© converge Business | July 07, 2016
A rising tide – obsolescence
There is a – potential – problem on the horizon. I say potential, because it will only be there if we actually let it. I am of course talking about obsolescence, and how we manage it.
There are probably three main drivers for the rise of obsolescence; 1 – technology is changing so rapidly that manufacturers miss the alerts that signal the end of life of a component; 2 – many industries are being forced to support components for very long periods of time, without the funding to allow for adequate buffer stock; and finally 3 – supplier consolidations mean many component lines will be discontinued, and with the movement we saw last year – this should present both a challenge and opportunity for those companies involved in obsolescence management. Enda Ruddy, Converge’s Global Director, and I have had this conversation before, and we will surely have it again. That industry of ours is in a constant flow, ever changing and manufacturers as well as component suppliers will have to find new ways to secure their supply chains in all aspects. But Converge’s business has grown dramatically since I last spoke to Enda. Customers voice concerns on obsolescence challenges and they want solutions for that. Something that seems to resonate with a lot of distributors nowadays. But obsolescence isn’t really a new problem. There have always been product groups threatened by discontinued components; think transport industry, Moore’s Law, 20 year old trains and you know what I mean. More interesting a question might be: “Why haven’t we learned to cover our bases yet?”
The other big challenge for the industry is the consolidation within the semiconductor market.Research from Arrow shows that a typical end of life announcement generates product orders to the OCM that cover only 60 percent of future demand for that specific part. A full 40 percent of future demand is not captured during the last time buy process, which is just setting up a substantial supply gap for years to come. “Silicon Expert – one of Converge sister companies – pointed out that obsolescence incidences are increasing with double digit growth year-on-year. And this all matched up with our experience. Obsolescence is becoming more critical,” Enda tells me and continues to explain how the issue has evolved. “The rate of change has been so great – many manufacturers’ BOM lists are already obsolete when the product goes into production. The other big challenge for the industry is the consolidation within the semiconductor market. It would be foolish to try and predict how that will actually affect the market, but past experiences show that – when there is a spike in supplier consolidation – there is typically also a rise in obsolescence incidents . We’re wondering if these trends experienced by our customers today will translate to a related increase in shortages over the coming five years.”
“Our feeling is that obsolescence now is becoming quite critical and it needs to be treated at a senior management level."And, looking back, obsolescence has also shifted focus. Where, in previous years, obsolete components mainly plagued security sensitive sectors such as transportation, medical, military or aerospace, the need for product longevity has expanded into other sectors. “Yes, it has expanded. Traditionally obsolescence would be key for Aerospace & Defense – the vertical industries. You would also expect Medical, Transportation and Oil & Gas to be affected, and they are. However, we’re also seeing large Industrial or Embedded customers being affected. Consumer electronics can easily be re-designed. Which is cheaper and has been done for the past few years. So we do not really hear about obsolescence issues from this industry segment.” So the solution for this? – Plan ahead. The risk of obsolescence should already be considered at the design stage. Obsolescence management should be pro-active. More and more people realise that obsolescence is an actual problem. Furthermore, it is a problem that needs to be addressed now; before it can cause any problems a few years down the lifecycle of any given product. “Our feeling is that obsolescence now is becoming quite critical and it needs to be treated at a senior management level. Obsolescence comes down to risk management and this risk can be broken down into three main areas. 1. As component counterfeiters target obsolete component, the majority of the counterfeited parts are obsolete 2: finance, redesign or you’re buying too much stock 3: running out of parts which means retiring projects when there’s still life in them What is becoming clear is that we cannot go on treating obsolescence management as something of a side project.” But what now? “Manage. We need to work together and be a part of a team to be able to offer services covering all areas. Being part of the Arrow team means being part of a bigger organisation, that can offer many different solutions. And what we do not provide, our sister companies do.” In the past Converge was what you would call an exception provider, which means that the company came into play when a part wasn’t available from either the manufacturer or the franchise directly. “There will always be a need for exception providers. However, once you use an exception provider, we think it becomes a case of risk management. We’re starting to see ourselves more and more as a risk management provider, using data and analytics to give customers an insight into potential obsolescence issues well ahead of time.” “Customers come to us and say ‘Ok Converge, these are the parts we are worried about for the future. Do your analysis and tell us which ones have a healthy supply or a shortage in the future. What we need to monitor and which components will have a critical supply status later on.’ We’re working towards something that would allow us to make that analysis on very short notice. But for now, the industry in general is still too reactive.” But since last year with the massive consolidation that took place, the playing field and the rules have somewhat changed – how does this affect Converge and the way that you conduct your business. How can you be proactive is such a volatile market? Enda tells me that the company is working on with a beta group of customers over the next quarter where they are looking at how Converge can early identify parts that may go short. “Being able to anticipate what parts would go short and then be able to make decisions based on that information – that would be a great tool.” He goes on saying “We don’t have a crystal ball – but we can obtain information that will provide us with indicators where troubles may come. What we’re talking about is the scale of Arrow, the partnership within in it and the quality certifications that we have among us.” The final message from Enda is that the issue of obsolescence needs to be taken seriously by senior management – the cost of delays, redesign and so on are just not worth the risk. There is an opportunity for our industry to learn from the finance industry, which has established ways to manage financial risks – and obsolescence management comes down to risk management. “That and collaboration, regardless if its within your group of suppliers or outside. It needs to happen”
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