John May, Chairman and CEO, John Deere
Component obsolescence management is regaining attention in the electronics industry as more segments of the economy, including industrial equipment, digitalize their products. Distributors see opportunities to expand services and deepen engagement with OEMs
Some OEMs lose very little sleep over component obsolescence issues. Companies serving the consumer electronics market, especially, do not spend a lot of time wondering how to ensure replacement parts would still be available many years after their products hit retail stores. In fact, for smartphone OEMs which thrive on the introduction of new devices every six months, component obsolescence is a very distant concern.
The reverse is the case for automotive, aviation, medical and industrial equipment manufacturers. Products in this segment are often in use decades after leaving the production plant—as many as 30 to 40 or more years—and ensuring there is an extended supply chain capable of assuring adequate cost-efficient maintenance is always high on the OEMs’ to-do list. Customers always ask about long-term service, maintenance, and availability of parts decades into the future and OEMs must be prepared to answer these questions, according to industry observers.
“Manufacturers of highly advanced, complex equipment—such as aerospace and defense (A&D) companies or heavy-equipment OEMs—face a recurring challenge,” said analysts at McKinsey & Co., in a research report. “Their products have extremely long lifecycles of 30 years or more, during which they need to provide legacy-parts support.”
The problem has become even more complicated. In recent years, the number and variety of semiconductors used in heavy industrial equipment have grown exponentially. The infusion of electronics into equipment that previously used basic mechanical and hydraulic systems has forced new obsolescence challenges upon the manufacturers. The old sourcing problems have not gone away either even as semiconductors, which typically have shorter lifespans, are getting added into industrial equipment.
“The internal components for [industrial] systems, including semiconductors, electronic boards, and mechanical parts, have much shorter life cycles, in some cases less than five years,” the McKinsey analyst group of Hugo Del Campo, Giuletta Poltronieri, Alessandro Simoncini, Alfredo Vaghi and Simone Vesco, said in the report, which focused primarily on the aerospace and defense industries. “Because of this disparity, components can become harder to source over time and even grow obsolete as suppliers struggle to source the raw materials or stop manufacturing them altogether.”
Distribution partnership for obsolescence management
This is one area where electronics component distributors have shown exceptional support in the industry. Distributors have learned over the years to anticipate and support the long-term component requirements of OEMs that serve markets with lengthy product lifecycles. Mouser Electronics, for example, has an active obsolescence support program that starts during the design stage and continues through the product lifecycle. The company said it handles obsolescence management in various ways, including by providing lifecycle information on thousands of components on its website. It also provides end-of-life (obsolete lifecycle) notices and regularly sends product change notification (PCN) notices to customers who “have purchased a part in the last two years, or has the part saved into a project.”
Companies like Arrow Electronics owned Silicon Expert also offer dedicated obsolescence management strategy services where they assist OEMs in assessing their exposure and develop plans for tackling identified challenges. Silicon Expert also helps companies identify alternatives to obsolescent products in addition to offering pricing information on “last time buy” programs aimed at reducing the impact of obsolescence challenges. “The most common methods of the past for managing electronic components have entailed very manual or reactive processes that lead to chaos, human error, long lead times and excessive costs to the organization,” the company said, in a statement on its site. “The key to sustained profitability for effective and efficient obsolescence management is foresight and strategic process flow.”
The semiconductor shortages that hurt automotive OEMs and other segments of the electronics industry in 2021 and 2022 caught many companies by surprise. In response, manufacturers turned to electronics components distributors for support and assistance navigating through the shortages. This pattern has played out for years with regards to obsolescence management, according to observers. All the leading distributors have extensive obsolescence management programs and work closely with OEM customers and electronics manufacturing services (EMS) providers to identify potential problem areas and develop plans for averting supply challenges, they said.
Distributors have identified other tools that can help reduce or eliminate problems related to component obsolescence. In addition to flagging end-of-life notices, they offer second-sourcing information for products that may need replacement and leverage their bill-of-materials (BOM) management tools to keep customers updated on developments that could spark obsolescence problems. None of these tools is more important than having a good relationship with the components manufacturers, however, according to distribution industry sources. A close and enduring relationship with suppliers is a prerequisite for effective obsolescence management, analysts said.
Curbing obsolescence management cost
OEMs can be shocked by the ticker price of an inefficient obsolescence management program. When an OEM is forced to continue supporting specific equipment—for example, a leased, decades-old aircraft—the biggest expenses manufacturers often face are related to non-recurring redesign and engineering charges. When components are no longer being produced by the original supplier, the OEM could be compelled to redesign key parts of the equipment. The cost of doing this is typically higher and could run into multiples of the original charge, according to observers. In the case of the military market, for example, McKinsey analysts estimate non-recurring costs “in the range of $50 billion to $70 billion” adding, “the problem of non-recurring engineering costs is growing worse as technology cycles accelerate and supply chains become more interconnected.”
Some distributors have stepped up with solutions that are more competitive, and which may, in some cases, eliminate the need for a product redesign. Rochester Electronics, for instance, offers a range of services that go beyond traditional component stocking. The company signs agreements with semiconductor companies to continue making some of their products when the original vendor terminates regular production of the components. “Rochester can replicate the original device, avoiding lengthy [and] expensive system re-qualification, re-certification or re-design,” the company said, in a statement. “The end product is a form, fit and functional replacement guaranteed to the original data sheet performance.
Even so, the cost to the OEM of ensuring effective use of the original equipment can still be significantly higher than for the prototype. To ensure it can provide the “authorized product replication” service, for example, Rochester may have to acquire and stock the required wafers. The company offers long-term wafer storage service to ensure it can match the effectiveness of the original components. Test and assembly services may add to the buyers’ costs although these would still be lower than if the OEM had to work on a complete redesign or re-engineering of the devices. Companies that engage with Rochester on services like this include Thyssenkrupp Elevator. One example where the two worked together was on a component from NXP Semiconductor designed into Thyssenkrupp elevators. Once the supplier sent the end-of-life notice for its NXP P80C592 single-chip microcontroller, Rochester said it “became Thyssenkrupp’s key ally for a resolution.” The distributor used the “original design and test data transferred from NXP,” to replicate the chip, it said. “This allowed us to continue to support our customers without going through expensive and time-consuming redesign,” said a Thyssenkrupp executive quoted by Rochester, in its report.
Even economic segments like the farming market have not been spared. Take the experience of John Deere & Company, a US-based vendor of agricultural machines, heavy equipment, diesel engines and forestry machinery. The company’s products have undergone significant transformation in recent years as John Deere embraced electronics and automation. It has products that run on alternative energy and others that operate on a 24-hour basis without any direct manual control. Moving beyond the simple farming functions, John Deere said it has added what it called precision technology in the form of artificial intelligence into its equipment, a move that requires the inclusion of more semiconductors in each equipment. The objective, the company said in a statement on its web site, is to “deliver intelligent, connected machines and applications that will revolutionize production systems in agriculture and construction to unlock economic values across the lifecycle in ways that are sustainable for all.” John Deere’s customers have embraced technologies to improve productivity, the company said.
“Customers continued to adopt the latest in high-value precision technologies, many of which include autonomous capabilities,” said John May, chairman and CEO of John Deere, in the company’s annual filing with the U.S. Securities and Exchange Commission. “Deere is unleashing technological breakthroughs, transforming the industries we serve and bringing value to our customers that would have been scarcely imaginable not long ago.” Like other industrial equipment manufacturers that have embraced innovations coming from the technology market, Deere too faced severe “supply-chain pressures and higher material costs,” in its latest fiscal year. “Over the course of the year, many Deere factories experienced slowdowns or disruptions due to parts or component shortages,” CEO May said.
Actions like this will become even more necessary in the future as electronics penetrate deeper into industrial equipment, according to analysts. While the main OEM equipment could last decades before being scrapped, the electronics in them would require constant updates. For hardware, this process may occur as frequently as every 5 years, but it may be much shorter for software upgrades. The McKinsey team identified 3 steps they suggest OEMs activate to manage obsolescence challenges. These are:
Step 1: Identify alternate suppliers for the component. The first step is to identify any potential alternate suppliers for a given component that faces obsolescence. This is the most attractive solution, as it avoids virtually all new engineering costs.
Step 2: Identify alternative components that can be modified. The second step is to find a similar component in the market—one that is close in fit, form, and function (FFF) to the component becoming obsolete—and then modify it as needed. This step allows companies to minimize nonrecurring engineering costs and avoid a full redesign.
Step 3: Redesign the component. The third option, if no exact or FFF replacements are available, is to redesign a new component while minimizing costs and reducing any disruption to the existing system design.
In the end, obsolescence management requires a multi-disciplinary approach. To succeed, companies must work together early in the product design process with suppliers and supply chain partners, including distributors, to identify potential challenges ahead and develop a plan for resolving these. Obsolescence management also requires a champion within the OEM organization. The individual must be able to influence, monitor and ensure decisions taken during the design phase are executed to help the organization avoid unpleasant surprises in the product lifecycle, according to Mckinsey.
“Designating ‘obsolescence champions’ in the organization can ensure that OEMs formally allocate responsibility for this issue to a single individual (or team) who can directly engage with suppliers to anticipate supply chain disruptions,” they said. “OEMs of advanced industrial products should factor component obsolescence into the design of new offerings by identifying and addressing root causes in cooperation with engineering units, suppliers, and other stakeholders.”