Looking back on my 30-plus years in the industry, it is interesting to reflect on just how much change has occurred. The industry was exciting during the early years of my career, but everything seemed so simple then. Semiconductors were primarily used for building computers and related products. OEMs typically designed, procured, and manufactured their products in one location.
If you fast-forward to today, it looks like a completely different world. Semiconductors have become faster, smaller, and more complex at an ever-increasing pace. All of this has contributed to a much more complex supply chain. Today, semiconductors are pervasive in every aspect of our lives. In fact, where would we be without today’s semiconductor? Think about the smartphones, tablets, appliances, automobiles, and security systems that we use every day. It’s hard to imagine areas of our lives where semiconductors don’t have an impact.
With the pervasiveness of these components just about everywhere we turn, semiconductor manufacturers constantly have to innovate and develop new chips to win new designs. In today’s increasingly fast-paced Internet-of-things marketplace, almost all products can include some type of semiconductor content. To emphasize this point, at Flip Electronics, we internally refer to semiconductor manufacturers as original component manufacturers (OCMs).
Constant innovation and the incessant need to stay competitive also means that older parts are going to be phased out of production to make way for the newer devices. When an OCM decides to end-of-life (EOL) a product or product line, a chain of events takes place. While this is usually a well-designed process from the OCM’s point of view, it can be a challenging one for everyone else who is involved.
For those who are not familiar with the EOL process, here is a brief overview:
1. The OCM decides what and when products will be discontinued.
2. Their sales team and distributors communicate to the current users that the products are going EOL.
3. The customers (OEMs) are notified of last order dates and last ship dates.
4. The OEM must take this notification and quickly understand how this affects their forecasts, revenue plans, product life cycle, and future support plans.
It is key to remember that many OEM products have planned production and life cycles far longer than the individual components that go into the end product. Some things that the customer (procurer) of the components need to understand are:
• Inventories on hand (including all regions and contract manufacturing partners)
• Demand and forecasts for all products that components on the bill of materials
• Future designs that may incorporate these parts
• New product design plans to phase out products
• Commitments on other devices that go into these products that may create a financial impact
• Impact of large inventory buildup from last time buys
• Time and cost of certifications and regulatory approvals (UL, FDA, etc.) for redesigns
• Redesign costs vs. increased inventory costs
When you’re a large OEM and have to consider the multitude of devices, products, designs, and manufacturing sites, you can certainly understand how EOL and obsolescence planning and processes can get out of hand easily, not to mention at potentially great costs.
Having a process in place to deal with obsolescence is vital for any supply chain. However, even with the best-laid plans, there will be challenges to overcome.
• OCMs’ and distributors’ sales team and channel partners are working on new design wins for upcoming OEM products. Therefore, facilitating EOL communications is not always a priority.
• Purchasing departments have to go through considerable analysis and approval processes internally on these notices. This often creates a situation where decisions are being made at the last minute.
• Inevitably, someone in the factory of the OCM is making a final decision about when and how large the final product run will be for the component. Chances are there will be an inventory imbalance somewhere.
• This inventory imbalance coupled with unforeseen continued demand creates a whole market of resellers that are often referred to as the “grey market.” Dealing in the grey market cannot always be avoided. However, quality concerns including older date codes, counterfeit issues, traceability problems, lack of certificates of conformance, voided warranty, and packaging issues are all serious risks and considerations that procurers must evaluate.
Obsolescence is a reality in today’s high-tech supply chain. I cannot stress how essential the need is for an ongoing process for the planning, reviewing, and execution on EOL components. Simply being prepared helps a company navigate through most of these challenges. Beyond the process stated previously, I recommend partnering with a company that specializes in EOL supply chain issues. At Flip Electronics, our sole focus is on the gap caused by obsolescence and EOL issues. Through visibility, knowledge, and expertise, Flip has developed solutions and a business model that can help avoid costly product shortage and line down scenarios.
Flip is constantly monitoring, pulsing, and analyzing demand trends across the industry. With visibility across multiple customers and inventory sites, we have created the ability to understand potential shortages. This insight creates opportunities for Flip to anticipate future demand and procure products that will be used across many different OEMs and CMs. For example, Flip been successful in getting an OCM to restart a product line for an “additional run” and placed a lifetime buy on a device that three different OEMs had requirements for. However, none of them had the demand individually to meet the minimum volume needed to start up a line.
This may seem similar to what many participants in the “open” market strive to accomplish. However, Flip actually helps our customers avoid the grey markets completely by building a model through fully “authorized” relationships with industry-leading semiconductor manufacturers. We have partnerships with these manufacturers on obsolete and EOL components. These partnerships allow for a lot of product that would otherwise be set aside, scrapped, and destroyed to remain available to customers who may not have had enough inventory to support lifetime production demands.
Flip offers customers all the benefits that come with factory-direct procurement, including traceability and manufacturer quality standards. Flip also adds one element that the factories cannot provide—and that element is convenience.
Obsolescence doesn’t have to be a painful process. Many companies suffer from a lack of understanding obsolescence and how it truly affects the supply chain. With the right partner, a company can even turn obsolescence into an opportunity.