Supporting Products With Long Lifecycles
Although They Present a Challenge, Products With Long Lifecycles Can Be Managed With a Few Easy-to-Implement Strategies
Ed Grimes
Genesis Electronics Manufacturing
Medical OEMs can achieve the same level of economy of scale in repair depot that they receive in outsourced production by selecting providers with special zed operations aligned with their product requirements. Above, technicians perform component-level repair on LCDs. |
While medical device manufacturers focused on consumer devices often see the less-than-18-month lifecycles found in other industries, manufacturers of higher-cost capital equipment such as imaging and/or diagnostic systems often are supporting product lifecycles of five to 10 years. Another scenario is lower-cost diagnostic equipment that uses consumable materials.
One example would be a system used for blood and fluid analysis. It is desirable for the base unit to have a long lifecycle because disposable components used with the machine generate the bulk of the revenue for its OEM. In either case, OEMs may have service contract commitments that require repair depot support and stocking of spare parts as long as any of the equipment is still in use.
Contract manufacturers can help their OEM clients handle such challenges using a variety of internal systems and programs to address them. Key focus areas include:
• Methods for ensuring component integrity and traceability throughout the product’s life
• Forecasting and liquidation strategies to help minimize excess inventory
• Systems for maximizing visibility in demand and fulfillment processes
• Strategies for ensuring continued availability of near end-of-life components
• Ways to minimize cost in repair/refurbishment logistics
Component Integrity and Traceability
Component traceability is driven, in part, by government regulation in the medical industry. However, medical device manufacturers also have additional reasons for validating component integrity and maintaining good records of component sources. Manufacturers that have a product with a long lifecycle often face the dual challenge of components becoming obsolete as well as low volumes—which can make re-design costs hard to justify.
As the supply chain increasingly becomes globalized, at least two other important issues have arisen:
• Changes in component material composition driven by the European Union’s Restriction on Hazardous Substances (RoHS) directive
• A rise in component counterfeiting
Work-in-process is tracked via barcodes throughout the production process. |
Introduction of some RoHS-compliant parts—eg, microprocessors in ball grid array (BGA) packages—in a product containing lead may create quality issues. A lead-free BGA must be processed at higher temperatures than a leaded BGA. The interconnection process with the printed board requires that the balls collapse to make contact with the printed circuit board. If a lead-free BGA is processed at the temperatures normally used for leaded BGAs, the balls don’t collapse and make proper contact. When that happens, the board either fails test in manufacturing or, in the worse case scenario, fails quickly in the field. Therefore, it is important to have a methodology for validating the status of incoming material and, when necessary, sourcing only leaded parts.
Component counterfeiting also can be an issue. In general, original component manufacturers and franchised distributors have effective methods for ensuring integrity within their inventories. What isn’t widely known, however, is that a few of the major independent distributors also have a very solid anti-counterfeit program. It is critical to find independent distribution partners with such strengths, because as products age and components are dropped from standard distribution, some components may be available only on the independent market.
Companies certified to ISO 13485 have internal quality systems that focus on traceability throughout the entire product manufacturing and production process. Since suppliers are the first line of defense in ensuring component integrity, a practice at an ISO 13485-registered contract manufacturer is to use only component suppliers that can demonstrate they have an anti-counterfeit program in place. In addition, as parts are ordered, procurement clearly specifies RoHS-compliant or leaded requirements. Parts are inspected when they are received and if a part is not clearly identified by either labeling or part number, it may be tested to determine status.
Component date codes should enable traceability to lots at the component manufacturer. At the assembly level, boards must be affixed with a serial number that tracks the item back to the date the board was shipped and its lot code. The enterprise resource planning (ERP) system further enables traceability of lot codes to component date codes.
Within the system described above, OEMs can enter assembly serial numbers via a secure Web portal. In the event they have a question about a particular assembly, they immediately can determine the day that assembled lot was shipped and its lot code. With that information, program management can trace the individual component manufacturing information, if needed.
Forecasting and Liquidation Strategies
When a product is not cost effective to redesign, impending component obsolescence may drive end-of-life component inventory purchases. However, these types of inventories may not be entirely consumed by the end of the program. Alternatively, continuing obsolescence issues eventually may force a redesign later anyway. What options exist for liquidation?
The relationship with suppliers is a two-way street. The network of independent distributors, which may be used for procuring hard-to-find components, also serves as a network for liquidating excess inventory.
In addition, internal systems should provide visibility that can help identify potential liabilities and channels of demand. Within this type of contractor’s system, inventories are segregated by the OEM. A prefix on the front of the standard part number identifies the component as associated with that particular OEM within the ERP system. This provides clear visibility and a well-ordered system for component inventory. If the prefix is removed, it also allows the contractor to analyze available quantities of a specific component in relationship to total demand across all projects, because once the OEM-specific prefix is removed, the ERP system shows all available components in inventory. Should an OEM need to liquidate a component that is in demand by another OEM, the inventory may be transferred.
Demand Visibility
Demand visibility (also referred to as “forecasting”) is especially important in dealing with the challenges of products with longer lifecycles. The contractor who does this takes a collaborative approach that replaces inventory with information.
In this scenario, OEMs can access their inventory status information via a secure Web portal. For example, If cost impact on a specific engineering change notice is being analyzed, an OEM can use this tool to determine existing inventory of components impacted by the change. If demand is increasing or decreasing rapidly, the portal can allow both the OEM and the contractor’s program manager to see the status of available inventory and implement contingency plans, as needed.
In addition, the manufacturing resource planning (MRP) system uses software that easily generates customized reports. Since most OEMs have weekly status meetings requiring specific types of information, they can utilize the MRP system to access their accounts via a Web portal and download whatever customized reports they need prior to these meetings.
A select group of suppliers also usually has Web portal access and can review open order reports and see MRP information.
Ship-to-stock status provides good visibility into demand status and the ability to easily determine historical demand trends. In this system, appropriately sized finished goods Kanbans are set up to ensure typical demand variations are met. There are several formula-based ingredients to creating the proper Kanban size, but, at the root, the key is understanding the customer’s expectations for responsiveness. Kanban actually is supposed to be keyed off of “observed demand” (a pull) rather than a forecasted demand. The contractor’s program management works very closely with the customer to jointly determine Kanban levels. The levels usually are a hybrid of historical demand, average demand as well as material and manufacturing lead times buffered by some bonded inventory of long lead-time components and safety stock.
Ensuring Component Availability
In identifying potential component obsolescence issues, companies should take a proactive approach that analyzes the components most likely to become obsolete and presents several options. For example, components with limited substitution options, such as microprocessors and gate arrays, would be a primary focus in inventory planning.
Potential strategies for addressing lifecycle-driven component availability options include:
• Identifying alternate suppliers and obtaining substitution approval if comparable components are available from multiple sources
• Purchasing end-of-life inventory if a component is becoming obsolete and substitutions are not an option
• Searching qualified, independent distribution channels to find excess inventories of the obsolete part
• Supporting a redesign effort if alternate sources or acceptable substitutes are not available.
Minimizing Cost in Repair/Refurbishment
Higher-cost products with long lifecycles often need to be repaired at some point. Proactive planning can minimize cost in this process as well, just as it minimizes cost in volume production.
Logistics challenges often drive the most avoidable costs. Therefore, some key areas to focus on in developing a cost-effective repair strategy include:
• Adopting an IT strategy relative to communications between the OEM, end market and third-party repair depot
• Devising a system for ensuring critical material availability and integrity
• Creating a strategy for returns packaging and shipping
It is important to establish systems that eliminate the costs driven by inefficient communication relative to warranty eligibility or work-in-process status; damage caused in either inbound or outbound shipping; quality issues related to component inventory integrity; and unnecessary handling, customs or transportation cost. It also is important that third-party repair mechanisms are transparent to end users and that they meet expected service cycle time requirements.
Minimizing costs related to handling is not limited to maintaining process efficiency. Poorly packaged returns or inappropriate handling can increase product damage and actual repair cost. In some cases, a company may ship specialized packaging as part of a return authorization process. Handling and storage processes are clearly defined based on product requirements. In most cases, field returns are shipped directly to and from the repair depot to minimize shipping and handling costs.
If a repair depot is part of the support services, mutually agreeable order tracking systems should be set up. OEMs can determine whether they want to maintain internal customer service functions or outsource that function as well and simply monitor activity status reports. To reduce service delivery time, an inventory of refurbished product sufficient to meet historical demand trends may be maintained. In that case, refurbished product would be shipped back to the market as damaged product comes in. The repaired product then would be restocked in the refurbished inventory.
Visibility into repair status is important as well. End-market customers want to clearly understand repair timing and cost. The OEM actually may be selling a warranty repair service contract with specific return times and the company also may want customers in out-of-warranty situations to pay for the repairs.
Collaboration Is Paramount
Supporting outsourced products with long lifecycles can present a number of challenges. Developing a collaborative approach that teams the contractor, OEM and supply base through joint goal setting and access to real-time ERP/MRP information provides the visibility and flexibility to readily adapt as markets, component availability and technology change.