The Dangerous EOL Assumption Regarding Electronic Components

The EOL designation granted to an electronic component approaching obsolescence used to have a certain meaning to OEMs. It indicated that the component was ending its natural buyer cycle, that customer demand had slipped beyond the point of being profitable, and that it was time for the supplier to move on. It was a designation that could be easily forecasted, and OEMs had little trouble staying ahead of the curve and maintaining the lifecycle of their products.

Assumptions, however, are dangerous things. The moment one proves false, it can leave an OEM supply chain with drastic, and costly, consequences.

Unprecedented market demand is driving the electronic component market to grow at a remarkable rate. According to Statistica, the market today is worth approximately $363 billion, up from $303 billion in 2014. 2017 alone saw approximately 17 percent total market growth, and early analyses indicate that 2018 is expected to outpace its original growth projections of 10.5 percent. By 2022, the active component market alone – the sector of most interest to the automotive, IoT, and consumer markets – is expected to be valued at over $332 billion. These numbers are simply staggering, and they also are powerful tools we can use to understand how to best overcome the concerns such growth will cause.

Such growth, for example, is not going to affect all electronics-based industries equally. Suppliers are going to expand their production only in industries where they will see the most profits – and profits, of course, are going to be where demand is most rabid. If your company operates in one of these markets, your long-term prognosis is fairly good; increased supply should eventually match the demand and drive component prices down toward more manageable levels.

Other markets, on the other hand, such as medical and aerospace who are healthy but not booming at the same levels, will be designated as second-degree market players; the product lifecycles these industries are tasked with supporting are too long (often 10, 15, or even over 20 years), and the rate at which they re-enter the market as buyers is too spread out to be considered a supplier priority. Component lifecycles are going to continue to shorten in conjunction with the IoT and automotive industries’ demand for smaller, more efficient integrated circuits – directly in contrast to what an extended OEM product lifecycle requires.

This means the classic assumption that many OEMs have held regarding even previously commoditized components no longer applies. In three or four years, even a generic resistor necessary for a CT scanner or piece of navigational equipment might be long obsoleted – and unlike less regulated industries, the process of sourcing alternative components can be a complex process. Even if a suitable alternative is found for a medical device, for example, the OEM must then re-submit their “new” design to the FDA for approval. Depending on the device’s application, this process could take well over 250 days.

The only true solution that can ensure business continuity for a complete product lifecycle is a commitment to securing the necessary electronic inventory at the very beginning of production, through last time buy bulk purchases, before the EOL designation and while the components are still available directly from the component manufacturer. This approach will also mitigate the effects of price inflation, as well as grant the OEM the necessary leverage to negotiate significant bulk purchase discounts.

So, instead of wasting time assuming, it’s time to turn that energy toward implementing tangible action. Once the critical inventory is in your grasp, you won’t have to assume you will have the resources available to complete your product’s lifecycle — you’ll know.