Methods to manage sourcing issues of obsolete components
Systems, devices, and components gets fast obsolete in the
fast changing technology world. The life of the products
and the components vary due to various economical and technological
reasons.
Finding an obsolete part is near impossible task. The failure
in finding parts delays the whole project. The discontinuation
of manufacturing by the supplier for an important part causes
significant loss to the user. This drives the concept of
storing, updating and reviewing the component information
especially about the life-cycle data, availability, alternates,
etc., periodically. The management of components when they
are active is far easier, cost-effective and simpler than
they are obsolete and hard to locate. Creating an alternate
plan for obsolete components and implementing the plan is
many times as good as re-designing the product again with
new components.
The products or the components are considered to be obsolete
if they are no longer available from the original component
or product manufacturer (OCM or OEM). The term obsolete
means getting disappeared or vanished. The OCMs releases
the product discontinuance notices (PDNs) or end-of-life
(EOL) notices or last-time-buy (LTB) notices stating their
last time buy options and last time availability dates.
The components enter the obsolescence phase in the life
cycle (bell curve).
The below bell curve is as per the IEC standards, shows
how a product or a component start its journey from introduction
to qualification and production to obsolete phase. Life
cycle predictions combine market and technology factors
based on the dynamic assessment of the sales data along
with few manufacturer- and applications-specific factors.
The condition of the component when it is released to the
market and sold to the customers does not remain the same
as the time passes. The lifecycle of a component goes through
many phases and involves many parameters to decide upon
what's the current stage unless explicitly mentioned by
the manufacturer.
The table below shows the different phases of the component
life cycle and its impact.
| Life cycle stage |
Part's usage |
Cost |
Sales |
Procurement |
Comments |
| Introduction |
Low |
Very high |
Very low |
No orders; shipments permitted |
Demand is created; customers are triggered |
| Growth |
Improving |
High |
Low |
Orders and shipments permitted |
Prices to maximize market share |
| Mature |
Very high |
Low |
High |
Orders and shipments permitted |
Sales at peak |
| Decline |
High |
Lowest |
Fall |
Orders and shipments permitted |
Impacted by new technology |
| Phase-out |
Exhausting |
Counter-optimal |
Only LTBs |
Shipments for existing orders only |
LTB notice issued |
| Discontinued |
Low |
- |
- |
No new orders and shipments |
After market sales only |
Obsolescence is also considered as one of the major factors
influencing the introduction of counterfeit components.
We saw in the other module
related to Counterfeits how big the risk is when fake
parts enter the supply chain and the inventory causing the
business and the customer heavy reputational and monetary
losses. So, by proactive life cycle management of components,
one can reduce the risk of counterfeits and thus can avoid
the adverse effects to a great extent.
In one of the case where a systems manufacturer (OEM) got
to locate and rectify the frequent product failures occurring.
When enquired about the nature of the failures and the BOM
(Bill of Materials), surprisingly, they didn't have the
complete and accurate BoMs as well as they could not furnish
the exact failure data. They were consulted by the customers
on the phone and to support them, the manufacturer (OEM)
used to recall the product and provided the customers a
new product in replacement. The major drawbacks we can observe
here inlcudes; one being there is no systematic process
adopted and the second being, the lack of sufficient information.
When deeply enquired, they were purchasing the components
on the web and that too with the vendor with least cost.
The entire system was exposed to major threat of counterfeits.
So, there is a tendency of small companies, due to their
budgetary constraints, following weak practices and supply
chain.
There is an absolute need for every company, both small
and big, to have strong processes as well as the component
databases well-maintained. As mentioned in the introductory
module, the management should incorporate in its strategy
to adhere to those practices that lead to ultimate quality
and customer satisfaction even if extra cost is involved
at some juncture. "Controlling the damage is more costly
than preventing it to happen".
The manufacturers (OEMs) normally have more than couple
of products that they supply. The component database for
all the products may roughly be around 1k components for
couple of products. The MS-Excel itself can serve as the
database medium to store the information for a small organisation.
Even if the company has more number of products, the companies
can think over replacing the storing medium to MS-Access.
Of course, the big companies prefer having the enterprise
RDBMS and/or ERPs and/or PLM tools to maintain the information.
Again, having a database merely does not solve the purpose,
but maintaining it with the required data correctly, updating
it periodically and ability to perform custom queries easily
are also important. In another case a company had a huge
number of acquisitions in the past and each acquired company
had the data and information built in different formats,
mediums and software (ERPs). Here, the situation is quite
different than the rest. Cleansing and normalising the data
from different mediums, formats and structures into a single,
common and aggregated format is quite a challenging and
tedious task. Once the data is scrubbed, the company can
save or get back the invested cost by value engineering
and smart procurement opportunities. And just not limited
to opportunities, based on the smart intelligence incorporated,
primary and secondary benefits such as smart inventory,
duplicate parts elimination, lean processes, consistency
and one-time efforts in maintenance, and many more can be
achieved.
There are two methods of obsolescence management widely
in practise.
The reactive approach of component obsolescence management
deals with acting upon the alternate plan once after the
EOL or PDN or LTB notices are issued by the supplier.
1. The first option in this approach is to cross-verify
with the manufacturer for any recommended alternates for
their EOLs.
2. The second option in this approach is to have the engineers
search for the alternate components from a different supplier,
preferably, drop-in or form-fit-function (FFF) replacements.
3. The third option may be to consider upgrades or functional
equivalents or downgrades. The redesign activity exists
here and hence time-consuming.
4. The next approach is performing the LTB (last time buy
or life of type buy) if the LTB dates are not passed. Budgetary
constraints and excess inventory may be the worrying factors
to place the LTB request in consent with the product management,
design team, materials manager and supply chain. The levels
of approvals may depend on the size and roles of the representatives
in the organisation. In major companies, the approvals for
Last Time Buy or redesign of the product for which EOLs
occurred are collectively decided by materials manager,
product managers, design teams, plant or site finance, sourcing
leaders, supply chain representatives and NPI leaders. The
LTB inventories are safeguarded well in the warehouses and
it's the responsibility of the site's materials manager.
While in the small organisations, probably the product manager,
finance leader and the design team decide upon executing
the LTB or the alternate plan.
5. There is yet another way to mitigate the risk by approaching
the aftermarkets where the purchase cost may increase rapidly
or even the production line may have to halt if the inventory
runs out.
6. The other option is to redesign the product with better
features and components and this is a costlier decision.
7. Very few companies also adopt a practice of creating
a custom component similar to the obsolete one and using
a qualified manufacturer to produce it. However, this option
may produce good results based on the supply chain relationship
between the two organisations.
One should remember that redesign costs should be included
in the yearly budget planning so that LCM decisions and
actions can be effectively implemented.
The predictive or proactive approach:
1. The predictive or proactive approach deals with the constantly
monitoring and predicting the life cycle of all the components
used in the product well in advance as well as developing
alternate plans in advance. This method promotes to perform
the "health-check" of components on a periodic
basis to mitigate the identified risks. The alternate plans
can include determining the second and third sources for
every commodity component and having enough stock in the
inventory for the single source or critical speciality components.
2. The proactive method also incorporates the management
strategy to design the products using the components which
have the predicted life of more than 5 years, as an example.
By preventing the usage of near-to-end-of-life components,
the risk of obsolescence is somewhat mitigated excluding
the unseen scenarios.
PCNs and EOL notices monitoring and maintenance becomes
part of the supply chain's duty. If companies are utilizing
reference component databases available in the market, then
the exclusive maintenance of these notices is not required.
When the component becomes obsolete, with the passage of
time, the options for suggesting the alternate solutions
become harder and costlier. As said in the second paragraph
above, the missed opportunity of mitigating the EOL risks
when it's fresh (as soon as the manufacturer releases EOL
or PDN notice) can give rise to unexpected expenditures.
The obsolete component has a direct impact on more than
one functional team in the organisation.
1. The purchasing and sourcing teams need to identify products
affected, their annual usage, total stock availability at
different sites and finally the mitigation plan. Even before
to this, they have to confirm from the supplier about the
presence of any recommended alternates.
2. The Engineering team needs to suggest the alternate components
and sources; qualify them and thoroughly check for the feasibility
options of redesign, if applicable. Re-qualifications and
certifications from the authorities or external agencies
are also part of this team.
3. The production team may have to check for the deviations
in manufacturability, inspection of the new components and
the timing for the incorporating the changes in production.
4. The time schedule of the product development gets changed
and may directly hit the release plans.
5. If there is an ECO-Engineering Change Order system in
place, all the stakeholders have to approve and sign the
applicable sections.
The life cycle predominantly is a dependent variable decided
by the combination of multiple factors including,
1. Market actions: Usage, applications, trends, etc.,
2. Sales and market position of the company
3. Technology advancements
4. Manufacturer-specific: Spin-off, acquisitions, product
line sales, bankruptcy, etc.,
5. Regulations: Environmental compliance regulations such
as WEEE, RoHS, REACH, Battery directive, ELV, etc., and
region-based regulations
6. Natural calamities affecting plants (example: Japan's
recent earthquake tragedy that created shutdown of facilities
and factories)
Benefits of effective obsolescence management:
1. Helps planning for system redesigns and periodic upgrades
accordingly
2. Reduce design reiterations and thus reduce new product
development costs
3. Minimize problems associated with EOL components in the
assemblies
4. Avail smooth operations and unit cost savings
5. Productivity is sustained and improved
6. Product development cycle time accelerated by improving
productivity of the affected teams
7. Major supply chain disruption and corresponding expenses
reduced
Thus, effective life cycle management is an influential
strategy to minimize product costs, promises best possible
supply and evades opportunity losses. The early identification
of obsolescence shock reduces overall product cost thereby
proper and profitable decisions can be taken such as redesigning,
substituting with a nearest alternate, working with an alternate
manufacturing source, or stocking with the enough quantities.
Industry study reports:
1. According to PCNAlert, 240,000 EOL notices were issued
by suppliers in 2000 and the figure increased to 1.6 million
in 2005.
2. IHS says, "The estimated cost to manufacturers for
missing one EOL notice is $5,000 to $30,000".
Author:
S Jaya Kumar, Consultant, Component Supply Chain Management
Conatct
him at:
Part1:Smart
component sourcing is about green, clean, rugged, and the
$:The basics of
modern component buying methodologies are explained in these
series of articles.
Part2:
Counterfeit components: Methods to protect against fake
parts: Save reputation,
severe loss of time and money by not buying fake parts
Part3:
Green Component Sourcing through environment conscious part
selection:: Selecting
electronic components causing no/least harmful to environment
Part4:
Electronics component supplier and device selection guide:
Evaluation and selection of semiconductor IC chips and other
parts and their suppliers
Part
5: The principles and process of electronic component selection:
Component Selection; "an art" for SMART and cost-effective
designs
