A Critical Electronic Component in Your Product Has Been Discontinued. Now What?By Logan Wamsley
Useful doesn’t even begin to describe the impact critical electronic components have on an OEM product’s life cycle. Many standard electronic components and semiconductors have comparable alternatives that can be easily replaced — often by the same OCM, who may accompany the PCN with a list of options as a customer courtesy. More specialized parts with narrower consumer bases, however, may not have such a built-in luxury.
In the event such a critical component on their BOM approaches obsolescence, engineers and project managers alike find themselves at a crossroads. Just because a component has reached end-of-life does not necessarily mean demand for the OEM’s product has decreased, and their next decision on how to adapt has the potential to disrupt the outlook of their company for years to come.
Should an OCM partner find itself unable to offer their customers a viable alternative to an obsoleted critical component, these are the most common paths left to OEMs — as well as the potential consequences of each:
There are extreme circumstances where this could be the only possible outcome, but it is usually saved only as a last resort. A new product is created (possibly in a new market), new long-term projections and strategies are created, and the OEM moves on as best they can. It’s a long road to recovery, and one most would prefer not to traverse.
1. Loss of Downstream Revenue
2. Excess Inventory Left from Unused Components
3. Loss of Consumer Goodwill
The availability of this option largely depends on the nature of the component. If it is a replaceable generic component, this can be a viable option — but complications can arise if the new supplier can’t deliver on the OEM’s desired quantities, or if the price point is significantly higher. Even if the order can be met, increased demand may require the component to be placed on allocation for 16 weeks or more.
1. Limited Component Availability
2. Potential Price Increases
3. Potential Component Allocation
If product discontinuation is the only other course of action, this may be the lesser of two evils. Redesigning a product with alternative components can cost a manufacturer millions in working capital meant originally for company growth. In certain scenarios, this could also result in an extension of the product’s original lifecycle to recoup losses.
1. Extended Product Lifecycles
2. Significant Redesign Investments
3. Loss of On Hand Working Capital
Last Time Buy
Ideally, when an OCM decides to cease production of a critical component, they will notify customers with a PCN (Product Change Notification). In this case, OCMs will give OEMs a small window of time to purchase the amount of inventory necessary to complete their product’s lifecycle and ensure business continuity.
1. Loss of On Hand Working Capital
2. Inability to Meet Inventory Fulfillment Needs
3. Long-Term Carrying Costs
Negotiate Last Time Buys Without Consequence
For years, these consequences have been considered unfortunate inevitabilities that must be accepted without question. No alternatives were considered, because no alternatives existed that could offer anything better.
As a valued supply chain partner, Partstat has sought a way to offer OEMs a way to negotiate last time buys without settling, without accepting short-term losses in the name of long-term gain. After accumulating over 26 years of experience serving OEMs, EMS providers, and OCMs alike, we have forged a Last Time Buy Solution that achieves what was once considered unthinkable: all the benefits of a successful last time buy, without any of the drawbacks associated with it.
Maintain Working Capital
Our solution begins by addressing the most immediate concern associated with last time buys: working capital. Instead of customers producing up to 10 years of working capital upfront, Partstat will purchase all necessary LTB inventory on the customer’s behalf.
Guaranteed Inventory Fulfillment
Using a customized delivery schedule determined by the customer, Partstat has the proper infrastructure to warehouse, maintain, and fulfill LTB inventory whenever it’s needed for up to 10 years. OCMs have also found great success offering our Last Time Solution as a “bolt-on” service to OEM customers should fufillment needs go beyond what the OCM can offer alone.
Save on Carrying Costs
Our Last Time Buy Solution also gives customers the added benefit of significantly reduced carrying costs, all but eliminating the final burden OEMs associate with high levels of LTB inventory. Not only does Partstat have access to multiple warehouse facilities throughout Europe and the APAC region capable of fulfilling inventory anywhere in the world, but our ISO:9001-certified storage infrastructure has been proven to save customers an average of 42 percent on annual inventory carrying costs.
A New Perspective
Partstat is quickly changing the global narrative regarding the role last time buys play in an OEM obsolescence management strategy. What was once considered a subject best left ignored until absolutely necessary, is now considered a vital tool that can help OEMs support the life cycle of their products from beginning to end.
Partstat has helped customers around the world negotiate last time buys — and we can help you too. If you have any questions regarding the details of our Last Time Buy Solution, our supply chain strategists would love to speak with you!