Reactive vs. Proactive Obsolescence Management Strategies
While all obsolescence management strategies have the same goal of ensuring the lifecycles of OEM products despite any unforeseeable disruptions, they are not all alike.
Now, just because each strategy may be different in form, that does not mean they differ in terms of importance. It is unwise to consider any such strategy as “one-size-fits-all,” and each has their own specific place and application. But having said this, the deciding factor of which kind of strategy should be more prominent is the state of the electronic component market. What may be sufficient to cover a product’s lifecycle during a surplus may not necessarily be ideal during a shortage.
As of this writing, we are currently experiencing the latter – one that, in many respects, is historic. Interconnects, passives electromechanical (IP&E) devices, MLCC capacitors — there are few sectors in the manufacturing industry that have remained unaffected, and many analysts are not expecting any meaningful recovery until well into 2020. Component demand is approaching all-time highs, lead times are increasing, and in some cases, suppliers are obsoleting components before they even reach the open market.
To cope with this reality, it’s vital that OEMs understand how obsolescence management strategies differ, and which one is most relevant for overcoming the realities of today’s market:
A reactive obsolescence management strategy, as the name implies, allows an OEM to “pivot” their supply chain to alter their approach to accumulating the critical components necessary to complete the lifecycle of their products. This can include quickly finding alternative component suppliers, alternative components that can be seamlessly substituted in designs at the point of assembly, or, should a product change notification (PCN) be issued in sufficient time, negotiating a last time buy. Each of these solutions, however, comes with various unknowns which have drastic consequences on their ability to succeed.
One of these variables comes in the form of product change notifications (PCNs). PCNs are not released in accordance with any set industry standard. While most component manufacturers do try their best to inform their customers of their intentions to discontinue a component, statistics indicate mixed results at best to do so. In 2016, almost 50 percent of electronic components were transitioned into obsolescence without a PCN. Of the end-of-life components that were accompanied by a PCN, over 40 percent had an immediate last time buy date. Four percent of these were given a last time buy window of a year or more, and only five percent were given a nine to 12-month window. For many OEMs, 12 months is the minimum amount of time required to pivot their supply chain – assuming the current market has an available alternative product to pivot to. During a component shortage, this is an unrealistic assumption at best.
Instead of helplessly waiting for your OCM partner to notify you of impending obsolescence, a proactive obsolescence management strategy revolves around monitoring the component’s lifecycle from the moment it is included in a bill of material until it is no longer needed. All of the disruptions associated with the current component shortage – the struggle to source alternative components, inflated pricing, become moot. The major con involved with such a strategy, of course, is that it requires the investment of working capital to both purchase the inventory and create an environment suitable for long-term electronic component storage.
The good news is that the supply chain industry is now offering a multitude of solutions that can make proactive obsolescence strategies more accessible. At Partstat, for example, our Last Time Buy Solution allows equipment manufacturers to preserve ten years or more of working capital. How much working capital is freed up depends on the size of the last time buy and the component cost – but whatever that cost may be, that’s exactly how much the OEM can keep on their books to use however they see fit.
A Partstat Last Time Buy Solution also solves the issue of infrastructure, as well. Factoring in all the numerous variables associated with properly warehousing inventory (staff wages, electricity costs, equipment investments, testing costs, packaging, etc.), annual carrying costs can be as high as 30 percent of the component’s original value if done in-house. Not only do we maintain ISO:9001 and AS9120 certifications, as well as a dedicated staff with extensive training in inspection, ESD, and MSL packaging protocols, we also offer our customers the option of storing sensitive, high-value critical inventory in a climate-controlled vault chamber rated “best in class” for electronic component storage. And we can offer all of this while saving OEMs an average of 42 percent in annual inventory carrying costs.
While one obsolescence management strategy should never be entirely disregarded for the other, it’s important to realize that, in the face of a market shortage, a proactive strategy should take priority over a traditional reactive model. And with partners such as Partstat making such strategies easier to implement than ever before, there is no reason not to consider proactive obsolescence management a cornerstone of your supply chain moving forward.