Remanufacturing vs Last Time Buy

Obsolescence is no subject to be taken lightly in the world of electronics, where, if a business misses an LTB date, they could end up looking for parts that are more than double their original price. With this in mind, every OEM/EMS company is in the same situation of waiting for the EOL notice to come along, and if the opportunity to act has passed, then it may cost them millions more to purchase components at their after-life price.

The good news is that this industry provides us with options, and the two main choices that we will be taking a look at are: re-manufacturing and the last time buy purchase. In order to conduct an adequate analysis of each option we will be comparing their similarities and differences, as well as taking a look at the various opportunities presented by each and how they may impact a company’s future operations.

Last Time Buy vs Re-manufacturing

Similarities

Seemingly, the only thing that these programs have in common is the part of the product life-cycle that they service, and that’s the End of Life. A company will typically decide to obsolete a part for one or more reasons that may be impacting the overall success of the production; it could be due to lack of demand for the part, or materials that fail newer ROHS standards, or even simply to create a better version of the component.

When you look a bit deeper another similarity between the options is that they are both meant to extend the period of time prior to redesign. Redesign tends to be a very costly, time-intensive ordeal for a business. It can be the straw that breaks the camel’s back for some struggling organizations, and even the most well-suited organizations seek assistance when considering a redesign. How to address redesign is very specific to both the marketplace within which a product will be introduced and the model of the business in the EOL situation. For example, a company like Apple conducts a redesign essentially every year, where they attempt to maintain a position that is “leading” the curve of innovative technologies,  as opposed to a company like GE Healthcare, which may choose to never redesign if possible, where products that are sold to hospitals may be maintained and repaired for many years and only replaced when better products are created.

Differences

This is where things get interesting. To start off, we should recognize that while the purpose of the options may be similar (to prolong redesign), the execution is far from it. On one hand, we have remanufacturing (which takes place after the ltb date), the process by which an OEM/EMS who requires an EOL component will purchase the PCB die and/or remaining inventory from their OCM to turn it over to a third party, which will continue production of the part needed. On the other hand, we have the Last Time Buy purchase (takes place before the ltb date), which is a finance-oriented agreement between the OEM/EMS, the OCM, and the third-party service provider (such as Partstat) who will purchase and store (up to a 10 year supply of) the parts needed by the OEM/EMS, effectively reserving (and possibly saving on) the price, to fulfill those components in periodic intervals as needed back to the OEM/EMS.

Advantages of Re-manufacturing

Since re-manufacturing is the act of resuming production of a component for a company dealing with EOL, it is rare that an OCM would allow this to take place prior to the LTB date. When you consider that the OEM/EMS is trying to save on costs just as any other business, buying anything after it is no longer being produced is not only challenging, but expensive, because now it becomes an “emptying marketplace”. What this means is, that when the OCM of a part announces an EOL and the LTB date passes, the amount that they produced prior to that date is the final influx of that component into the market. As weeks and months pass, more and more companies realize that they did not prepare for the EOL and begin buying up the supply of available inventory, leaving fewer and fewer parts in the market as time goes on.

This puts an incredible upward pressure on the price of the component, and some businesses may not even be able to find the amount of parts they need, since there is now a limited quantity. At this point the OEM/EMS really has no choice but to engage in a hasty redesign (never a good idea, often resulting in more mistakes and less sourcing opportunity), or look for a company that will continue production for them. The main advantage of re-manufacturing is that it will allow a company to continue operations even after the EOL period has passed and the parts are no longer available in the market; however, this will come at a high price (sometimes 3x-4x the cost). With an “emptying marketplace” and operations that are dependent on continued production, the re-manufacturer controls the price and can maximize their profit.

Advantages of Last Time Buy

The last time buy purchase is a commitment between three entities: one that is providing needed components, one that utilizes those components, and one that serves to make the process easier for all parties involved. With the last time buy being executed prior to the LTB date, the parts are at their market-based price and are not yet “emptying” out of the marketplace, so the purchasing companies will not experience higher prices. The original OCM is still going to be producing the components, so this allows for negotiations to take place that aim to benefit the three parties in different ways.

Knowing that the LTB date is approaching, it is imperative that a business act quickly or risk working with the same “emptying marketplace” that was mentioned earlier. What Partstat does, as the third-party service provider, is step in and ask the OEM/EMS how long it will take to complete redesign and how many components will be needed to maintain operations during that time. The advantages of  Partstat’s LTB program can best be summarized as the ability to pre-pay the bulk purchase of up to a 10 year supply of parts, opening up the opportunity for better pricing and allowing businesses to actually save money during this stressful time. Partstat will also store the inventory, alleviating the concern of overhead expense, and allowing the OEM/EMS to focus their time, money and efforts on the redesign, as opposed to worrying if they can continue their operations at a feasible cost.

Which is Better?

Although it is difficult to say which is “better” since they both serve different purposes – re-manufacturing is the last-remaining option for an OEM/EMS to continue operations after missing an EOL period, while the LTB purchase is a preemptive effort to address the EOL situation before it becomes a problem – it is inherent that preparation and savings are preferable to scrambling for the same parts at higher prices. In general, if you have a LTB plan in place then you should never need to worry about depending on re-manufacturing or the costs associated with an “emptying marketplace”.