The bottom is falling out!

Being in business requires that you sell your product or inventory for more than you purchase it for. Selling your product or service for less than your cost to procure or produce is not a great business strategy.

There is however many variables that can fluctuate the market price for an item or service. These influences can drive the market value of your product or service upwards, or on the other hand drive it downwards. See our previous Blog, Supply and Demand.

FlyingParts was recently consulting to a large multi national MRO in the aviation industry. This client was struggling with how the market forces were constantly lowering the market price for the aircraft parts that they had in stock. This MRO was constantly forced to sell their inventory at losses just in order to dispose of the assets.

There were various contributing factors to this continuous situation, however it was a great opportunity to discuss the Aviation Option Market, and the solution that it would have offered to the MRO. By the MRO using option contracts through the Aviation Option Market they would have been able to select which inventory or parts that they would choose to hold in inventory and which to hold options on to cover their customer needs.

By only holding the option contract on the parts that are less likely to retain the initial value in the market, the MRO would limit their losses to the option contract fee opposed to greater losses in having to dispose of unnecessary inventory at pricing well below the initial purchase price.

On the flip side of the coin, if the MRO had sold option contracts on their inventory that were underwater, they would have created a cash flow from this inventory which would counteract the losses that they could face when selling the parts. The buyers of the option contract, would pay the MRO the Option Contract Fee, to ensure that the MRO would hold the parts for them. If the option contracts went out long enough, the MRO could turn the loss into a profit! (Look for the Blog post Aviation Option Market for Investors)