The Top Misconception Regarding Obsolescence Management Strategies
Type “obsolescence management strategy” into Google, and you’ll find hundreds of tips and tricks from experienced analysts and experts on how to best handle end-of-life components. Most of these tips, ranging from simple supply chain adjustments to intricate analytical insight, do have inherent value on their own, but attempting to educate consumers in such a piecemeal fashion promotes a misconception that the term obsolescence represents a single issue, with a single form, that can be solved if you just buy in to one single idea or service.
The unfortunate truth is that obsolescence is not a supply chain issue that can be solved, at least not in the way most of these service providers would have one believe. The root of the problem is not something that can be found within the walls of an OEM, contract manufacturer, or authorized distributor; it is simply a symptom representing the precarious state of the market. Demand for electronic components and semiconductors is at an all-time high – but as equipment manufacturer needs are leading OCMs to continually push the envelope in terms of power and efficiency relative to size, last generation components must be obsoleted in the name of keeping up with the times. This dichotomy has created an extremely cutthroat aftermarket, where OEMs operating in industries known for extended product life cycles must scramble to assemble the critical inventory necessary to adhere to their quarterly projections.
In short, to “solve” obsolescence in totality means to fundamentally alter the way the market for electronic components has evolved — and all trends point to that course not being altered any time soon.
What manufacturers can do is mitigate it – what that means, however, is understanding that there is not a single solution that encompasses all the issues obsolescence causes.
Reliance on third-party vendors to supply components that have been obsoleted means coping with significant price mark-ups, as well as a vastly deteriorated supply that often requires the use of several separate vendors to acquire sufficient quantities.
Reliance on OCMs to provide timely PCNs to their customers does not take into consideration how rare PCNs actually are. In 2015, for example, approximately 41 percent of the 300,000 obsoleted components were done so without a PCN. Sometimes a PCN is issued for a component or semiconductor, sometimes not. Sometimes a PCN is issued but is lost in an email inbox, or sent to employees not responsible for the management of the OEM’s bill of material. Sometimes a 12-month window is given for OEM customers to react, sometimes the PCN contains an immediate last time buy date.
Reliance on stockpiling critical inventory far in advance through bulk purchases or last time buys means coping with the significant loss of upfront working capital, which can significantly hinder the company’s ability to grow – or even maintain their place in a competitive marketplace. One must also consider the considerable carrying costs associated with securely warehousing, packaging, handling, and fulfilling such large quantities of inventory — especially sensitive inventory such as raw die and wafer.
As you can see, every solution for the obsolescence problem comes with a caveat; one cannot rely on one single obsolescence management strategy without sacrificing something in exchange. Just as the issues created by obsolescence take many forms, so too must the strategies that combat them.
This is why Partstat has not just a single supply chain solution for one aspect of your supply chain, but a portfolio of interconnecting solutions that are designed to help manage your product’s life cycle from conception to end-of-life. Only if obsolescence is carefully monitored and contained through the entire life cycle can an obsolescence management strategy be deemed truly successful.
For details on what our supply chain solutions offer and how they work together to create the supply chain industry’s only true obsolescence management solution, just click on one of the links below:
• Our BOM Monitoring Solution uses over 50 billion rows of current and historical data from thousands of component manufacturers and authorized resellers to monitor and predict both obsolescence and allocation, and with the help of a dedicated BOM Specialist, confirm component life cycles.
• Last Time Buy Solutions allow OEMs to secure up to 10 years of LTB Inventory without the loss of precious working capital, while saving them an average of 42 percent in annual carrying costs.
• Critical Inventory Storage Solutions guarantee long-term business continuity and secure warehousing for even the most sensitive electronic components — including raw die and wafer banking.
• Partstat’s Excess Inventory Solutions function as full turn-key marketing strategies designed to maximize inventory returns, minimize the loss of working capital, and improve customer supply chain inefficiencies.