“Today, you have to run faster to stay at the same place.” This motto is apt in times such as now, when innovation cycles of technology occur so rapidly. The flip side of rapid emergence of new technologies is the accelerated obsolescence of earlier products. In the world of industrial manufacturing plants, SMEs are more affected.
Product innovation is a very good thing, providing ever increasing functions, capabilities and making products that are more affordable. Hence, we should not fear the necessary consequence that is obsolescence. We will look at impact, implications and remedial measures for obsolescence and take a specific example of automation PCs as a product and of an SME machine builder or plant builder and his customers in factory space as the protagonists. We will then sketch out a detailed set of best practices, which will mitigate the negative business consequences of obsolescence.
Automation is an essential component in all production assets. Most automation, today, is based on electronic products like, PLCs, drives, automation PCs and their peripherals. APCs have a lifecycle, which mirrors the availability cycle of the individual components, usually the intelligent processors, but sometimes also peripheral components. When a product becomes no longer available from its original manufacturer, it is deemed to have entered a phase of obsolescence.
Why does obsolescence happen?
A product becomes obsolete when its components are no longer available or when the market no longer needs it. If the market demand for the product drops, the manufacturer may discontinue the product. Product obsolescence can also be a business strategy, as seen in consumer goods.
For a product like APC that uses many components that are also used by consumer market, obsolescence is strongly coupled with change in purchase pattern of consumer market, which is rather rapid. Therefore, SMEs of the manufacturing segment need to take special measures to protect themselves.
Why is obsolescence so troublesome?
A machine or production line is expected to function for decades. If the automation products do not remain available for this period, there is trouble. An automation PC or APC controlling a machine, has in addition to operating system and drivers, application software, specific for the machine. During production, much data and settings, regarding the actual function are loaded over several years of operation.
As years pass, new processor chips are launched with more power and features. The manufacturer of APC migrates to the newer chip generation with compatible operating system. The application SW of the machine is migrated but also has an upgrade in terms of enhanced functionality. So, it can happen that the new models of APC, operating system and application SW, cannot be loaded to our old machine. The trouble starts when we have a component
The trouble starts when we have a component failure in our APC. The piece can no longer be repaired, because components are not available. It cannot be replaced because the exact same APC is not available. We cannot replace with the latest model, since the application SW of the old machine does not run on the new APC. We cannot use the new application SW, since it does not suit our electromechanical machine and, it does not provide the functionality that we need. Hence, we reach a dead-end.
Why this troubles an SME even more?
SMEs, today, are forced to evaluate automation components continuously in order to incorporate the latest technology so as to be able to compete in the market against the larger players. Management of obsolescence is achieved by a collaborative approach by the manufacturer of chips, manufacturer of APC, the machine builder and the machine user. SMEs are not always aware of the best way to approach the topic.
Typical lifecycle of an automation PC
An automation PC goes through some well-defined stages. The stages can be clearly tabulated as shown in Table 1. Hence, we can see that the total life of the product is around twenty years.
Long availability strategies from vendor
The APC vendor tries to minimise his dependence on third parties by manufacturing processor boards by himself. This is significant because processor boards have a lifecycle closely mirroring office or consumer market.
Communication with chip vendor
The manufacturer of APC tries to enter into a binding contract with the chip manufacturer for an assured supply of chips for an assured period of time. He gets into an early information channel from the chip manufacturer about upcoming new generations and also about discontinuation of the earlier generations. He also gets preliminary versions of the processors to build his products, so that he can start the new product as early as possible. This obviously prolongs the life of his APC in the market.
Do not have to mirror the chip cycle
The APC manufacturer does not have to take every new chip that gets released. There shall be a strong commitment to prolong the life of production machines. This market is conservative, and does not place high premium on getting the latest chip. Much rather, they want years of reliable and uninterrupted operation. This provides dual benefits of reducing the continuous disruption by new models and helps in inventory management thereby, providing longer support after discontinuation. See Table 2.
End-of-line product management
Since the APC manufacturer has a good overview about availability of chips, the next factor is the market demand. This keeps track of the numbers being purchased and how many parties are buying. Therefore, an intelligent decision is taken about the discontinuation point. Now, the APC builder needs to re-check on his stock contract with the chip vendor and also his/her own stocks. A calculation is made regarding how many components are needed to tide over until a complete switchover is made. This determines the stocking strategy. Then, in parallel, work begins on a replacement product. This product should be, as far as feasible, 3F compatible – Form, Fit, Function compatible to the earlier version. The next step is to launch the new product as an enhancement version into the market. A determined push is made to convert major users to the new product.
Information flow between APC vendor and APC customer
APC vendor should have a well-defined communication policy about both, new launches as well as discontinuation. When possible, an early discussion regarding technology change and therefore, migration should be made. As the product enters the phase out period, announce the customers with product cancellation. The phase out period of 6 months allows the customer to strategise a plan in order to avoid downtime of the machines. The customer can place the orders until the end of this phase. They must be informed on the reasons of discontinuation, migration options, product replacement, in case of incompatibility and delivery schedules. The phase ends with last shipment order. The discontinuation notice is the time to get commercially binding contracts. A last date is announced until which orders will be accepted. There should be sufficient notice before the last time buy date. In the same contract, against the last-time-buy order, a last time supply date can also be frozen. This should also include any requirement for spares.
The impact then on inventories at vendor are known. Therefore, a guaranteed last repair date can also be announced. For example, up to five years after the last buy date. This brings the end of product availability, technical support, repair, spares, replacement, and scrapping of residual components. With this, the buyer/user has ample scope to manage his migration plan.
Impact mitigation by industrial user
The first part of the strategy is to buy products in the early stage of lifecycle. Particularly in APCs, the probable lifecycle is guessed at and the purchase decision should factor this in. Another important strategy is to keep maintenance stocks. This is useful as an ongoing practice but becomes important in end-of-life situations. In addition, it is to enter into a spares availability agreement with the vendor. Many vendors are willing to enter into such contracts. Most important is to keep the communication very clear and provide appropriate responses at each stage.
Obsolescence of product is inevitable and has many positive effects. Mainly, it provides benefits of advances in technology to the users. There are negative effects with business impacts, but they can be mitigated with a good strategy. The key is a structured communication with a collaborative spirit between the vendor and the manufacturer/user.