Excess and obsolete (E&O) inventory can cost industrial companies millions annually, impacting profitability and operational efficiency.
A Kearney study published in 2023 revealed that the high-tech manufacturing sector experienced a 53% increase in total inventory levels from 2019 to 2022. As a result, top high-tech firms held over $250 billion in inventory in 2022, much of which was at risk of becoming excess or obsolete.
Many industrial organizations, possibly including yours, may not have a parallel E&O supply chain strategy designed to unlock the latent value in dormant inventory in case of an economic slowdown or demand shift.
In this blog, I will define what an excess and obsolete (E&O) supply chain is and its workings, and detail actionable strategies to transform these underutilized assets into measurable value.
What Is an E&O Supply Chain?
An excess and obsolete (E&O) supply chain is the segment of the supply chain devoted to managing excess and obsolete inventory, from early identification and prevention, through reallocation and secondary sales, to ultimate disposition.
How does the E&O Supply Chain Work?
E&O supply chain process embodies a circular supply chain practice, where surplus inventory is continuously reintegrated into productive channels.
As the NC State University Supply Chain Resource Cooperative (SCRC) concluded in their Executive Roundtable on Excess and Obsolete Inventory, E&O inventory “as pure cash” tied up on the shelf, and managing it effectively with the E&O supply chain can free up working capital and floor space while preventing write-offs.
A well-managed E&O supply chain process mitigates the financial impact of overstock and obsolescence by recovering as much value as possible and disposing of residual inventory efficiently.
Here is how an E&O supply chain functions at an industrial scale:
Step 1: Inventory Monitoring and Identification
In an effective E&O supply chain, the process begins with continuously tracking your inventory levels. Advanced forecasting tools and real-time analytics enable you to identify items that are either excess, slow-moving, or approaching the end of their product life cycle.
Step 2: Strategic Redistribution
Once you have flagged excess or obsolete inventory, the next step is to strategically redistribute this stock. You can start by balancing your E&O inventory by reallocating inventory across your in-house facilities, thereby recovering value from idle stock in-house and aligning it with areas of higher demand within your facility.
Step 3: Asset Recovery Strategies
If redistribution options prove insufficient, surplus asset value recovery becomes essential. In this stage, specialized industrial liquidators or recycling programs are engaged to extract the maximum possible value from the remaining inventory. Whether you choose to liquidate surplus items at competitive prices or repurpose components for other industrial applications, this strategy minimizes the financial impact of write-offs and frees up valuable working capital for reinvestment.
Step 4: Structured Disposition of Unsellable Items
The final step in an effective E&O supply chain is managing the disposition of unsellable items responsibly. A structured process, which may include vendor buy-backs, auctions, or environmentally compliant recycling, ensures that any remaining stock is disposed of in a way that reduces financial risk and ensures environmental compliance.
How Can Industries Unlock Value from E&O Supply Chain
In practice, companies that excel in E&O supply chain management adopt various strategies to transform a potential cost center into both a value-recovery engine and a platform for low-cost, strategic sourcing.
- Internal Redeployment
Internal redeployment involves redistributing E&O inventory across your own departments to maximize usage and operational efficiency. By identifying E&O inventory that might be underutilized in one area, you can support other units experiencing increased demand. This approach minimizes waste, reduces storage costs, and optimizes your working capital. When each department effectively leverages available resources, your entire organization benefits from reduced write-offs and improved operational responsiveness.
- Tap Secondary Markets For Resale
Secondary markets play a key role in an E&O supply chain by offering an efficient avenue to turn excess inventory into revenue. Utilizing marketplace platforms or auctions allows you to sell your E&O inventory to other industrial buyers who need these assets for their operations. This approach not only minimizes storage costs and reduces the burden on your balance sheet but also recovers value from inventory that might otherwise remain idle. By actively engaging with secondary markets, you ensure that E&O inventory continues to work for your organization throughout its lifecycle.
- Partnerships with Asset Recovery Firms For B2B Liquidation
One of the most effective strategies for unlocking value from an industrial E&O supply chain is to form strategic partnerships with asset recovery firms for B2B liquidation. These specialized liquidation companies have the expertise and networks to convert E&O inventory into immediate cash for you. By leveraging their capabilities, you can efficiently liquidate unsold E&O assets, thereby reducing write-offs and bolstering your working capital. In collaboration with your in-house teams, asset recovery partnerships ensure that every asset is managed to maximize profitability, making it a best-in-class strategy for transforming potential liabilities into strategic opportunities.
- Strategic Procurement through E&O Sourcing
For industrial buyers, E&O supply chain provides a strategic procurement opportunity. It can help them extend beyond traditional channels by tapping into industrial sellers holding E&O inventory through specific platforms (like Amplio). Rather than limiting sourcing to primary markets, buyers can access hard-to-find equipment from sellers keen on offloading excess or obsolete inventory. This approach not only secures critical assets at competitive prices but also improves procurement efficiency by minimizing over-reliance on standard supply channels.
- Proactive Obsolescence Management via Secondary Sourcing
Industrial buyers can proactively manage obsolescence by establishing relationships with dedicated liquidation platforms that specialize in E&O inventory. These platforms maintain a comprehensive database of available surplus and obsolete assets from industrial sellers. By sourcing equipment that is no longer available in primary markets, buyers can secure parts and systems that still hold value and are essential for their operations. This strategy reduces the risk of operating with hard-to-source inventory while ensuring that your operations continue without disruption. It also fosters industrial symbiosis between industrial buyers and sellers, as industrial sellers convert their E&O inventory into liquid assets, and buyers access critical components that support ongoing production needs.
How Amplio Supports E&O Supply Chain Optimization
Amplio bridges the gap between buyers and sellers of surplus and obsolete assets, providing a platform where efficient liquidation, asset recovery, obsolescence management, and strategic procurement come together seamlessly. By connecting you with trusted industrial buying and selling partners, Amplio streamlines your supply chain to reduce waste and optimize working capital.
Amplio's robust network facilitates direct transactions between buyers seeking hard-to-find components and sellers ready to offload inactive inventory. This connection accelerates liquidity for sellers while ensuring buyers access cost-effective, hard-to-source equipment. Amplio's technology leverages data-driven insights to match supply and demand effectively and supports a streamlined process that minimizes the financial risks associated with E&O inventory.
Experience how Amplio's solutions can partner with you in leveraging an E&O supply chain for asset value recovery and liquidation-based procurement.
