The act of saving working capital is a critical piece of any OEM’s long-term strategy, and it’s a common indicator for how well positioned the company is for future success. It also represents a failsafe that can be tapped to help the OEM overcome significant disruptions that may occur – including supply chain disruptions caused by unexpected component obsolescence and allocation.
The issue with this, however, quickly becomes clear when one distinguishes between “future” success and success in the present. An OEM’s ability to expand their market share, invest in new technology on both the manufacturing and product side, and even increase their workforce all comes from the working capital reserves preserved over previous buyer cycles. Many analysts cite this strategy as a holdover from lessons learned during The Great Recession of 2008, when many industries – the auto industry most famously — were caught off-guard with insufficient working capital to survive an economic downturn. Now, over a decade after the crash, OEMs appear somewhat skittish to make their reserves work for them now. An appropriate analogy would be an individual considering rolling a portion of their savings from a bank account to a stock portfolio. The potential returns could be great, but the increased risk is enough to give one pause.
On one hand, to give in to the fear of commitment means missing out on a period of remarkable growth in the electronics industry. According to a report published by Zion Market Research, the consumer electronics market is expected to be worth approximately $1.787 trillion by 2024, posting an annual growth of approximately 6%. In a separate report from Transparency Market Research, the automotive power electronics market – which is quickly becoming the primary driver of the auto industry as a whole is predicted to grow annually at an astonishing 19% to be valued at $22.65 billion by 2025. Should an OEM wish to compete in these markets two or three years down the road, each year that passes means forfeiting even more working capital to do so.
In other words, it’s hard to win a race when you start near the back of the pack.
On the other hand, however, we have the classic philosophy of saving for tomorrow. While deeply rooted in common sense, there is also some evidence that suggests that maintaining a disproportional sum of working capital can be counterproductive, while negative working capital on balance sheets, in fact, can position an OEM for greater potential growth by taking advantage of current prices and low interest rates. Factor in inflation, and it’s difficult to make the argument that the value of a company’s working capital today will be the same five, two, or even one year from now.
The compromise between these two extremes would be to find a strategy that allows OEMs to spend their working capital without risk, without compromising their short-term financial security.
Our Last Time Buy Solution was designed to fulfill this unique niche by giving OEMs the means to invest in their own self-interest today. As our customer, Partstat will purchase all the electronic inventory required to support your product using our own working capital. There are no term limits, and no limitations in terms of inventory quantity; regardless of what your product requires for assembly, where you need it, or when you need it, our solution can ensure the lifecycle of your product is supported without you spending a dime in upfront working capital.
No other service on the market offers OEMs this degree of financial flexibility, and our customers have used it to confidently invest their working capital now, while it is still valuable, instead of waiting for tomorrow when they would have to spend more to accomplish less. Saving working capital for future growth may provide you with peace of mind, but how much market ground is your company giving up by not putting it to use?