Electronics manufacturers have typically adopted a reactive approach to component end-of-life management. But it pays to be more proactive. Here are the pros and cons of some obsolescence strategies.
Manufacturers in the military/aerospace and automotive industries have long known the value of independent distributors in making sure they get the components they need for as long as they need them. Recent events, though, have shown that an independent sourcing partner is just as valuable during end-of-life market imbalances and when other shortages occur.
The new landscape
Last year, the pandemic combined with shifting demand patterns to create a perfect storm, resulting in huge semiconductor shortages and frantic sourcing scrambles.
The recent freeze in Texas has further contributed to market imbalances, as weather uncertainty temporarily shuttered two chip factories in Austin. Suddenly, a variety of industries are nervous as end-of-life market strategies are converging with day-to-day sourcing.
Adding to the challenge: The heavy reliance on factories in Taiwan for electronic parts adds another layer of risk to sourcing chips.
“You have an entire global electronics supply chain that is dependent on Taiwan, and it’s 100 miles offshore of China,” said Stacy Rasgon, a semiconductor analyst at the financial services firm Alliance Bernstein in the Washington Post. “Given everything going on with geopolitical tensions, that’s becoming a strategically untenable position.”
Market imbalances slow automotive production
Auto makers, long experienced in working with independent distributors for end-of-life (EOL) parts, may be looking at these partners in new ways. In the short term, carmakers like General Motors and BMW have been adversely affected. The newest designs utilize semiconductors across just about every system, from power and breaks to entertainment systems and parking cameras. That is even more true for electric vehicles, and considering their growing number (7.2 million in 2019, compared to 17,000 in 2010, with 47% being driven in China), the impact of the shortage is considerable.
Last month, GM, for example, announced it is temporarily closing three manufacturing plants and slowing production in another due to chips sourcing issues.
Automotive makers are not alone; every industry that uses semiconductors (which is nearly every industry in existence), including military/aerospace, industrial, energy, transportation, and consumer electronics, should consider their semiconductor sourcing strategies. Increasingly, a strong partnership with an independent distributor should be part of that.
Independent sources to the rescue
Supply chain partnership strategies that rely exclusively on direct factory and/or franchised distributor support neglect the inherent benefits of including independent distributors as a regular, practical source of support during market imbalances. Without independent distributors, OEMs would face chronic chips shortages without any way to smooth out the ups and downs.
Once known as the “grey market,” independent distributors are now part of mainstream sourcing strategies. A subset of product sales organizations, known a brokers, make their name by buying excess parts at huge discounts and then selling them at a premium. Now, however, independent distributors are distinguishing themselves as trusted supply chain partners.
Using only franchised channels limits OEMs since the traditional supply chains tend to function in a single direction, funneling chips from the factory to the distributor and then into the hands of customers. In this model, organizations have no way of accessing pools of inventory that may reside within other organizations, which hamstrings them in addressing shortages.
Independent distributors match pools of remaining inventory with demand from other users across the globe. Without this vital, organic function, customers face unsolvable inventory shortage functions.
How independent distributors can help in the end-of-life market
Particularly in a time of market imbalances, independent distributors can step up and supply products that are hard to find. Here is why:
- They specialize in hard to find/obsolete parts.
- They access a tested global market for parts from a variety of sources including OEMs, EMS providers, component makers, and authorized distributors.
- They deliver shorter lead times than their franchised counterparts.
When choosing an independent partner, OEMs should look for a handful of differentiating features including:
- Robust technical and after-sales support.
- Commitment to communication around end-of-life products and component lifecycle.
- Clear quality inspection and testing processes, as well as traceability standards, to ensure that substandard or counterfeit parts don’t enter the supply chain.
- Pricing levels that don’t put an undue premium on desired products.
- Willingness to undergo customer audits.
To summarize: Independent distributors should be part of a comprehensive sourcing strategy, especially in light of ongoing cycles of semiconductor shortages.