Inventory Liabilities Prove Daunting For High-Tech Companies

Compiled ByDeborah Austin For high-tech manufacturers, 2001's inventory charges and write-downs were the first tidal wave. Now another looms: off-balance-sheet inventory liabilities (OBSILs), suggests a new report from management consulting firm Booz Allen Hamilton, MacLean, Va. For manufacturers that have amassed purchase commitments far outstripping demand, OBSILs pose invisible risks to shareholders and even management -- until suppliers push for make-goods on promises -- says the report, "High Tech's Inventory Overhang." The report outlines a process for manufacturers to assess potential liabilities and dispose of them effectively. Key steps include:

• Assessing current risks
• Immediately communicating inability to meet supply-chain commitments
• Vendor negotiation
• Leveraging tradables to reduce cash outlay
• Ongoing OBSIL-monitoring processes

The best way to avoid OBSILs? Prevention -- with supply-chain and product-management processes focused on running lean rather than scaling up. To download a PDF version of the report for free, visit http://extfile.bah.com/livelink/livelink/100755/?func=doc.Fetch&nodeid=100755