Product obsolescence threats for manufacturers arise due to various circumstances. While constantly evolving technologies push existing products to the next level, they are also prone to lose their purpose in the long run.
In the recent context, the pandemic has disrupted supply chains in different industrial sectors. For example, the shortage of semiconductor supply is creating issues for OEMs worldwide. Additionally, the fast pace of technological advancement has created the demand for product upgradation from manufacturers. The crisis management arising out of such unpredictable episodes due to various economic or market conditions must be intelligently accounted for in the overall inventory management plans, policies, and practices.
The obsolescence threat for manufacturers
Some most dreaded obsolescence threats that OEMs face are:
Market share: The two most common threats of obsolescence for OEMs are - losing the market share, and the ability of the suppliers to support in overcoming the imminent threats. While the market share of an organisation can be tuned largely by smart internal strategies, the dependency on suppliers to reciprocate their risk mitigation plans with equal commitment remains a practical challenge even to the best of the companies.
Non-recurring engineering (NRE): The traditional one-time approach of NRE is a soft and disguised threat that many organisations fail to recognise. Economic considerations of components purely based on NRE may lead to inaccurate cost management due to an unanticipated scare of obsolescence. While adopting the Obsolescence Management System (OMS) in the early stages of design and planning is an ideal way to arrest future risks, it may add an immediate cost burden on the product, cutting the profit margin. To counter this vicious circle, OEMs must carry out detailed research before adopting a particular style, tools, or strategies for implementing OMS.
Inventory management: Inventory monitoring and management of components in the product lifecycle is a constant challenge for manufacturers. It not only impacts an organisation's finances but also influences the obsolescence management strategy in the first place. Incorrect or inaccurate obsolescence management may result in the permanent abandonment of large and non-recyclable inventories, leaving a deep hole in OEM's pockets.
Regulatory concerns: Recertification, mandatory regulations, and ever-changing legal obligations can leave industrial OEMs with adventurous nightmares. Moreover, various environmental guidelines, process compliances & risk assessment methodologies are complex but unavoidable measures to adhere to in the global industrial market.
On-time risk assessment in mitigating obsolescence threat
Obsolescence with long-life products is inevitable. Also, the risks and consequences of lack of timely planning and implementation of OM are enormous. Improper or poor strategies not only impact the immediate revenues of an organisation, but also impact future earnings because of customer dissatisfaction. Hence, risk assessment in mitigating obsolescence and studying its effect on component availability must be ongoing and on-time activity.
The safest approach to combat obsolescence is to make risk assessment a regular practice in product development strategies. Since risks usually arise due to unanticipated business environments, being in constant control through planned risk management at all times will minimise the dangers and impact of obsolescence. Of all factors, inventory management influences the fate of obsolescence the most. The proven industry practices recommend that inventory management must form an integral part of OM right from the design stage.
Longevity visualisation supported by long-term plans helps planned obsolescence. Such approaches are crucial in high investment and value proposition products. For example, products designed for defense systems must have a minimum life span of 25 years before becoming obsolete. This, of course, requires rigorous planning right from the R&D stages, transitioning into actual design, manufacturing, and maintenance.
Product longevity roadmap
The commercial documentation for agreements and contracts between OEMs and suppliers plays a significant role in planning a roadmap for products longevity. Such agreements are not just limited to the supply of parts and components, but also cover important aspects such as logistics, supply chain, and minimum or maximum pricing over coming years.
Considering the widespread needs and practices of international suppliers, compliance and regulatory requirements form very important parameters of agreements and contracts. Though certifications and approvals from internationally recognised associations eliminate a lot of assumptions, risks, and guesswork, thorough assessment based on records and future capabilities must be exercised at all possible levels. For example, ISO 9001 and AS9120 are internationally recognised certifications for quality management and aerospace & defence respectively that establish the credibility of the distributors' capabilities.
Ideal lifecycle management strategy
For an ideal lifecycle strategy, the OEM must bake the lifecycle considerations into the product design itself. On the other hand, the manufacturer (end-user), should also have a proactive approach to take stock of the situation with the supplier, so that none of the parties are taken off-guard at any stage of the product lifecycle.
It is not for no reason that despite the premium price tag, every single launch of Apple product beats the queue for any similar product from the competitors. For the success of any long-term product life, planned obsolescence is crucial. And with this idea, the concept of the modern product lifecycle comes into the picture. The product lifecycle for manufacturers considering planned obsolescence is different from a normal one. Instead of plain study and prototyping in the initial phase of the cycle, the OM is also considered to develop the actual product. Similarly, the obsolescence factor is spread across the inventory management until the end of the product life cycle.
It must be noted that inventory management, supply chain, and logistics are almost situation-dependent during the last leg of the obsolescence. The final stage of product obsolescence is taken over by the 'replacement’ or 'alternate’ component market.
The typical sequence of the product lifecycle in Product Life Cycle Management (PLCM) in an OMS environment is as follows:
Conceptualisation: The objective of this phase is to include all possible features and variations in the product based on the current trends.
Prototyping: Under this stage, all the variants of the products are prototyped with the desired features and functionalities at a high level.
Functional evaluation: The outcome of this stage is the selection of the most deserving product, qualifying all or most of the desired functionalities of the product.
Alpha product: The first working product is developed and released under this stage. Based on the functional evaluation, necessary modifications are applied, and an almost ready product is prepared for customers’ testing, validation, and acceptance.
Voice of customers: The alpha product is put into the actual field of testing by select customers. The feedback is documented and sent back to the product development team.
Pre-qualification and certification: To avoid rejections and major modifications in the final product, OEMs must ensure pre-qualification or certification of the component and related processes. This can save them from the major disappointment of surprises towards the end of the product release in the market.
Beta product: This is the revised product, developed after field-testing in real environments by the customers. This is the closest version of the product that qualifies all the functional and non-functional specifications.
Product certification: The certification process involves various compliance and quality-related approvals for the developed product. While all the requirements of this stage are planned in the early stages itself, any deviation observed is fixed and produced again for the certification covering compliance, safety, and quality-related parameters.
Release candidate: Once the product is certified, the final product is termed the Release Candidate (RC). This version of the product is then qualified to be sold in the target market.
Despite decades of expertise, professionals and organisations face newer challenges that are peculiar to certain applications or technologies. For example, the difficulties faced due to obsolescence threats in the aerospace & defence industry can be very different from those applicable to the medical, or electronics industries. However, the voice of every customer is important because it provides real insight into the issues that happen on the field, at the ground level.
The best way to overcome obsolescence is to adopt the Proactive Obsolescence Management System (POMS). Being only reactive to obsolescence issues leads to significant and uncontrolled cost leakages that can be as high as 50 times as compared to that of POMS. The direct effects of reactive or unplanned obsolescence management can be:
Sudden and complete loss of equipment availability
Frequent downtime leads to high maintenance costs & efforts
High support cost in restoring component functionalities
Customer dissatisfaction and revenue loss
Negative impact on organisation’s reputation
Enhancing longevity of components & equipment
Based on the industry segment and consequences severity of obsolescence, the POMS can be applied to various levels. The two most common ways to begin the POMS way are by adopting the following:
Facility Condition Assessment (FCA): FCA is detailed on-site observation and review activity of equipment and components working in the industrial environment. This involves assessing the physical and functional condition of parts that may be subject to wear and tear, failing, or malfunctioning due to any reason. FCA carried out at individual and integrated level evaluates overall functioning and recommends which component or systems need to be upgraded or replaced.
Facility Performance Evaluation(FPE): FPE focuses on the overall performance of industrial machinery and components. It assesses the availability, dependency, cost-effectiveness, and continuity of individual & interdepended parts and systems. The detailed information and insight provided by FPE at the part-by-part level help develop a robust obsolescence management plan.
Aligning with global strategies
It is practically impossible for OEMs to implement the best and the latest approaches and technologies on their own. Active participation in global industry collaborations and consortiums helps consolidate the scattered information on the advancement of mechanical, electrical & electronics, hardware & firmware, networking & digital technologies, and management practices.
Technology exchange programmes with leading organisations around the world help OEMs adopt the latest trends and align market strategies in sync with global standards. Obsolescence engineering and management require proactive measures to make informed and timely decisions. This calls for a huge amount of credible data that can be technical, functional, commercial, or even from customer support systems.
Data patterns or value ranking analysis from various tools and methodologies provide a systematic and logical framework to tackle various obsolescence-related challenges. One such method – Obsolescence Value Ranking (OVR) utilises various steps and analyses to determine and prioritise obsolescence issues.
Choosing the right supplier for quick obsolete replacement
Suppliers play a significant role in mitigating component obsolescence. For suppliers, on the other hand, it takes a lot of effort in establishing credibility as a trusted business partner. As for manufacturers, the suppliers need to constantly upgrade their technologies and management practices to meet the diversified demand of OEMs that are
both short term as well as long-term.
Some important criteria to consider in choosing the right suppliers for obsolete part replacement are:
Reverse engineering expertise: This is the most important qualifier for a supplier to handle obsolete replacements. It usually involves destructive reasoning to understand how previous component devices or systems accomplish a specific task, with desired performance and efficiency.
A competitive supplier should be able to offer a quick replacement. This requires wide exposure not only in the relevant domain but also in different industries, covering various technologies. Also, the supplier should have good relationships with their principal OEMs to leverage priority delivery of material, minimum inventory support, and so on.
Form-Fit-Function (FFF) capabilities: The FFF capabilities of a supplier refer to their ability to produce parts that are the absolute reflection in terms of appearance (form), compatibility, and physical interfacing (fit) that produce the desired outcome (function). The crux of this factor is that the parts must conform to all specifications and engineering rules not only as individual components but also as part of the larger integrated system.
Historical inventory turnover assessment of obsolete parts
A prospective supplier for obsolete replacement must be thoroughly assessed for its record and performance concerning the turnover of obsolete parts. High turnover on regular basis, covering a wide variety of parts and components for the specific industrial sector is a healthy sign of a dependable supplier. Industry associations, certifications, and formal recommendations from manufacturers are good checkpoints in assessing the suppliers.
Good obsolete part suppliers should be much more than just a good manufacturer or part producer. They must have a thorough understanding of market size, customer preferences, and inventory management systems.
Upgradation or complete replacement
There are three terms associated with overhauling a manufacturing or production process – Upgrade, Modernise, and Replace.
Upgrade: Upgrading is rather a simpler and quick-turnaround activity that involves relatively lesser investment. It focuses on the one-to-one replacement of aging components or systems.
Modernise: Modernising involves combination of replacing components and processes – and not just the components. The objective of this approach is to take the previous setup to the next level, resulting in at least 2 to 3 times operational and performance efficiencies. This requires detailed analysis, planning, and attracts high investment that can run for the next 10 to 15 years.
Replace: Replacement refers to replacing existing machineries and processes with the brand-new infrastructure like machineries, departments, and facilities with realigned processes. This invariably requires huge investments in terms money, time, and efforts. Replacement is called upon only after careful analysis of future business plans and long-term goals. For example, a manufacturer may replace modern lathes with fully automated CNC machines.