Managing the Risk of Obsolescence: Customized component lifecycle management


End of life (EOL) is an inevitable state for all electronics components; it is the rapidity of obsolescence that varies. While consumer electronics manufacturers have become dexterous in their designs and ability to accommodate and even take advantage of component volatility, there remain many in the industry who are in riskier positions.


Either as a result of product type, industry position, or degree of modularization in the supply chain, most sectors in the semiconductor industry do experience significant risk when components obsolesce. The ability to mitigate risk comes in great part from early planning and problem solving by recognizing and managing components with the knowledge that EOL is a reality and last time/lifetime buy decisions are critical. The experienced commodity manager, with depth of market experience and real knowledge, affords an ability to forecast and provide unique, component risk assessments.

Traditional and new sectors affected by EOL
As the semiconductor industry has matured and supply networks have increased in complexity, manufacturers in other sectors have fallen victim to EOL risk. The industrial, aerospace, automotive, medical, and military sectors are among those who are most exposed to the impact that even a relatively minor, low cost component can have should it go EOL.

While outsourcing aspects of manufacturing to numerous supply chain partners has significantly improved production process and profitability, it has also created some problems. Modularization, or the break up of the manufacturing process into individual processes, has introduced an increase in the number of partners engaged in any given supply chain. The advantages of these new, more complex, chains is the increased cost savings and expertise gained by having a sole partner organization provide a single (or a set of) task(s). A risky downside to modularization in the semiconductor industry has been the problems that some partners face when the component(s) they are charged with compiling become obsolete.

Without the ability or capacity to store components, manufacturers typically engage in sophisticated forecasting and supply chain partnerships to buffer against EOL moments. However, forecasts are not perfect, holding inventory is costly, and often supply chain partners may be unable to source the needed components, resulting in the unfortunate, but inevitable moments when obsolete components are needed. One solution employed by many manufacturers is to alter the design in order to alleviate the need for obsolete components. Unfortunately, a design change may prove to be costly and inefficient due to inevitable disruptions in the already modular supply chain of specialized partners.

As a December 2007 article stated, "Sun used to make five-year lifetime buys, but then found it had too much excess inventory of old parts [...]." Other than designating space or partners to inefficiently warehouse spare components based on forecasts that may prove faulty and costly, what solutions exist when redesign is not a viable option?

BOM analyses
In today's global electronics open market, manufacturers have a number of options for managing component lifecycles. For example, analyzing bills of materials (BOMs) early and often allows for a wider range of options as parts reach end of life (EOL). As stated in the 2003 TechClarity Industry White Paper by Jim Brown, Living with the Dynamics of Electronic Components, "The most challenging obstacle to resolving component lifecycle disconnects is time. Given time, companies can react to component lifecycle problems [...] but many companies don't have a process to effectively monitor the impact of these changes [...]. With each passing day that an event is not identified and acted upon, the options for resolution become less palatable and more expensive."

Even after a manufacturer stops producing a particular end product, or upgrades the device to incorporate newer components, the manufacturer may still require EOL and obsolete components to perform service and repair older products. "Some of the largest challenges caused by obsolete components come from servicing products in use at existing customers," Brown states. Service and repair activities often require electronics manufacturers to hold stock that they no longer use in production. Forecasting service requirements can be difficult, and service components can drive up a manufacturer's inventory management expenses. Manufacturers have the option to partner with an inventory management service provider who can stock and ship the parts to field service locations as required, even assembling and managing kits for field service personnel.

When obsolete parts are no longer available from the component manufacturer, they may still be available on the open market from distributors and in OEM excess.

Customized production from bare die
Another, less risky alternative is producing new obsolete components from original bare die. Component manufacturers often sell the bare die and license the manufacturing specifications to third parties after components go EOL. Such components will function exactly as the previously produced parts since they will be manufactured with the same die, but it is critical to partner wisely with a trusted provider. While there are cost differences between the original component's ASP and the reproduced component, these costs are often insignificant in the face of supply chain problems, entire product redesigns, customer satisfaction relating to service agreements, or even major new investments for industrial organizations.

Smith & Associates is one of a selected few value chain partners who have the depth of experience combined with the breadth of knowledge and testing capabilities to provide customized component lifecycle management services. Smith & Associates has partnered with a well known third party vendor experienced in the specialized storage of and remaking from original die. Coupling customized production with well informed component lifecycle analyses by Smith & Associates' experts ensures the most cost-effective and quality rich solutions to the variety of component management needs faced in the semiconductor industry today.

By far the most cost-effective component lifecycle management method is to work with a service provider to regularly analyze BOMs. Such measures can provide cost savings in various ways: frequent analysis may allow the manufacturer to make large-volume opportunistic purchases in the open market as pricing and availability fluctuate; taking advantage of product change notices (PCNs) gives early warning when parts are going EOL, allowing manufacturers more options for future sourcing (production and service/repair) and last time/lifetime buy decisions; among others. Working closely with a broadline stocking distributor like Smith & Associates can ensure product availability while keeping costs down.

The following case study highlights a successful component lifecycle management alliance between Smith & Associates and an automotive manufacturer.

A leading industrial electronics OEM was experiencing frequent inventory management problems, for both production and service stock. In particular, they were overwhelmed with managing electronic component lifecycles.

Frequent product change notices (PCNs) from component manufacturers were not always tracked effectively, and when the manufacturer made last-time buys (LTBs), the forecasting was frequently incorrect, leading to costly inventory shortfalls or excess. In the case of one obsolete component that the OEM was unable to source, the project faced a costly board redesign which would put the OEM's production schedule behind by more than eight months. Without this component, any upcoming service on existing models would be impossible. They would have to replace boards for any customers needing repair, potentially rendering customer equipment unusable until proper testing could be completed.

Smith & Associates located an after-market manufacturer that owned sufficient quantities of the die required to produce the obsolete component, and after manufacturing, burn-in, and testing, yielded sufficient quantities in time for the OEM to continue its current production plans without an immediate redesign.

Smith also assisted the OEM with forecasting service requirements, and stocked the EOL components along with other items frequently used in service, producing kits for the OEM's field service technicians. The service technicians would receive a full kit each week and would return used kits to Smith to be refilled.

In the initial analysis of the OEMs BOMs for current production, Smith identified three components that were nearing EOL. Smith worked with the OEM to assess production and service requirements for the life of the end product, and helped the OEM make cost-saving opportunistic purchases on the open market for these components. Smith now stocks the components and schedules just-in-time deliveries to the OEM's production site. Smith conducts quarterly BOM analyses to manage the lifecycles of all the OEM's production and service components.

Smith also helps the OEM make opportunistic purchases of components still in production. When there is excess on the open market, and pricing is below the OEM's standard cost, Smith makes volume purchases and adds the components to the OEM's just-in-time inventory management program.

For components whose requirements are difficult to forecast but may be needed on short notice, Smith & Associates placed a segregated Smith-owned inventory cage on site at the OEM's production facility. The OEM pulls stock from the cage as needed and Smith invoices the OEM as parts are pulled from the cage.

The industrial OEM achieved a 30% reduction in their inventory management costs by working with Smith & Associates. Frequent analyses of BOMs afforded proactive component lifecycle management, so that inventory shortfalls no longer interrupted production schedules. Engineers now had time to complete a redesign of the end product whose production schedule was threatened, with sufficient stock remaining to conduct repairs for the product's full 25-year life expectancy. As a result, the OEM's service ratings soared as customers received prompt repairs by technicians equipped with the necessary parts at the first service call.

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Comments (1)

Do you offer a risk management tool for component life assessment or is this service only provided as a distributor?
Jamie Skgostad , August 05, 2011

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