asset and biggest expense for manufacturers, having a company like EDX handling your inventory ownership needs goes a long way to reducing that impending supply chain headache. What is your biggest supply chain challenge?   
March 14, 2017 In: All Posts Comments (None)

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