Going once, going twice….
It can be a procurement professional’s worst dilemma: A trusted OEM partner announces a time-tested and often-used part is being discontinued.
How many parts should you buy before the component reaches obsolescence? Should you consider other sources?
The situation often leads to what is called a “last time buy.”
But, exactly what is a last time buy in procurement?
And how can you use it to your advantage to get the best price on products before they become obsolete?
A last time buy is an important part of supply chain management that requires balancing budgetary requirements with the need for adequate inventory.
Understanding the Last Time Buy
Before an electronics component or other part reaches its end-of-life and becomes obsolete, the manufacturer may announce a last time buy, or LTB, date. It’s important for a business to purchase the parts by the LTB date. Once parts come off the market, the only option to obtain those exact parts is to buy from a third-party seller, often at double the price or more.
Leveraging last time buys can help research and development teams put off redesign of a trusted product, reducing costs, and providing consumers with the products they know and love without raising the price.
Negotiating a Successful LTB
The secret to a successful LTB is determining how many of the component you’ll need as spare parts and for new production. Suppliers may be eager to off-load these parts before the LTB date.
On the other hand, suppliers also know purchasers need the parts before end-of-life obsolescence. These two factors can lead to an interesting negotiation process where neither side has the upper hand.
When putting in a bid for an LTB, weigh several factors:
- Who are your competitors who may be bidding for the same parts?
- How many parts are available?
- How many will you need?
- How long before your product will reach its end of life?
Considering these questions can help you from paying too much for parts or buying too many or too few of the necessary components.
In addition, look at your other options, such as purchasing similar parts from a different manufacturer, re-manufacturing the parts yourself, or redesigning your product to create a new and updated design that may perform better and extend its lifespan in the marketplace.
Using a Third-Party Provider for an LTB Purchase
Companies can save money and reduce risk by using a third-party provider to make an LTB purchase. The third-party will purchase and warehouse the components and sell them back to the OEM partner as needed over time.
Managing the risk of last time buy purchases is an important part of procurement to keep costs down while maintaining the inventory necessary to continue supplying important products, from consumer electronics to vehicles.