When EOL is the Beginning of Sourcing Havoc

| February 11, 2014 | 2 Comments
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Barbara_jorgensonMost non-engineers will readily admit that new technology is pretty complicated, but buyers will tell you obsolete products are the real challenge.

A majority of purchasers in the electronics supply chain may not be seeking end-of-life (EOL) parts, but those that do will tell you all kinds of problems are associated with EOL. First, many suppliers that don’t want EOL inventory hanging around will try to find buyers for the devices. In some cases an authorized distributor such as Arrow Electronics will purchase the inventory; or a manufacturer such as Rochester Electronics  gets the supplier’s OK to keep manufacturing the parts. (See Rochester to Support Reneses for EOL).  For these distributors there is always a risk that demand for these products will suddenly dry up. In most cases, distributors will hedge their bets and confirm existing users of these parts still want them.

In other cases suppliers will put EOL inventory out for bid. Just about any company with the capital to buy these devices can acquire them. Most resellers will buy the parts directly from the suppliers’ warehouse and resell factory-sealed boxes. Others may open the devices and re-mark them as brand new or a higher-performing device. The latter is one of the ways counterfeit electronics enter the supply chain and is one of the allegations chip maker Xilinx has made against EMS provider Flextronics International Ltd. (NASDAQ: FLEX). (See: Xilinx-Flextronics: Just the Facts.)  

EOL is a particular problem for OEMs that design and build long-lifespan equipment. Military, aerospace and medical OEMs are classic examples. Contractors that service the defense industry, for example, will select a state-of-the-art chip for satellite, communications, display or another critical technology. Defense projects take a long time to approve and once they are, the defense industry faces budget cuts every fiscal year. As a result, equipment is in use for a long time. In the meantime, chip makers move to the next generation of technology and no longer make the original chips. For reasons that include design compatibility and regulation, original chips should be used in the event of repair or maintenance. Those original chips may be available, but they may have been tampered with.

Since mil-spec chips are highly likely to go EOL, their value actually increases as they become scarce. As a result, mil-spec chips are most frequently targeted by counterfeiters. A case involving reseller VisionTech highlights the problem. VisionTech was found to have remarked substandard chips and passed them off as military grade. The company’s principals were successfully prosecuted.

Several steps have been taken by the U.S. government to reduce the risk of counterfeits in the Department of Defense supply chain. One has been to adopt a system of marking components with a unique form of plant DNA that enables buyers to trace the parts through the supply chain. Critics of this process argue that EOL/obsolete chips may be marked by the very vendors that make the chips suspect. Currently, few original component manufacturers (OCMs) participate in the DNA program so its application is far from uniform across the industry.

Another step has been the National Defense Authorization Act (NDAA) which, among other steps, requires government procurement agencies to buy from “trusted” vendors. The term “trusted” differs from the electronics supply chain’s use of the terms “authorized” and “unauthorized.” Authorized distributors are franchised to sell supplier-branded chips. Unauthorized distributors are not franchised by suppliers. Because of such ambiguities, buyers may source from “trusted” suppliers but test the components themselves.

Additionally, many EOL parts have made their way overseas due to offshore manufacturing. Companies that import these devices report they have been held up at ports by U.S. Customs; packages have been opened and parts replaced haphazardly. Parts that have been tested by Customs subsequently may not pass an OEM’s quality test. Individuals familiar with the electronics industry claim that the Customs are also not equipped with the tools to spot sophisticated counterfeits. At the same time they acknowledge agencies such as the U.S. Customs and Border Patrol (CPB) are charged with spotting counterfeit goods of all kinds: electronics is only a subset of the products that are shipped to the United States. Although third-party testing is available, it is an added expense for either the buyer or the seller.

It’s ironic that in the fast-turn technology industry, obsolete parts are such a problem.  Most new parts have some kind of traceability system that begins at the OEM factory; with older parts that might be sporadic. DNA marking won’t become a true solution until the entire industry adopts it and that remains an ‘if,’ not a ‘when.’  Supplier-authorized last-time-buys and re-manufacturing should eliminate all the guesswork, but there’s still a lot of product outside authorized channels still in high demand. Buyers have to be extra diligent when sourcing obsolete parts and until a better solution comes along put both the parts and their trusted suppliers to the test.

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Category: Distribution Dispatch, Featured Blogs, Industries, Mil/aero, News Analysis, Supply Chain, Supply Chain Tools, Uncategorized

Comments (2)

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  1. EOL components have always been a case of having too many or too little and how many times have buyers been told that the greatest unfulfilled promise of all, “this will be our last, last time buy”. RoHS, REACH, California Proposition 65 and other global directives and regulations have added to complexity of sourcing EOL components. Components which were manufactured using materials that were not restricted or allowed by exemption may not be compliant today as regulations change over time. Another challenge added to the many issues associated with EOL components that can make a purchasing professional’s job a real nightmare.

  2. Barbara Jorgensen says:

    Hi Ken,
    Every time I drop into a discussion on LinkedIn or another forum I find more and more problems with EOL. This probably isn’t a new problem but it’s new to me: many of these parts are imported from overseas and may be flagged as suspect. Between taking the devices out of the packages, testing them, repackaging them etc. it’s no wonder many of them don’t work. Although CBP will test the devices, the tests aren’t as sophisticated as more advanced techniques. If you outsource that testing, the cost has to come from somewhere. Obviously it’s worth it if the devices go into defense/mission critical equipment, but for a run of the mill MRO I’d really have to think twice.

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