Automotive: Buffer Stock

A well-known automotive manufacturer was struggling to develop a long-term sourcing strategy that would guarantee an adequate supply of semiconductor chips for the remaining production run of their SUV. These chips, critical for integrating the driver’s mobile device with the dash console, were in high demand across several industries beyond automotive, and as the COVID-19 pandemic continued, it was expected that both lead times and prices would escalate for the foreseeable future. The sourcing team determined that the most desirable course of action was to acquire a buffer stock of chips to guarantee disruption-free production for at least two years, at which time the pandemic will hopefully be subsided and component manufacturers will be able to resume optimal production levels. Unfortunately, the manufacturer’s tight budget for the year did not account for such a substantial, unexpected expense.

To resolve this issue, the manufacturer reached out to Partstat, who crafted an Inventory Ownership Solution to fit their needs. Under the terms of the agreement, Partstat purchased $5.8 million in semiconductor chips — enough to ensure three years of production of the infotainment systems at maximum capacity. As a value add, Partstat also agreed to ship chips to the customer on an as-needed basis from their secure storage facilities in Orlando, Florida. Instead of going over budget with a single bulk purchase, the SUV manufacturer arranged to pay for the inventory with the help of a quarterly payment plan over a three-year term — an arrangement that allowed them to spread inventory costs throughout future budget plans.

With Partstat’s help, the manufacturer successfully maintained production levels throughout the worst of the COVID-19 pandemic while avoiding significant and potentially costly disruption. Partstat bought their inventory, so they didn’t have to.