A prominent medical device manufacturer contracted a well-known component manufacturer to develop and produce an ASIC for use in the production of their medical devices. The contract period was reaching its end; consequently, through an End-of-Life notice, the OCM announced a Last Time Buy. The OEM utilizes EMS companies for 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 five-year forecast of production. Neither party wanted to spend the capital for the purchase and/or carry the inventory on their books at a cost of 15%. Some other distributors offered to hold the inventory; however, their 12-month offering wasn’t nearly long enough considering the production forecast of five years.
Through an Inventory Ownership Solution, Partstat provided purchase order administration and purchased the entire forecasted quantity of end-of-life material for a five-year delivery schedule, providing a savings of 47% on annual inventory carrying costs. The OEM and Partstat entered into a supply agreement. The cost of the program was simply rolled into each part price. Additionally, the OEM did not have to purchase the parts directly; they instructed their EMS provider to purchase the parts on the agreed-upon five-year schedule.
The OEM computed that Partstat’s program saved them money considering their own cost of capital and the extra infrastructure needed to properly store and fulfill the components. The OEM was able to preserve their working capital, lower annual inventory carrying costs, secure inventory for five years of future production, and lock in component costs for the duration of production.