Embedded legacy obsolescence: Obscuring the truth and the bottom line
Tania Scroggie, GDCA
Starting in the late 1980s, the embedded industry started to see a change in electronic product life cycles. Before that time, computing technology was primarily commercial and capital equipment had long introduction phases. Today, however, consumer demand for electronic products drives component manufacturers toward a quick-to-market life cycle. Balancing new product introduction and legacy product sustainment enables a robust life cycle management process and ensures that original equipment manufacturers (OEMs) do not have to choose between top-line profits and keeping customers happy.
With embedded computer-on-module (COM) boards seeing increased demand in long life cycle products, today's small-form-factor manufacturers face a huge challenge with product life cycle management (PLM) process: product sustainment. Most original equipment manufacturers (OEMs) use a PLM model that was not designed to factor in sustainment. The PLM model was originally developed in 1985 to accelerate new product introduction (NPI) and production efficiency at scale.
Component obsolescence, manufacturing bottlenecks, and increasing demands on operational resources to sustain older products create gaps that considerably slow down the pace of NPI, undermining efforts to gain competitive advantages in the marketplace. Learning how to identify and address these gaps is critical for board OEMs to stay competitive.
That said, OEMs that use the PLM model have control of everything in the product life cycle, except sustainment: This is where unpredictable customer demand and obsolescence issues cause OEMs to lose control of a product’s profitability.
When a product first comes to market, there’s a desired return on investment (ROI). After a certain amount of time, the ROI for an individual product family is no longer tracked. Due to this lack of visibility, the increased costs of maintaining systems during their active versus mature life cycle stages go undetected and unchecked.
The resources needed to manage a product in its active phase are not the same as the resources required for a product in its mature/sustainment phase. Our research shows that approximately 80% of a company's revenue comes from its top 20% of products, usually the company’s newest offering. (Figure 1.) With boards and components having different life cycle expectations – five to seven years for boards and 18 months for components – overhead can quickly be absorbed by sustainment activities. This reality means that older products produce less revenue while costing exponentially more due to sustainment activities.
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As embedded products age, the list of sustainment issues grows, going beyond component obsolescence to outdated manufacturing techniques and unbudgeted sustaining engineering investments. The resources needed to address and manage these sustainment-related issues are not only substantial, but ultimately undermine high-value business objectives by distracting from NPI, burdening profit margin, and inhibiting operational efficiency.
Without clear guidelines for realizing when a product passes from its active stage to the mature/sustainment phase, there are inaccurate performance objectives and no reference points to guide decisions. As a result, company-wide profitability suffers and resources are distracted from completing strategic objectives.
The impact of not having clear insight into the numbers goes beyond profits: Customer relationships built on trust are strained by the EOL/LTB [end of life/last-time buy] cycle. Customers with continuing demand often pressure OEMs to overturn their initial EOL decision. Whether the decision to phase out products is due to low demand or supply chain disruption, it is not profitable for manufacturers to continue supporting products that have limited demand. To stay competitive in a highly demanding market, board manufacturers must retire products.
Life cycle optimization: How to use old designs to increase revenue
Knowing when and how to prune your product portfolio requires setting up the ability to analyze the true cost of continuing to manufacture older products. By auditing operations and adding sustainment milestones to drive business practices, product pruning enables OEMs to achieve a higher ROI for products approaching maturity while still maintaining a focus on NPI and sales. (Figure 2.)
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Proactive OEMs who develop a sustainment phase for legacy products must choose between investing in specialized legacy services in-house or outsourcing to a legacy equipment manufacturer (LEM) that specializes in providing sustainment services to continue manufacturing through obsolescence issues.
Partnering with LEMs offers customers a more predictable and efficient production schedule for legacy products. The extended availability also gives OEMs confidence to provide customers with ongoing support when they aren’t ready to upgrade.
Whether auditing and providing sustainment services in-house, outsourcing it, or using a hybrid model, effective life cycle optimization includes legacy management and must achieve the following objectives for OEMs:
· Ensure customers have ongoing access to tested and approved newly manufactured legacy products
· Preserve critical brain trust and documentation in order to meet warranty repair commitment and avoid return backups
· Minimize risk of customer downtime due to delays in sourcing obsolete components
· Sustain a form-fit-function hardware configuration, requiring no software changes or forced recertification expenses on the customer’s part
· Implement advanced production cost control to ensure product viability and avoid an astronomical increase in price
Whether developing in-house and/or partnering with LEM, getting the balance right between NPI and sustainment is a problem worth solving and presents the prospect of a robust life cycle management process that keeps a competitive edge and doesn’t make OEMs choose between top-line profits and keeping customers happy.
GDCA · www.gdca.com
