While most discussions centering around EOL components typically imply concentrating on the end of an OEM product’s lifecycle, any true discussion of substance concentrates on the very beginning.

Preparation vs. Adapting

Any EOL management strategy that revolves around adapting to supply chain challenges as they arise is one doomed to failure. In a competitive marketplace where the best course of action is almost always to preserve a product’s current trajectory over a costly redesign or discontinuation, OEMs simply cannot afford to “cross that bridge when they get there.” The fact that the market is also currently experiencing the most significant passive component shortage since the turn of the century only compounds the issue.

This all plays into the decreasing lifespan of electronic components against the products they support. With competition in certain markets (especially automotive and IoT) driving component manufactures to discontinue their offerings in favor of faster, more efficient iterations, OEMs are struggling to support their current product lines without turning to third-party channels. Just as with consumer products, third parties charge a markup for the convenience of their services, and depending on market demand, those markups could increase even the most commoditized components by as much as 40-50 percent. As of 2018, the average profit margin for a company operating in the electronics sector is approximately 6.7 percent. Dedicating a portion of those margins to third-party markups, especially when they can be avoided, has the potential to seriously compromise an OEM’s capacity for growth.

Expect the Unexpected

The launch of a new product is something to celebrate, to be sure, but just as important as its introduction to the marketplace is the product’s EOL strategy. In the past, planning such an event required a vast investment in market data and analysis to properly gauge how much inventory needs to be sourced, when, and what infrastructure and fulfillment capabilities will be required. With such knowledge in hand, it then becomes possible to create an accurate forecast detailing everything from the product conception to end-of-life.

What these forecasts cannot do, however, is predict the future. Great strides have been made in Big Data’s ability to predict certain component statuses such as allocation, but not even the most advanced algorithms in the world can predict the sudden arrival of a PCN. Factor in the other numerous variables that could impact the market price of a component at a particular point in time, such as inflation or unexpected disruptions on the OCM side acquiring raw materials, and one’s budget could quickly escalate to unmanageable levels.

The Solution: Upfront Working Capital

The natural solution to this issue is to bypass these volatile market conditions entirely and dedicate resources to not just predicting the market as your product approaches end of life, but to acquiring the quantities of inventory necessary to support it upfront. The advantages are obvious; if you already own the inventory, there’s no need to interact and compete with the open market. Inflation, third-party markups, sourcing troubles, and unexpected component shortages would go from being significant drains on working capital to deflationary issues.

This, of course, assumes that OEMs have sufficient working capital at the beginning of the process to make such a commitment. Luckily, the supply chain industry has found ways to help OEMs adapt to the current state of the market by offering solutions that ensure the lifecycle of their products without the loss of upfront working capital.

The success of any journey depends on how well the traveler prepares. Adopt a proven strategy capable of guaranteeing business continuity through even the most unpredictable disruptions, and your EOL management strategy will be that much simpler.