Pandemic chip shortages have turned into buildups of excess inventory in a flash. Businesses across the electronics value chain are struggling with high inventory levels – companies as diverse as Micron, HP, Dell, Intel, and AMD have all recently cited excess inventories as drags on earnings in recent months.
It’s not just the big guys that are challenged by ongoing shortages of some chips, and extras of other electronic components. Balance sheets big and small are carrying millions of dollars in excess inventory, and supply chain teams are struggling to figure out how to recoup some value.
Holding onto excess inventory can be costly, taking up valuable space and tying up resources that could be used elsewhere. That's where selling your excess electronic components comes in. By finding new homes for your excess inventory, you can recoup some of your investment and free up space for new projects. In this post, we'll explore the top methods for selling excess electronic components, helping you to choose the approach that works best for your needs. Whether you're a manufacturer, distributor, or reseller, these tips will help you to optimize your surplus inventory management and get the most value from your excess components.
How do you sell excess inventory?
Let’s start with the basics. Here are the main channels that companies use to sell their excess inventory:
Brokerage services
Companies can use brokerage services that specialize in the resale of excess electronic components. These services act as intermediaries between the buyer and seller, helping to match surplus inventory with potential buyers.
Electronics procurement professionals likely know brokers well (for better or for worse) thanks to the vital role they played during the pandemic in helping solve chip shortages. Supply chain teams tasked with selling excess inventory may not be as familiar with them, but of course to sell inventory, they have to buy it from somewhere. Electronic component brokers are usually tapping excess at OEMs, EMSes, and tiered suppliers to connect to their buyers. Instead of being a buyer, you can be a seller.
Brokers use a few different business models to buy your parts; we’ll cover them later on in a dedicated section of the article.
Online marketplaces
There are also several online marketplaces that specialize in the sale of excess electronic components. General examples include eBay, Amazon, and Alibaba, while specialized marketplaces include Sourceability’s excess component marketplace and XS Components.
These platforms allow companies to list their surplus inventory for sale and connect with potential buyers from around the world, skipping the brokers.
Direct sales
Companies can also sell their excess electronic components directly to other companies in the same industry. This approach can be effective if the seller has existing relationships with potential buyers or if they are able to identify potential buyers through networking.
This process can recoup a much higher value for chips than going through a broker or online marketplace (both of which take hefty cuts of the deal), but it’s significantly more time consuming and all but demands a pre-existing relationship with the buyer to pull off.
Auctions
Some companies choose to sell their excess electronic components through auctions. This can be done online or in-person and can be a good option if the seller is looking to move their inventory quickly.
Recycling
If the excess electronic components are no longer usable or cannot be sold, companies can choose to recycle them. Recycling companies can extract valuable materials from the components, such as gold and silver, and use them to make new products.
How to sell excess inventory of electronic components to brokers
Companies most commonly turn to brokers to sell their electronic components. Brokers thrive as the wheels that make the secondary market turn, but the opacity of the market makes it difficult to work with and even more difficult to recoup a significant portion of the value of your components.
Each broker operates a bit differently, but typically you’ll have four options for selling your excess components to them.
Lot Buy
A lot buy is when a broker purchases a large group of different types of components from a seller. This method is often used when the seller has a wide variety of excess inventory that they want to get rid of quickly. Lot buys can be a good option for sellers who are looking to liquidate their inventory quickly, but they may not always result in the highest possible return on investment.
The benefit of a lot buy is that it typically will clear out all or most of your excess in one transaction, opening up room in the warehouse and getting some degree of return on the assets. The drawback, as stated above, is that you’ll take a steep discount on all of the excess components, especially the most valuable ones.
Line Items
Selling particular line items involves a broker purchasing specific components from a seller. This method is typically used when the seller has a smaller quantity of excess inventory that they want to sell. By selling specific line items, the seller may be able to get a better price for their components than if they were sold in a lot buy. This method, however, may take longer to sell off all the excess inventory. Moreover, it will often result in brokers picking off the most valuable of your excess components while leaving the harder-to-move inventory behind. You’ll be stuck with that excess for a long time in your warehouse, or more likely, you’ll just have to recycle it.
Consignment
Consignment involves the seller sending their excess inventory to a broker, who then sells the components on behalf of the seller. The broker takes a commission on the sales, and the seller gets the remainder of the proceeds. Consignment can be a good option for sellers who don't have the resources to sell their excess inventory themselves, or who are looking for a low-risk way to sell their components.
When you set up appropriate incentives for the broker to maximize sale price, then you can often get the best return on your assets through the consignment model. You have to be prepared to wait longer for the cash, though, and you need to carefully evaluate the contract that you sign with the broker. It should incentivize them to maximize the sale price so that you recoup the most that you can from your inventory.
Liquidation
Liquidation involves selling excess components at a steep discount to clear out inventory quickly. This method is typically used when the seller needs to free up space or cash quickly and is willing to take a lower price for their components. Liquidation can be a good option for sellers who have excess inventory that is no longer useful or in demand.
What is the demand for electronic components?
As we covered briefly in the introduction, the overall market for electronic components feels like it has quickly switched from a shortage situation in the pandemic to an excess situation just a few years later.
When selling your excess electronic components, though, the overall market conditions don’t matter at all – your specific components matter.
Brokers all have different networks of OEMs, EMSes, and tiered suppliers to whom they market their inventory, so they all have different demand for different chips. What’s valuable to one may not be as valuable to another, so selling components is never as simple as talking to a single broker with whom you’ve built a relationship and cutting a deal. Send RFQs to multiple brokers to get the best deal that you can.
The budding marketplaces for excess components theoretically can beat out the brokers by taking a smaller cut than they do and by connecting you to more potential buyers. They’re all quite new, though, and so they haven’t built up huge amounts of supply or demand necessary to create an efficient market. As they achieve more scale, they’ll become more attractive options to sell excess inventory as they can connect sellers to more interested buyers, improving the value that sellers can recoup on their components.
