ROI of Obsolescence Management

Written by: Farrah Beckham Brown

In a recent LinkedIn article called “Measuring ROI: Why EV Charging Returns Require a Rethink” written by Alex Kaufman, he challenged the EV Infrastructure industry to rethink Return on Investment (ROI). The article was thought-provoking, and it got me to think about ROI as it applies to other areas of the electronics market — namely obsolescence and how we, as businesses, choose to invest in programs and strategies to mitigate risk.

Alex begins the article by sharing that over 8 million refrigerators are purchased each year in the U.S. Throughout all the documentations and spec sheets on these refrigerators, never once was there a “claim for return on investment (ROI).” He goes on to make the argument that there are certain staples within our lives that we’ve come to accept the cost because it’s simply a necessity.

In addition to Alex’s very valid points on EV infrastructure and chargers, obsolescence management in the electronic component industry is also one of those simple necessities that OEMs and ODMs must implement into their supply chain strategy. With the addition of components becoming end-of-life (EOL) parts with little to no notice, it is not a question of what the return on investment is for implementing an obsolescence strategy, but rather what the loss on investment will be if you don’t.

The cost for lacking an obsolescence strategy, or even one that is treated as an afterthought or additional task for an engineer or supply chain manager, can have serious implications.

In my experience, here are some of the most common risks:

  • Productivity loss: If a critical component becomes obsolete, it can be challenging to find a replacement, which can lead to production delays and downtime.
  • Cost increase: When a component becomes obsolete, its price can increase significantly as demand for remaining inventory increases. This can lead to higher costs and reduced profitability.
  • Quality issues: Replacing an obsolete component with a new one may require design changes or modifications, which can lead to quality issues and potential recalls. Or worse, you are more susceptible to counterfeiters who are looking to take advantage of your desperation.
  • Customer satisfaction: If product availability or quality is affected due to obsolete components, customers may become dissatisfied, leading to a negative impact on the brand’s reputation.
  • Regulatory compliance: Obsolete components may not meet the latest regulatory requirements, which can lead to non-compliance issues.

Now, let’s talk about the ROI of an obsolescence management program. While it can be challenging to quantify the exact ROI of such a program, there are several benefits that can be achieved:

  • Cost savings: By identifying and planning for component obsolescence, companies can avoid costly redesigns and production delays.
  • Improved productivity: By proactively managing component obsolescence, companies can reduce production downtime and improve efficiency.
  • Time to plan: With an obsolescence strategy, you’re able to build a timetable for how long you need inventory to meet your needs. Then you can work backwards to find obsolete parts from the open market to fit your timeline, while your engineering team finds alternatives or redesigns.

The world has changed significantly over the past decades and parts going end-of-life and obsolete are not going away. In fact, I’m seeing it happen more often than ever before with the advancements in technology, increased M&A activity, and manufacturers making decisions to focus on the most profitable lines.

More industries, not just the hi-reliability ones, are starting to feel the impact of obsolescence and that is why I urge you to not think of what the ROI will be if you invest in people, processes, and tools, but rather, what will the loss be if you don’t.

At Converge, we partner with our customers to create solutions that fit their needs and timetable. With critical data for critical product lifecycle decisions, we locate the parts you need and develop forecast plans to bridge gaps in your supply chain.

Contact us to learn more about Converge’s obsolescence management programs.

 

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About the Author

Farrah is a Business Development Manager based out of Austin, Texas. With specializations in Automotive, EV, and Oil & Gas, Farrah has expertise ranging on a wide variety of subjects, including obsolescence and the impacts of the issue on companies. Outside of work, she enjoys traveling with her daughters.

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