Last Time Buy: Lower Inventory Carry Costs

Case Study

Last Time Buy: Lower Inventory Carry Costs

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 Last Time Buy 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.

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