July 8, 2011
Inventory that refuses to move is a frustrating problem, but wishful thinking won’t make it go away. Waiting for your sales forecast to actually come true will not likely solve the problem, nor will waiting for the market to turn around. Meanwhile, you’re tying up cash, storage space, and maintenance resources.
Slow-moving inventory, like integrated circuits, is a common problem for most electronics start-ups and manufacturers. Even manufacturers that outsource their assemblies are often on the hook for components that suddenly become obsolete due to revision changes, minimum package quantities, or cancellations.
Sitting on the problem only makes matters worse. As date codes get older, your parts become less sellable, and revision changes could render them worthless in an instant. Regulatory factors, such as the upcoming European Union Reduction of Hazardous Substances (RoHS) Directive, compounds the problem as the industry gears up for mandated changes to components, such as lead free.
According to Michael Kirschner of Design Chain Associates, LLC, “Many OEMs are not prepared for the impact of the upcoming RoHS Directive and the impact it will have on their products and supply chains. Many components that are not RoHS compliant could be rendered of little value to them once replacement parts are available in the marketplace.”
Want more cash and less inventory? The best way to approach the problem is to know your options. Begin by drawing up a list of your components—a spreadsheet is convenient—sorted from most to least valuable. Most ERP, MRP, and inventory management programs have a “no-demand” report that’ll do this for you quickly. You’ll probably want to have the most expensive items reviewed by your warehouse staff, to check for integrity of the components. Once you’ve made your list, you’ll be ready to unload your inventory.
Here are five proven effective methods:
1) Return your parts to the supplier – Many suppliers will accept returns with some negotiation. Re-stocking fees can usually be discussed and further negotiated if you have existing open purchase orders and/or the promise of future business. Even with typical restocking fees of 10 to 30 percent, this will produce more cash than any other option.
2) Sell them through a consignment vendor – If you can’t return your parts, your next best return option is consignment through a reputable vendor. Our data indicates that a consignment sale can yield a 40 percent or higher return than selling all of your components as an entire lot for cash. Choose a consignment vendor who:
- Won’t charge to receive, inspect, and list your inventory.
- Has incentives to sell your inventory at the highest possible price.
- Will negotiate a fixed percentage limit of your standard cost that the consignment vendor can go to, if necessary. This can range between 15 percent to 80 percent of your standard cost.
- Is local to your facility. This saves on shipping costs and allows you to retrieve un-sold components if and when your requirements change
- Can furnish detailed monthly reports of your inventory in their stock, listed by your internal part number. This way you can keep them on your books.
- Is willing to furnish detailed reports of your sold inventory.
- You can trust. They should allow you to audit a certain number of transactions in any given month. This helps ensure accuracy and honesty.
- Understands the proper handling for components that are sensitive to ESD and moisture.
- Has a global marketing plan, to maximize sales opportunities.
- Will work with you on your write-offs, so you don’t have to take a too big a financial hit in any given month or quarter.
You should expect to recoup 50-70 percent of the sales price when selling through a consignment vendor, depending on condition, keeping in mind that the market price of your components may be significantly lower than your standard cost or purchase price.
3) Sell the components yourself – This is advisable if you have either very few parts, or the extra staff to inventory the components, list all the details, and market the inventory worldwide. Expect multiple inquires involving date codes, lot codes, packaging of various quantities, and returns. Your accounting department will need to set up new accounts quickly as 80 percent of buyers expect same-day shipment. If you have a few high-dollar components, you might want to try listing them on eBay. Do your homework and find out what the market price is before you list.
4) Selling for immediate cash – This is advantageous if you can afford to accept a low price and take the write-down all at once. Some of our customers need to dispose of all obsolete inventories at once. You can expect to receive bids of 1 to 5 percent of the standard cost of the inventory. To maximize your bid:
- List your components in a spreadsheet, preferably with manufacturer part numbers and date codes. Include a cost for each line item.
- Allow for inspection of the packaging and condition to maximize the bids.
- Segregate custom components that you might want to dispose of from industry standard components. Some vendors will dispose of these assets for you and provide a certificate of destruction.
5) Sell or transfer the inventory to other divisions of your company – Of course, this method doesn’t apply if you are not a multi-division company.
Regardless of which method you use, taking immediate action is key. Your inventory very well may have a significant cash value today, but the longer you wait, the less you’re likely to get.
June 6, 2011
Based on my experience in our industry, it is my opinion that all handlers of electronics components should know how to properly identify and handle moisture sensitive devices (MSD). Like ESD, this is an important part of an overall total quality process to ensure end Customers get the quality and reliability they expect.
Why should we care?
Improper handling and storage of components, that are moisture sensitive, can lead to financial loss… your financial loss! Many parts that are moisture sensitive are also expensive.
If components are mis-handled at your location, or in the supply chain reaching you, it could cause failures on the (PCBA) Printed Circuit Board Assembly. This will drive higher cost of rework and cause delay in getting the assemblies delivered on time.
At our business, I always try to do everything we can to prevent the “re’s”; that is, all the bad words that begin with “Re”. Return, Rework, Repair, Re-do, Re-purchase and my least favorite: Refund. None of these add value to our Customers and only add overhead and loss to our profitability.
At our company, we screen all MSD components at incoming inspection. Those not properly packaged are rejected to our Non-Conforming Materials shelves. Disposition may include having the parts baked and re-sealed, or RTV (Return to Vendor).
Why are some parts moisture sensitive?
Many plastic package surface mount IC’s (Integrated Circuits) absorb moisture from ambient humidity. This may result in internal damage and wire damage when put through a reflow surface mount process. The heat required for soldering will cause the moisture to expand, inside the part and thus fail the component. The parts will have a “popcorn” effect, with bubbles or visible damage to them on the board. Not all failures will be visible, you may just get an RMA request with components having unknown failures.
Because of this, manufacturers seal the components in moisture sensitive vacuum sealed “dry pack” bags. The Contract manufacturer will remove the parts from the bags at the last minute and (hopefully) re-seal leftover components after the manufacturing process is complete.
These IC’s are usually in trays, but can also be on tape and reel. The tape does not protect the components from moisture, so the whole reel needs to be vacuum sealed.
There are different levels of moisture sensitive parts. Each level defines the total cumulative time that components can be subjected to normal humidity. If your warehouse is located in an area with higher humidity than normal, this time would be reduced. If your components do not state the moisture classification level, you can find out on the IC manufacturers website.
Affected parts need to be stored in a “Dry Pack” bag with desiccant, humidity indicator card with proper labels. Usually there are 2 labels, one label for the component with part number, manufacturer and date code. The other label is an industry standard caution label giving the moisture sensitive level of the component.
How do I know if a part is Moisture Sensitive?
Most plastic package IC’s in a PLCC, or similar package, are Moisture Sensitive.
If you receive parts that are in a Dry Pack bag, with label, then they most likely are.
If you receive plastic package surface mount IC’s that are not in a Dry Pack bag, but are in trays, then you better consult the website of the IC manufacturer.
When in doubt, consult the manufacturer’s website!
Correct handling and storage
Upon receipt of Moisture Sensitive components, you should confirm the parts to be vacuum sealed in a “Dry Pack” bag. You should be able to see and feel evidence of the desiccant packet inside the package.
If you open the package the humidity indicator card should show that the parts have not been subjected to enough moisture to spoil the package. If everything looks right, after inspecting the components, the bag should be re- vacuum sealed with fresh desiccant and a fresh humidity indicator card.
Contract manufacturers should keep a log with each package detailing the total time the components were subjected to moisture.
If the components have been subjected to moisture (by looking at the humidity indicator card); or the package has not been properly sealed; or the package had a leak, then the parts have to be baked and re-sealed prior to going to your Customer. Or, of course, you can reject the shipment from your supplier.
We have a local supplier who does the bake and re-seal in about a week. Tape and reel parts can take up to 1 month for this process, so beware! This is because they have to be baked at a very low temperature so as not to melt the tape. An alternative is to have all the parts taken out of the tape and baked in metal tubes or trays. Then they have to be re-packaged and this can be expensive.
Tip: A sealed dry bag with desiccant does not require high vacuum. A simple heat seal (with a light vacuum) with proper quantity of desiccant is sufficient. High vacuum can actually be detrimental by increasing the amount of moisture diffusion through the bag.
When we sell a partial quantity out of a tray, we have to make sure we have the correct size trays in stock to avoid damage to the components in shipment. You also need a correct size top tray to lock the parts in. A plastic band, or rubber band, holds the trays together.
Recommended Tools and Supplies
- Vacuum Sealer
- Banding machine (puts plastic bands around the trays to hold them together)
- Proper ESD Bags for Dry Pack
- Desiccant (must be stored in airtight container)
- Humidity Indicator cards (must be stored in airtight container)
- MSD Labels
- Labels for part detail (We just use laser labels)
- Vacuum Pen for lifting parts
- Proper size trays (We have over 100 different trays for re-packaging partial quantities. Usually a Contract Manufacturer will give these to you for free)
For More information
- IPC/JEDEC Standard
The guidelines for classification, handling, packing, shipping and use of MSDs are defined clearly in the industry standard J-STD-033A (Revised July 2002), a joint publication of the IPC — Association Connecting Electronics Industries and the Joint Electronic Device Engineering Council (JEDEC).
- SMTA (Surface Mount Technology Association)
- Try searching under Google
– Moisture Sensitive IC Handling
– IPC moisture sensitive
– (Or go to the IC Manufacturer website of your choice)
- Vacuum Sealer or supplies
- Five Ways to Turn Your Electronics Inventory Into Cash
- Moisture Sensitive Components: Are You Handling Them Correctly?