Rising Obsolescence in Electronic Components and its Solutions

Component obsolescence continues to be a supply chain threat for most companies in the electronic components market. Obsolescence can cause industry-wide disruptions that have the potential to evolve into worldwide shortages. When a component enters obsolescence, it poses significant challenges for original equipment manufacturers (OEMs), contract manufacturers (CMs), and electronic manufacturing service (EMS) providers.  

The severity of these problems depends on the market a component is mainly used for and how critical the component is to the functionality of a product. Extensive redesigns may be necessary if a component lacks form-fit-function (FFF) alternates, drop-in replacements (DIRs), or functionally equivalent parts.  

For high-reliability manufacturers, such as aerospace, defense, and healthcare, redesigns can take months to years and require millions for qualification testing to be put on the market. Even less critical components usually found in consumer devices, which are not held to the same stringent standards, can contribute to increased costs, delayed production, and lost company revenue.  

In a post-global semiconductor shortage market, electronic component obsolescence is on the rise.

Contributing Complications that Increase the Occurrence of Obsolescence

The trend of rising electronic component obsolescence is not new. Experts believe that aggravated circumstances during the pandemic exacerbated the already problematic situation. Over 328,000 end-of-life (EOL) notices were issued in 2023 alone with 15 EOL notices and 30 part change notifications (PCNs) happening daily.

Obsolescence occurs for various reasons beyond the simple “out with the old, in with the new.” Of course, technological advances are one reason components enter end-of-life (EOL) status. Companies are always looking for ways to create more efficient and cost-effective products, which includes components. Consumers want technology that is faster, more accurate, and more customizable, and the only way to achieve this is by innovation.  

However, manufacturers often discontinue parts for reasons that go beyond technological advances. Usually, it lies with low consumer demand and a lack of profitability. If it costs more to make a product than its return, dropping the product is more financially feasible. Sometimes, it is more profitable for the manufacturer to discontinue a product and sell the manufacturing equipment, completely erasing the possibility of a future return.

Notably, obsolescence can also occur due to supply chain disruptions in the form of natural disasters or economic challenges. The semiconductor shortage is expected to contribute to rising obsolescence in the post-pandemic years. During the shortage, original component manufacturers (OCMs) prioritized their more lucrative lines to meet the extensive demand.  

Production capacity issues led to foundries becoming three years booked out. Original component manufacturers (OCMs) can only do so much, and upon reaching total capacity, there are no resources left to devote to less profitable lines. Even with new foundries under construction, OCMs aren’t buying old wafer equipment.  

Some OCMs that slowed their production lines during COVID-19 are expected to not even resume manufacturing at the same pace as before. Others have dropped the products off their manufacturing lines entirely. When this occurs components enter what’s called instant obsolescence, preventing procurement teams from making a last time buy (LTB). Around 35% of all obsolete components enter instant obsolescence.  

Similarly, the impact on raw materials over the global semiconductor shortage and those facing geopolitical volatility restrictions are liable to be removed from a supplier’s product portfolio. If the materials are not easily accessible, OCMs are not incentivized to find an alternative method to obtain these substances.  

A product must remain financially feasible with high market demand to see continued production. Most EOL and instant obsolescence cases are traced back to low market demand compared to other issues, such as technological advances and regulatory changes. Manufacturing troubles are the second highest cause, as seen in the global semiconductor shortage.

Unfortunately, electronic component obsolescence cannot be completely eradicated as a problem. Obsolescence is the natural conclusion of any product’s life cycle. The best way to handle rising component obsolescence is through proactive strategies to mitigate some of the challenging aspects obsolescence can present.  

Combat Obsolescence with Case Management and Proactive Planning

Obsolescence is a challenge, and if caught unaware, organizations can suffer from significant productivity and revenue loss. There are a few ways to tackle the challenge of obsolescence, and when combined, it can act as a strong defense against even the most complex cases. Mainly, organizations must embrace proactivity over reactivity.

The electronic components industry mainly relies on just-in-time (JIT) supply chain policies. The JIT strategy is a popular methodology in electronic components manufacturing for its ability to help organizations control variability within their processes, eliminating overproduction while keeping productivity high and cost low. Storage space can be optimized and help organizations deal with excess inventory that evolves into unsalable stock and waste.  

Unfortunately, overreliance on JIT strategies has its drawbacks. The biggest problem is that JIT is not an efficient system when handling the unexpected. Global shortages and instant obsolescence are just two examples of challenges JIT systems are ill-equipped to manage. Large orders, as was seen during the shortage, can also be a problem for lean JIT manufacturing.

OCMs often base their production capacity on the market demand of the year prior, with slight adjustments based on market forecasts. However, when these massive shifts in demand occur and demand picks up, OCMs are often responsible for the costly increase in production capacity. Likewise, if buyers cancel large orders, as some did over the pandemic due to double ordering, OCMs are often left with excess they can’t offload fast enough.  

It is no surprise that when a product line becomes unprofitable, OCMs are willing to shut it down, even if there are still buyers in desperate need of such parts.

Collaboration between OCMs, OEMs, CMs, and EMS providers can help split the financial burden between companies. Working together can ensure production capacity is always available for OEMs, CMs, or EMS providers working with the OCM. Similarly, if component obsolescence occurs anyway, OCMs can help buyers from manufacturing partners make necessary LTBs or work together to design a new component that meets the required specifications.  

Outside of collaboration, obsolescence challenges can be mitigated through proactive management and market monitoring. With consistent market monitoring, organizations can avoid production delays and revenue loss by avoiding disruptions before they occur. This means conducting risk management early in the design phase to remove disruption-prone components such as sole source parts.  

Fostering supply chain resiliency by removing sole sources and finding components with high multi-source availability helps prevent production delays and revenue loss.  

When risky components are unavoidable, organizations can proactively initiate cases for these components, estimating the predicted downtime and the required cost for redesigns, qualifications, or replacement part orders. With these plans, organizations can ensure continued productivity despite obsolescence through streamlined processes created beforehand.  

This is possible with the help of digital tools like Datalynq that allow users to manage cases, monitor components, and identify and remove risky components from their bill-of-materials (BOM). Component obsolescence is rising, but there is always time to start preparing for its occurrence.  

Get started today with Datalynq.