Supply chains in the global electronics industry are notoriously complex and fragile. But in recent years, components once easy to source have begun to simply vanish, bringing production to a grinding halt, lost revenue, and unforeseen opportunities for profit.
The Hidden Cost of Component Obsolescence
Whether or not component obsolescence is a serious issue depends upon the industry for which the part was originally developed. However, the degree of pain is uniformly severe. When a medical device manufacturer finally locuses the last component required to complete a lifesaving product, it may not start a new FDA process – but one would not want it to. When a Defense contractor finds out their 30 year old product life cycle is over, and a component is no longer available, the conversion to a new life cycle typically occurs in 18 months – like it or not. When an Automotive manufacturer is stopped on the assembly line for production of a multi-million dollar car because of a single $2 sensor, no one is happy. At Strobe we attempt to mitigate these problems.
The math is brutal.
Just one missing part can bring a portion of an entire production line to a standstill with severe consequences to the production workers and the company as a whole. Hours and dollars are wasted while workers sit idle for weeks. The consequences can extend for months as purchasing teams search for a part that is in short supply and difficult to find. Price, quality and terms are weighed carefully as purchasing teams make decisions that will affect the company for years to come. But often these decisions are made in the midst of a crisis situation. It is common for purchasing organizations to react to part obsolescence and shortages as opposed to planning for them.
Working With Specialist Distributors
Our authorized distributors typically serve as a good representative for stocking obsolete components. However, they can sell out of supply quickly, especially for parts that have gone obsolete or are currently in allocation. If there is enough time to find a viable alternative before we get opened up to additional distribution, CE Shop Inc. can efficiently deliver the parts you need.
Many of the components can be purchased from specialist distributors. Some have surplus stock on the shelf, whilst others can find refurbishers or alternative suppliers for most components. Many of these companies are grey area suppliers and will often have one or two people who are authorized to sell into official supply channels, but be reluctant to issue full purchasing list access to outsiders. Fusion Worldwide have good contacts in this field and often find that parts listed as “not available” from mainstream distributors can be sourced through these specialist suppliers.
While our authorized distributor will use the distributor’s relationship with the manufacturer along with their on hand parts inventory to supply some parts, our parts specialists put in an enormous amount of work to locate obsolete parts manually. We are in regular contact with the original equipment manufacturer (OEM) who may have excess parts in inventory or be willing to sell production scrap. In addition, we have an extensive network of specialist brokers that have spent years supplying parts for similar components.
Quality Assurance in Alternative Sourcing
Alternative sourcing can be problematic due to the potential risks involved. There is currently a serious problem in some markets with the production of counterfeit components. Items targeted by counterfeiters, particularly high value semiconductors and military components are becoming increasingly hard to find from legitimate sources. The challenges associated with alternative sourcing can often exceed any benefits, and so caution is advised.
Components can go bad – even good components – due to improper storage in a warehouse, physical damage or a host of environmental stresses. However, quality checks and balances can prevent sourcing companies from suffering because of it. With specialized inspection equipment, suspect parts can be verified as authentic. Also, a “chain of custody” (i.e. the part’s ownership history from original manufacturer to sourcing company) can be confirmed and appropriate industry certificates of compliance obtained for regulated parts.
Even the best craftsmen in the world carry some form of damage insurance on their components. Why not us?
Building Supply Chain Resilience
Unlike many other “smart” retailers who get out-of-stock positions due to their inability to source product in a timely manner, this retailer has clearly developed a systems orientation.
We identify the Life Cycle of Components during design to understand how old the component currently is and whether it is still available for purchase from the manufacturer. This allows engineers to determine whether the component will still be available in the future before it is fully sold out from current inventory. Many companies hold a quantity of critical components above normal inventory levels to mitigate the risk of parts becoming discontinuable in the future, particularly for high volume products with strict compliance requirements and long design-to-production cycles.
Although selecting the correct parts is a crucial task, it is equally important to consider how those parts can be sourced post-design. We have significant experience in this office finding readily available parts from large manufacturers with multiple supply chain contacts easier to source for than parts from small suppliers with niche designs and intricate manufacturing processes.
Economics of Proactive Sourcing
While there may be an initial investment required for proactive sourcing, the long-term savings can be substantial. By planning ahead for component obsolescence, companies can purchase hard to find parts at a 20-30% discount to what would be charged in a crisis mode situation. They would also avoid the hidden costs associated with production delays, expedited shipping, and additional engineering time required to make a last minute part change.
With the world economy entering a new round of cost cutting and restructuring, investments in supplier diversity are about to pay off big time. Companies that have developed strong, strategic relationships with suppliers (whether domestic or offshore) will be better prepared to handle capacity crunches than their less prepared peers. Those with supplier networks from diverse backgrounds will also fare better than companies dominated by single supplier dependency as that model reaches its limits.
What used to be a fairly straightforward process for purchasing components has evolved to become a critical skill for companies to compete. The reliability of the supply chain has become an essential competency to ensure the sustainability of a company. Technology cycles are growing shorter, and the need to innovate more quickly is putting enormous pressure on companies to develop and bring products to market before their competitors can. Purchasing components that meet specific technical requirements is no longer simply a matter of finding the lowest price or sourcing products from the least expensive supplier.
Companies require a level of sophistication in their sourcing activities, and it is not uncommon for them to require real-time analysis of cost, delivery, and quality criteria. Meeting these
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