The state of the electronic component market is always changing, and in recent years soaring demand in certain industries is forcing component manufacturers to shorten the lifecycles of their products. The moment demand dips, the market leaves these companies no choice but to transition the part toward obsolescence and shift their focus where customer demand is strongest. This can be a significant blow to current OEM customers, who in response must either approach third-party vendors, initiate a costly redesign, or discontinue their product altogether.
But the market isn’t the only factor that drives OCMs to make this difficult decision. Compounding the issue further, component manufacturers also must deal with the issue of rising manufacturing costs. The longer a component’s lifecycle stretches, the higher the rate of failure will be per component. This means component manufacturers who choose to continue production of a low-volume, low-revenue component must produce many more just to end up with a suitable amount that meets their quality standards. Continuing production of a part with limited profit potential as manufacturing costs continue to rise is not a sustainable long-term strategy.
There are several reasons for this phenomenon. First, there is the natural degradation of the electronic equipment responsible for assembly over time. Even when properly maintained and serviced, there is still an inevitable decline in output consistency that OEMs expect and prepare for with strict, and costly, quality control procedures.
The other, and perhaps more pressing, issue has to do with what we will call the component “bell curve.” Mass production of a transistor or semiconductor, in practice, does not manufacture perfect copies of an original design. Instead, it is more accurate to describe the process as making copies of copies. While advances in technology ensure that early runs are, in fact, perfect copies, each successive iteration deviates ever so slightly from the original. Eventually, these minor deviations hit a wall that results in component failures – and as production continues, these failures become too common to write off as a fluke. These failure rates become so dire that it’s not uncommon for OCMs to manufacture 1 to 1.5 million components just to fulfill an order of 750,000.
But as costly as this sounds, the fallout of acting to mitigate it could be worse if handled poorly. OEM customers, especially those who operate in industries defined by extended lifecycle and long-term service commitments (healthcare, aerospace, etc.), count on these components being readily available. The component market is incredibly competitive, and often component manufacturers have to “fight” for their place in OEM supply chains with assurances, promises, and lofty expectations. If these expectations are not met, it can significantly impact a manufacturer’s decision to include that OCM in future design plans.
A Last Time Buy Solution ensures that no obsolescence issue impacts an OCM’s ability to make decisions against its own self-interest – while still providing OEM customers the soft landing they need to keep their supply chain intact.
Here’s how it works: Once a component transitions toward obsolescence, the OCM will then refer us to their OEM customer to step in and make a last time buy. Instead of the OEM putting up a significant portion of their working capital (and warehouse space) to secure multiple years of inventory, Partstat will purchase the inventory on their behalf using our own capital. Not only that, but we will also store the inventory in our own climate-controlled facilities and fulfill it anywhere in the world on a schedule determined by the OEM. In effect, the OEM can continue business as usual, its bill of material intact, while the OCM walks away from the unprofitable component knowing their customer is well taken care of.
Our solution also contains multiple financial benefits for both parties. For the OCM, they will realize multiple years of revenue in a single order, while the OEM can use the opportunity as leverage to negotiate significant bulk purchase discounts. This is all in addition to our Last Time Buy Solution’s proven ability to save OEMs an average of 42 percent in annual inventory carrying costs.
Obsolescence does not have to be a point of contention. Our solution was created to meet the needs of today’s manufacturers, and OCMs and OEMs alike stand to benefit from it. In fact, OCMs who have offered our solution to their customers have told us how its value has made their relationships with OEMs stronger than ever. It shows that even in the worst situations, the OCM still has their customer’s best interests at heart.
In today’s market where manufacturers often struggle to distinguish themselves, having a solution ready to alleviate obsolescence is a powerful tool, and it’s one all component manufacturers should act to take advantage of now before their competitor does.