Obsolescence risk management

It is common for certain components of electronic products to reach obsolescence long before the whole product does. Obsolescence is defined as the loss or impending loss of original manufacturers of items or suppliers of items or raw materials.

The type of obsolescence are

1. DMSMS (Diminishing Manufacturing Sources and Material Shortages) which is caused by the unavailability of technologies or parts

2. Part unavailability from the original manufacturer means an end of support for the part and end of production of new instances of the part. “Inventory obsolescence”, also called “sudden obsolescence”. In such instances, suppliers may decide to discontinue the component and issue a call for Last Time Buy (LTB).

Fig. 1. The portion of the Commercial Off The Shelf (COTS) electronic parts that become un-procurable in the first 10 years of a surface ship sonar system’s life cycle (Courtesy of NAVSURFWARCENDIV Crane,).

For products that are supported for long periods of time and have significant electronic content, avoiding obsolescence is not possible. Designing an electronics-rich system that can be supported for 20+ years so that none of its constituent parts become obsolete is generally not practical. Obsolescence Management becomes an exercise in making the problem manageable or minimising the through-life cost of sustaining the product.

Obsolescence Management

Effective management of obsolescence in systems requires three different management levels: reactive, pro-active and strategic.

Fig. 2. Three obsolescence management levels

Reactive management determines the immediate resolution to the problem of an obsolete part, executes the resolution process, and tracks the actions taken.

Pro-active management of obsolescence requires the identification of critical parts that:

a) are at risk of becoming obsolete,

b) will have an insufficient quantity available after obsolescence to satisfy expected demand. Pro-active management requires an ability to forecast the obsolescence risk for parts.

Strategic management of obsolescence means using obsolescence data, logistics data, technology forecasting, and demand forecasting to enable strategic planning and life-cycle optimization. The most common approach to the strategic management of obsolescence is Design Refresh Planning (DRP).

Last time and bridge buy play a role in nearly every part of obsolescence management portfolio no matter what other reactive, pro-active or strategic management plans are being used. LTB is the quantity of components or spare parts a technology company buys in bulk from its suppliers before the production of those parts is stopped. Alternatively, bridge buys mean purchasing enough parts to last until a planned design refresh point in the future where the part will be designed out of the system.

Obsolescence Forecasting

In order to manage obsolescence, we first need to be able to predict it. The majority of electronic part obsolescence forecasting involves the development of models for the part’s life cycle. Traditional methods of forecasting used in commercially available databases and services are based on the use of ordinal scales that determine the life-cycle stage of the part from a set of technological attributes. Most obsolescence management organizations perform obsolescence forecasting on their Bills Of Materials (BOMs) to avoid selecting parts that are close to obsolescence.

Obsolescence Mitigation

When parts become obsolete there are various mitigation approaches that can be employed. Replacement of obsolete parts with non-obsolete substitutes or alternative parts is common for simple parts where the requirement for re-qualification of the system is not unreasonable. Lifetime buys of parts are also commonly used, i.e., buying and storing enough parts to last through a system’s remaining manufacturing and sustainment life.

Strategic Planning

Several types of strategic planning approaches have been used to manage obsolescence: Material Risk Indices and Design Refresh Planning.

Material Risk Index (MRI) approaches to analyze a product’s bill of materials and score each part within the context of the application and the company using the part. The idea of an MRI is to evaluate the time-dependent risk of a particular function or subsystem within a system being impacted by obsolescence to specific degrees that require specific actions. The evaluated risk can then be mapped to through-life cost.

The goal of Design Refresh Planning (DRP) is to determine when to design refresh (on what dates) and what obsolete system parts should be replaced at each design refresh (versus managing each individual obsolescence event with a reactive obsolescence mitigation approach). Design refreshing a system solely to manage obsolescence is not practical for every system. Technology insertion roadmaps are commonly developed for systems in order to dictate changes in the system’s functionality and performance over time. Technology roadmaps reflect an organization’s internal goals and budgeting cycles, or may be dictated by the needs of the customer. Integrating technology roadmap information into design refresh planning ensures that the refresh plans that are selected will meet roadmap imposed timing and budget constraints and that the costs of roadmap specified actions are accommodated within relevant refresh.

Conclusion

Using a scientific approach, organizations can drastically reduce inventory costs and the probability of subsequent excess and obsolete inventory. This also allows them to maintain the desired customer service level. Using the proposed approach, OEMs can drive a significant reduction in E&O costs for end-of-life components or products. For many large devices or network firms, annual LTB is in the range of US $50–100 million, so even a 10% reduction in excess buying can help save millions of dollars.

References

1. Sandborn P. Chapter 16: Cost ramifications of obsolescence. In: Cost Analysis of Electronic Systems, World Scientific, Singapore, p. 307-328, 2013.

2. Nelson III R, Sandborn P. Strategic management of component obsolescence using constraint-driven design refresh planning. To be published: International Journal of Product Life Cycle Management.

3. Sandborn P, Prabhakar V, Ahmad O. Forecasting technology procurement lifetimes for use in managing DMSMS obsolescence. Microelectronics Reliability 2011; 51:392-399.

4. Henke A, Lai S. Automated parts obsolescence prediction. In: Proceedings of the DMSMS Conference, San Antonio, TX 1997.

5. Josias C, Terpenny J. Component obsolescence risk assessment. Proceedings of the Industrial Engineering Research Conference (IERC) Houston, TX 2004.

6. Peter Sandborn. Design for obsolescence risk management. 2nd International Through-life Engineering Services Conference. author. Tel.: +1-301-405-3167; fax: +1-301-314-9477. E-mail address: Sandborn@calce.umd.edu