Buyers Need Strategies to Manage Obsolete Parts

While the problem of obsolete parts is not new, some in the electronics supply chain say it is getting worse as suppliers are ceasing production of parts at a faster rate than in the past.

Component obsolescence has always been an issue for buyers in the defense, aerospace, and medical equipment industries. Equipment built by OEMs in those industries tends to have long lifecycles that outlast the life spans of the semiconductors and other components that are critical to those systems.

Increasingly, obsolescence is also becoming an issue for consumer electronics equipment, which has shorter life cycles.

“We have seen product life cycles, particularly in the consumer marketplace, continue to shorten, so manufacturers are obsoleting their parts at a faster rate than before to keep up with the pace of technology demand in the marketplace," said Kristie Syndikus, director, supply chain management at Celestica, an electronics manufacturing services provider (EMS), based in Toronto.

She said in consumer electronics, technology changes quickly and those changes have a "cascading affect, impacting component manufacturers as well."

Buyers managing component obsolescence often deal with the problem by making lifetime buys of parts that are going end of life (EOL) or by having a die banking arrangement with a supplier or distributor. If possible, buyers will sometimes qualify another source for parts.

Be proactive

However, buyers also need to take a proactive approach and work closely with suppliers to get a better idea when a critical part will be going EOL.

Being proactive with component obsolescence reduces the risk that a now obsolete part can disrupt production. It can also reduce the risk of a company buying counterfeit parts. When a part goes obsolete, buyers often search for the part on the open market if there are no alternative sources that can be used.

A recent analysis of data concerning counterfeit parts by researcher IHS found that 57 percent of all counterfeit part incidents over a 10-year period involved obsolete parts. Counterfeiters target obsolete parts because they know the parts are scarce and there is still demand for them.

To reduce risk, buyers need to work closely with component suppliers concerning component obsolescence.

“What is key for us is having very strong supplier relationships with suppliers and ongoing discussions on product lifecycles,” said Linda Diffley, head of tactical supply management at Alcatel-Lucent. Alcatel builds telecommunications equipment, which tends to have long lifecycles.

Forecasting helps

“What is key for us is having very strong supplier relationships with suppliers and ongoing discussions on product lifecycles,” said Linda Diffley, head of tactical supply management at Alcatel-Lucent.Lucent-Alcatel takes a multipronged approach to managing component obsolescence, Diffley said.

“On a weekly basis, we provide suppliers with a minimum of 12 months of our forecast, not only from our direct manufacturing sites but from our EMS providers," Diffley noted. In addition, at least twice a year Alcatel Lucent's buyers meet with suppliers to talk about the forecast.

“They talk about the anticipated lifecycles of our products,” she said. This information is important to suppliers because they can see what the demand will be for their parts the future.

In addition, Alcatel-Lucent has component engineering expertise within its procurement team and on product teams that “focus on product lifecycles down to the component level,” Diffley noted.

“They are very focused on trying to stay ahead of the curve” in terms of product obsolescence, according to Diffley. "I would not say we are never surprised, but the track record of the teams is very good at making sure obsolescence does not become a major challenge.”

When a supplier decides to stop making a part, Alcatel-Lucent usually knows about it well in advance and can take measures to guarantee continuity of supply.

“If the supplier chooses to exit the business on that component, we may end up doing a lifetime buy,” she said. “Or we may work with the supplier to develop an alternate that is more cost efficient.” If that is not possible, Alcatel-Lucent may work with another supplier.

Diffley added that in some instances, a board within a system may have to be re-qualified to accommodate new part that replaces an obsolete one.

Big challenge

“We work with OEM customers and the component suppliers individually on a case-by-case basis," said Kristie Syndikus, director, supply chain management at Celestica.Diffley went on to say that the biggest challenge with obsolescence is custom parts such as application specific integrated circuits (ASICs) and field programmable gate arrays (FPGA).

“Custom parts are the ones that we spend more time and focus on compared to a standard part," she said. With a standard part, there are often other suppliers or other substitute parts that can be used.

While component obsolescence can be a challenge for OEM buyers, it is also an issue for buyers at EMS providers, which build equipment on behalf of OEMs. Often there is collaboration between OEM and contract manufacturers concerning component obsolescence.

“We work with OEM customers and the component suppliers individually on a case-by-case basis," said Syndikus of Celestica. “Some customers are open to redesign or part substitutions.”

She added that some OEM customers have very costly and lengthy qualification requirements. Some of these OEM customers may require lifetime buys or die banking. With die banking, a semiconductor manufacturer will make wafers for a customer and the wafers will be stored in a temperature controlled environment either by the manufacturer or distributor. When the chips are needed, a third party would build a chip from the wafers.

Syndikus said that part obsolescence is an issue for companies that have both long lifecycles, such defense and aerospace, as well as consumer electronics companies, whose products have relatively short life cycles.

In fact, “an ASIC or FPGA for a smart phone may go obsolete much faster than ASIC that is going into an aerospace application,” she said.

“Many component manufacturers, which have invested in industries with longer life cycles, tend to make a commitment with the OEM” to build components for a longer period of time to support the long lifecycle equipment, according to Syndikus.

Risky business

Integrated circuits are the most counterfeited parts, and many of them are knockoffs of obsolete chips.Still, most component manufacturers eventually stop making part, and if an alternate source or part cannot be found, buyers often search the open market or look for parts on online component exchanges to find obsolete components.

This can be risky because it creates an opportunity for counterfeiters.

Rory King, global director, design and supply chain for researcher IHS, said counterfeiters thrive when there are component shortages and “obsolete parts is an extreme example of shortages."

When a buyer searches for a part on the gray market or an online exchange, it creates a demand signal for counterfeiters, who monitor activity, exchanges, and search engines.

“Any time there is desperation or pressure to procure parts that are in very short supply, like obsolete parts, it is a key demand signal for counterfeiters," said King. Counterfeiters see the demand and then offer bogus parts to desperate buyers. He added that buyers should only purchase obsolete parts from approved qualified sources.

Diffley of Alcatel-Lucent Diffley agrees. She said Alcatel-Lucent occasionally buys obsolete parts from approved and preferred distributor-broker partners, but uses them for when there is an unpredicted surge in demand.

She noted that Alcatel-Lucent has not had any problems with counterfeit parts because it is very careful concerning potential bogus components.

“We will have very specific requirements in regards to validating any parts that we may buy from distributor-brokers,” she said.

Diffley said Alcatel Lucent’s “preferred” brokers need to perform a variety of quality and reliability checks on the physical fit and form of the parts, including providing photographs of the device and the packaging as part of the offer review.

She noted that there are other requirements based on the date codes of the material. “Solderability testing is a good example of one of the added test requirements on the broker material based on the date code,” said Diffley. “The part technology requirements of our various product teams could also drive additional testing requirements.”

Diffley said if a buyer is not purchasing parts directly from component manufacturer, the buyer needs to be very careful and very judicious because of the increase in counterfeit production.