Challenges and Future Plans of a Product Inventory Disposition Vendor
Written By: Predrag Jakovljevic
Published On: February 2 2007
A product inventory disposition vendor that offers online auction portals where companies can sell their at-risk and excess inventory, FreeFlow aims to help companies improve their product life cycle profitability. The vendor also offers a comprehensive, inventory asset management suite to meet the needs of its customers.
Zooming into an Inventory Free Flow
Room for Expansion and Improvement Remains
As seen thus far, FreeFlow's Internet-based bidding technology solutions and related business services have been deployed across the broad technology sector including computer hardware, consumer electronics, telecommunications equipment, and electronics companies. However, the vendor is certainly keen to expand into other areas where a limited product shelf life is a common trait. The best candidates would seemingly be the industrial, apparel, and grocery retail markets. To that end, FreeFlow has recently negotiated a deal with a pest control company, and is designing a promotional site for a supermarket chain in Ireland that will allow franchise holders to view what is available online before the stock becomes obsolete.
There is certainly no shortage of Internet inventory liquidation sites available to manufacturers, as brokers on every continent stand ready to consign or post someone's excess inventory. Some of FreeFlow's potential competitors are Liquidity Services (which is publicly held), HedgeHog.com, and LiquiBiz.com. However, FreeFlow believes that its auction approach is fundamentally different starting with its focus on high-tech manufacturers versus a plethora of different industries with differing needs. Also, FreeFlow auctions provide a private forum for a manufacturer's approved brokers to view and bid on the available inventory, whereby auction and "member privilege" dynamics go to work to improve bidding performance, thus returning higher margin recovery to the user manufacturing company.
Another challenge for FreeFlow comes from both prospective users' do-it-yourself (DIY) approaches (at least at first) and from others' beliefs that eBay can do the same job. eBay has been enabling its users to buy pallets of end-of-lifecycle (EOL) products and then sell individual items to buyers, whereby the eBay traders use shippers like UPS or FedEx to move these products from their garages (or other stocking places) to consumers. This is despite the fact that eBay targets consumers, whereas FreeFlow might create and feature a web site too, but for a business to business (B2B), high-touch environment (see Differences in Complexity between B2C and B2B E-commerce). In fact, in late 2006, FreeFlow announced a service partnership with eBay that unites both companies' solutions to help enterprise customers maximize sales of excess, aging, returned, and refurbished inventory. This global offering of eBay's private marketplace technology and FreeFlow's pre-auction and post-auction business services presents customers with an increased number of options for maximizing inventory asset recovery and provides end-to-end services to customers desiring a turnkey asset disposition solution.
By linking with eBay's private auction platform, FreeFlow's customers should benefit from eBay's feature set, which includes a broad range of auction format types, buyer classifications, customization, and data reporting capabilities. Most notably, FreeFlow's customers will gain the ability to sell into eBay's Reseller Marketplace, and thus access the tens of thousands of eBay PowerSellers registered to purchase there.
eBay's Reseller Marketplace (which is owned and operated by eBay but is separate from eBay.com) is a marketplace where eBay PowerSellers can bid on inventory for resale. Open only to eBay PowerSellers, this marketplace provides access to inventory in lots for purchase directly from manufacturers, liquidators, and wholesalers.
Also, although FreeFlow has no problem pointing out the tangible benefits it provides its users, ironically, some of its existing customers might be reluctant to publicly and officially brag about their success with using FreeFlow. That is, they might rather keep FreeFlow as their best kept secret in the market and as a competitive weapon rather than share it with their direct competitors.
In any case, FreeFlow might want to further differentiate its offerings and services by adding some potentially "nice to have" features that are not currently available to bidders. For instance, bidders cannot use their own freight forwarders, since all shipments are dispatched using the manufacturers approved freight forwarders only (as these are the only freight forwarders permitted on the manufacturer's premises). Also, each member is required to provide details of their customs clearing agent or house on each individual purchase order (PO). A PO is required to be submitted directly to FreeFlowAuctions prior to the dispatch of the inventory. The manufacturer does not cover all door-to-door expenses, but rather charges for all freight expenses excluding import duties, taxes, and customs clearance fees. These excluded fees remain the sole responsibility of the member. The US dollar is currently the only accepted currency by the portal, which is not a major sophistication in this global environment. Also, each member is required to notify FreeFlow within twenty-four hours of receipt of the inventory if there is a problem with the shipment, which will be investigated and resolved on a case-by-case basis—making the solution still look a bit pedestrian.
To this end, both FreeFlow and its users could benefit from using certain specialized software applications to address a range of activities, including product information management (PIM); category planning and review; promotions; warehouse replenishment; multichannel ordering; distributed order management (DOM); forecasting; inventory optimization; pricing optimization; supply chain event management (SCEM); global trade management (GTM) and international trade logistics (ITL); and so on. FreeFlow might want to explore the opportunities of expanded functional scope and services to its customers by developing them internally or by partnering with product specialists in these realms. For more information on some of these potentially handy applications, see The Case for Pricing Management, International Trade Logistics Challenge Automated Global E-Trading, The Role of PIM and PLM in the Product Information Supply Chain: Where is Your Link? and Using Visibility to Manage Supply Chain Uncertainty.
Actually, in the long term, FreeFlow holds the promise of playing a larger role in user enterprises' collaborative planning, forecasting, and replenishment (CPFR); trade promotions; new product delivery and introduction (NPDI); sourcing; procurement; and other processes. But, given its current size, prudent expansion approach, and budding global brand recognition, time will only tell whether the vendor will become a notable player within these enterprise applications areas.
Certainly, one way to mitigate the excess inventory problem would be to deploy build-to-order and build-to-demand practices in shorter time horizons (see Demand-driven Versus Traditional Materials Requirement Planning). Still, for many reasons mentioned earlier on, some excess inventory is inevitable, and there might be a better way to deal with excess inventory than to simply scrap "slobs" products.
Every little bit helps, and any high-tech manufacturer entangled in frequent, new product introductions, global sourcing, and the consequent piles of quickly devaluing inventory worldwide might want to explore how vendors like FreeFlow can help their bottom line. Manufacturers in similar industries but with limited shelf life products can also benefit from the offerings of business service providers like FreeFlow to salvage some recovery dollars from inventory that would typically be dumped out of the back door (and this only after using antiquated, labor-intensive "pedestrian" systems of routing excess inventory lists to brokers). The principle is well depicted in figure 3. As products mature and reach declining sales, prices plummet while inventory risks and promotional expenses skyrocket as companies try to dispose of such inventory. But the trick is not only in creating a fancy, intuitive, and flexible auction portal; it is also in having core knowledge and offering services such as market pricing intelligence, preapproved broker connections, advice and discussions on the best ways to handle the at-risk inventory, and so forth. Prospective user enterprises should investigate the contesting service providers with regards to the above capabilities.
Figure 3: Product Life Cycle Profitability Curve, with and without structured disposition process (FreeFlow)
With such useful services and solutions, manufacturers should be able to improve product life cycle profitability with continuous identification and disposition of at-risk inventory. The chosen auction software and service provider has to bring the right combination of process consulting, auction technology, and business services to help the user company tune up its inventory management game. A good way to achieve increased product life cycle profitability is through proactive, progressive inventory asset management, with establishing set target inventory levels and routinely disposing of inventory that exceeds those levels. Another is by ensuring that manufacturers have the appropriate channels to disposition inventory for better financial recovery, more rapid throughput, and channel agreement. Last but not least, one should define the right go-to-market strategy for the inventory depending on its condition, status, and location.
Management of excess inventory should lend itself well to outsourcing, given that no matter its value, excess inventory is seldom the manufacturer's top priority. Also, owing to the complexity of underlying product data management (PDM) issues and other long lead time issues, product recovery management under the Waste Electrical and Electronics Equipment (WEEE) Directive would be best handled by outsourcing. Instead of getting involved in the ever-changing legislative and compliance issues associated with WEEE, outsourcing allows the manufacturing company to stay focused on product development and production. Those organizations that decide to pursue an outsourcing option should make sure to find a partner that is qualified to negotiate the legislative landscape, and competent to define a program that fits their products, customers, and cost objectives. Companies should look first within their existing supply chain, since many third party logistics (3PLs) and inventory asset management service providers have added WEEE compliance solutions to their service offerings, and then they should leverage their infrastructure to optimize cost.
Final part of the series Let the (Excess) Inventory Flow!