Distribution
Dealing with obsolescence
Obsolescence of electronic components is posing a serious challenge to electronic designers and is a problem that is likely to increase in the near future. CIE met with Andy King, Vice President Marketing & Engineering of Arrow Electronics to talk about the current situation
CIE: What are your views on obsolescence in general? Is it primarily semiconductor components being affected or are commodity and non-commodity semiconductor components equally being affected?
Andy King: Those components most affected are actually found in the non- commodity semiconductor area. With high-tech devices, manufacturers continuously invest in the development of new generations that deliver higher performance in smaller packages. With commodities the product life cycles are significantly longer.
CIE: Looking at the issue of obsolescence, has its importance grown in recent years?
King: Obsolescence has always been a hot topic. For a long time now, we have been offering our customers a long-term inventory as part of our supply chain services. For example, at a very early stage we invested in a nitrogen storehouse in our distribution logistics centre in Venlo (Netherlands). We have always been concerned with obsolescence. Perhaps we hear more about it now, which has helped raise general awareness.
CIE: Is obsolescence addressed differently based on individual vertical sectors, or is the issue fundamentally the same?
King: Looking at the lighting sector for instance, our products, solutions and support infrastructure is geared towards meeting the needs of organisations migrating to LED-based platforms as well as those looking to design their own LED- based applications. The company’s lighting portfolio combines LED devices with drivers, secondary optics, power supplies and other elements needed to implement an LED-based design. These products are complemented by intermediate and modular technologies - including PCBs pre-populated with LEDs - alongside tools that speed the creation, prototyping and delivery of lighting products. Clearly, the downside of this fast
22 October 2011
changing environment is "performance obsolescence". We see the same scenario in other sectors too, and that is why we make it easy to query component status and identify alternatives, trying to keep mechanical compatibility in order to ease the technology migration.
CIE: If you find out a manufacturer is discontinuing its products, what course of action do you recommend to your customers?
King: For us as a distributor, end-of-life products are of course a big issue. Accordingly, obsolescence management is an important part of our customer service. In our inventory management system we make provisions for possible alternatives if we know a device will be discontinued. Furthermore, our field application engineers will offer suitable alternatives to our customers.
CIE: What is your procedure if a component is discontinued?
King: In case of a device being discontinued we label this component with a “last time buy” status. Subsequently, a further label will be applied if the device reaches the obsolescence status. In parallel to this, our sales team will receive a list of devices our customer has ordered in the past. Our sales department will use this information to inform our customers about a pending discontinuation of a device.
The customer then has the opportunity to assess demand in the coming years for the device, so we can determine needs accordingly. In coordination with the customer, we will then generate an electronic product change notification. Our focus is personal sales information for the customer so we can ensure that no information is lost and the customer can respond immediately.
CIE: If a large semiconductor company stops their production because the quantities are too small, will you try to encourage smaller manufacturers to continue producing obsolete devices?
Components in Electronics
King: No, we usually don’t. But we offer our customers technical alternatives or a long-term inventory. As our customers already have to create new approvals when changing a producer, they generally fall back on further developments of the components.
CIE: In terms of strategy, what has changed over the years? Will you store large amounts of components if you know they will be discontinued?
King: Should this be necessary in the case of obsolete components, we might recommend a substantial inventory. We will agree upon an amount and duration. As a global distributor we benefit from other business units within our corporate group; as they specialise in certain areas they have a high demand of long-term available components. So we will be able to stock up without any customer feedback. Within the global business transfer we will participate in it.
CIE: Beyond obsolescence, what other aspects of the supply chain is Arrow aiming to improve? Is a leaner supply chain the answer?
King: Lean supply chain planning offers a lot of potential. In a service spares environment, targeting the elimination of non-essential tasks from the process and focusing on the operations that create value for the end customer can result in a leaner service spares supply chain and a more efficient organisation. Our reverse supply chain is working to help organisations slash costs and waste, while driving overall efficiencies by minimising inventory risks. Unlike a conventional planning system, lean planning introduces the concept of ‘dynamic sizing’ of service spares inventory in relation to real-time demand characteristics. So instead of a traditional planning system that takes long-term inventory positions, lean planning can dramatically reduce the pressures to carry extensive inventory, thus eliminating the risks of inventory obsolescence or last- time purchasing requirements.
CIE: So you see a lot of potential in this approach?
King: Yes we do. And it’s not just lean planning that offers potential. For instance, product returns management statistics indicate that the overall cost of product and scrap material returns to manufacturers is continuing to increase. High-tech companies alone spend up to 8% of their revenues just to manage their reverse logistics function. With these costs adding to overall operating expenses, there is value from material returns to tap into. More and more companies are seeing this and we are in a great position to help our customers make the most of these opportunities.
CIE: Five years on, how did the Restriction of Hazardous Substances (RoHS) directive affect your business?
King: As a result of the RoHS legislation, we updated our Component Selection and Management Services database in a bid to minimise the impact of the industry-wide ban restricting the use of six substances in electrical and electronic equipment sold in Europe. We helped original equipment manufacturers and contract manufacturers address the compliancy of their end products and supported our customers proactively throughout this transition.
Our position within the supply chain enabled us to provide the information required for positive results and a smooth transition. For years, Arrow's Component Selection and Management Services had assisted customers in dealing with component obsolescence issues by providing unique tools and information to help them mitigate the potential supply disruptions and costs associated with procurement risk and obsolescence; the RoHS initiative helped us assert our expertise. n
Arrow Electronics |
www.arrow.com
www.cieonline.co.uk
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