Why Mitigating Obsolescence During Electronic Component Selection Is a Critical Risk Management Strategy

For manufacturers and other businesses operating in one of the multitude of industries that depend on the electronics supply chain, component obsolescence is an ever-present specter of disruption. An end of life (EOL) notification informing a company of a part’s impending obsolescence forces the manufacturer to choose between several difficult decisions, choices that can increase costs, push out production timelines, and even compromise product functionality. While companies may be able to draw on an internal playbook for dealing with the imminent obsolescence of a critical part, the options will almost always require a level of adaptation and accommodation that is less than ideal. 

Component Obsolescence Is on the Rise

Component obsolescence—which is primarily driven by manufacturing complications, evolving environmental regulations, and especially decreases in market demand—is on the rise. A recent report from Z2Data cogently illustrated the magnitude and scope of obsolescence in the electronic component supply chain. The study found that nearly 750,000 parts reached EOL in 2022, a dramatic jump from previous years (attributable, in part, to the unprecedented supply and demand dynamics experienced during the pandemic). While obsolescence figures declined the following year, 2023 still saw nearly half-a-million components reach EOL. 

As the frequency of component obsolescence continues to grow for manufacturers in industries like automotive, aerospace and defense, and consumer electronics, there’s an increasing demand on engineers and strategic sourcing professionals to start addressing the problem with greater diligence and foresight. That means pivoting from the reactive approach that has long dictated obsolescence management to a strategy more rooted throughout the manufacturing process—including during the component selection stage.

The Stakes of Obsolescence 

Manufacturers sourcing from the global electronic component supply chain are constantly negotiating a welter of threats and disruptions. The range of perils include extreme weather events, factory shutdowns, trade conflicts, and the expanding scope of environmental directives. In the context of this complex, multilateral risk landscape, how large does obsolescence loom? “It’s in the top five risks,” said Daniel Grundy, UK and International director at the International Institute of Obsolescence Management (often abbreviated as IIOM). Grundy positions obsolescence directly alongside top-tier concerns like supply chain continuity, geographical location, global regulations, and government sanctions in terms of the danger it poses to businesses. 

Part of what makes obsolescence such a potentially destructive risk is the way a single EOL notice can impact multiple products and subassemblies, triggering a cascade effect capable of swiftly sending a manufacturer into damage control. Grundy, who works in the automotive industry, cited the example of an automaker that uses a specific component across several vehicles. If that part is discontinued, the company faces the challenge of replacing it in not just one but multiple models. Given the typical automaker’s production rate, that could easily amount to over a thousand vehicles a day whose manufacturing is compromised by a single product discontinuance notification (PDN). “It can propagate through a vehicle fleet very quickly,” he said. 

The reverberations of component obsolescence can go beyond a company’s existing product portfolio, too. In the automotive industry, a single discontinuance can affect future models as well. Carmakers often “carry over architecture” from one generation to the next, Grundy noted—meaning that if a specific piece of hardware is impacted by an EOL notification, it could alter the trajectory of future models. “It’s not just about protecting what we’ve got today,” he pointed out. 

Obsolescence Management During Component Selection 

One way for companies to head off the consequences of untimely obsolescence is by mitigating the risk as early in the manufacturing process as possible. When a component engineer incorporates obsolescence risk into the process of researching parts and putting together an initial bill of materials (BOM), they are effectively minimizing the chances that a crisis will arise that demands rapid decision-making from management. Leadership doesn’t have the luxury of time, research, and careful consideration when a disruption strikes their supply chain and requires an immediate response, and the results often carry unavoidable compromises to cost, production schedule, and even overall quality. 

Grundy outlined a worst-case-scenario triggered by an obsolescence event. Faced with a lack of viable alternative options, a manufacturer may be forced to reduce the specifications and functionality of a product—a measure typically referred to as a “downspec.” “In some cases, and I’m talking about absolute extremes, nearly every automotive manufacturer has had to deselect a feature on the vehicle” due to discontinuance, he said. While generally rare, difficult decisions like these were more prevalent during the global semiconductor shortage, when parts were being obsoleted at breakneck speeds and securing alternatives within a reasonable timeframe was exceedingly difficult.

Though such disastrous contingencies are far from commonplace, they do demonstrate the irrefutable value in mitigating obsolescence risk before circumstances grow dire. 

Strategies for Proactive Obsolescence Management 

While many manufactures continue to approach obsolescence risk in a provisional, ad-hoc fashion, there are a myriad of established measures for managing component end-of-life with greater accuracy and deliberateness. These best practices are often most successful when implemented during the component selection stage—before companies and their procurement experts are at the mercy of a cemented BOM and its longstanding components and subassemblies. 

Obsolescence Forecasting

When a component engineer is parsing parts for a new product or a redesign, their primary criteria are always going to be form, fit, and function (FFF) and cost. But to practice responsible risk management, professionals should also avail themselves of obsolescence forecasting, a powerful tool that gives teams an effective estimate of a component’s lifecycle status and the years remaining before obsolescence. Supply chain risk management platforms synthesize a plethora of in-depth data to arrive at these EOL forecasts, and drawing on them can help engineers steer clear of parts that might fulfill FFF requirements but are teetering on the precipice of discontinuance. 

Selecting for Crosses 

Another practical strategy that engineers can employ during component selection, identifying viable crosses provides manufacturers with a clear backup plan should a component reach EOL before anticipated. Choosing a part that has several alternatives that fulfill FFF requirements is an example of proactive obsolescence management that can be seamlessly incorporated into the selection process. 

Understanding Emerging Regulations

Companies and their engineering teams might not always connect the dots between the emergence of new regulations and the onset of component obsolescence. The fact is, however, that new environmental directives can have an outsized impact on EOL trends. After the European Union’s Restriction of Hazardous Substances Directive (RoHS) officially went into effect in 2006 and restricted the use of 10 different chemicals in electronic components, the regulation triggered a wave of obsolescence for parts that were made with substances like lead, mercury, and cadmium. 

While the inception of major regulatory directives like RoHS were once rare events, our growing awareness of chemicals’ adverse impacts on human health and the environment has led to a meaningful uptick in such laws. The increase in PFAS regulations worldwide, to cite one example, is all but guaranteed to eventually have a substantive influence on component obsolescence. Professionals conversant in the environmental regulatory landscape can apply that knowledge to selecting parts that are less likely to fall out of compliance in the near future. “Because of the longevity of the programs, and the parts, and the products that you’ve got, you’ve got to be thinking eight years down the line,” Grundy said. A lot of that forethought, he added, has to do with understanding the trajectory of environmental compliance and sustainability.

Fostering Close Relationships with Chipmakers 

In addition to the established repertoire of proactive obsolescence management measures, Grundy also pointed to a less-discussed supply chain risk management strategy. For a long time, manufacturers in large industries that sourced heavily from the electronic component supply chain weren’t particularly interested in choosing what semiconductors went into their hardware. “The requirements were written for the performance of the hardware,” he said. “What was inside was less important to us.”

More recently, though, many companies have begun to recognize the advantages in playing a more active role in determining what semiconductors sit at the core of their parts. “It’s only over the past three years that we now start to hold more advanced bills of materials for the content on our tier-one level,” Grundy noted. But how does obsolescence management fit into this decision to assert more control over the selection of chips? 

The semiconductor industry is among the most competitive sectors in the world. Manufacturers are perpetually striving to introduce more sophisticated devices to power smart technology, machine learning, AI, and other leading-edge innovations. The byproduct of all this rapid, frenetic advancement is chips that enter obsolescence much earlier than they did one or two decades ago. By establishing what Grundy characterized as “closer alignment” and “closer relationships” with chip manufacturers, companies can make savvier, more informed decisions about the semiconductors that are going into their cars, computers, smartphones, and aircraft. Strategic partnerships with chipmakers, in other words, has emerged as a unique obsolescence management strategy in its own right. 

How a SCRM Platform Can Bolster Your Obsolescence Management 

While some of the obsolescence management strategies outlined in this article can be carried out by internal engineering and procurement teams, these professionals need to have the requisite level of expertise and bandwidth to execute them effectively. Cultivating a facility with the ever-evolving regulatory landscape and researching FFF crosses for every potential component in a product BOM—to cite just two examples—can be arduous, time-consuming tasks. While undoubtedly worthwhile, they may stretch a team’s resources thin, ultimately compromising productivity and even precipitating burnout. 

For manufacturers that want to develop a robust obsolescence management system without imposing onerous demands on their staff, a supply chain risk management tool may be the ideal solution. Z2Data, one of the most comprehensive out-of-the-box SCRM platforms on the market, gives companies the data, visibility, and predictive analytics to gauge obsolescence risk with effectiveness and precision. The tool’s exhaustive database of over one billion parts features component profiles that include a list of available crosses and comprehensive environmental compliance information. In addition, Z2Data offers customers an industry-leading obsolescence forecasting tool that’s supported by a historical accuracy of over 90%. 

To learn more about Z2Data and its suite of proactive obsolescence management tools, schedule a free demo with one of our product experts.