Longterm Obligations: Often Forgotten, Always Present

Original Equipment Manufacturers (OEMs in short) tend to lose focus on the consequences of neglecting long-term commitments regarding the availability of service for systems whose integrity – and legal compliance – must be preserved for decades. This attitude can backfire badly, but it is also a challenge for which sustainable solutions are available.

Developed. Manufactured. Sold. Delivered. Awareness of the contracted long-term obligations? Not so much! Losing focus on commitments for products with short life-cycles is usually rather unproblematic. In the industrial electronics industry, however, with product lifespans from ten up to 40 years, this attitude can be quite risky. Why? Because typically, contracts made with end-customers contain obligations to repair the electronic devices for an agreed upon period of time, or, if that is not possible, to provide a functionally compatible replacement solution. Moreover, because often there is a significant gap between the lifespan of the components and one of the electronic devices itself, as part of professional life-cycle management, being proactive in making arrangements is a must. Just imagine a power plant or a train out-of-order, for example, because the availability of an electronic device is missing, and you, as an OEM, are accountable, due to your long-term commitments, to provide fast and suitable solutions. To avoid such critical situations with their potential for high penalties and/or significant loss of image, the OEM should proactively evaluate each situation and determine solutions according to his particular needs.

One solution is that the OEM can choose long-term storage for finished devices. As soon as the first discontinuation of a component is announced, a specified number of devices are manufactured and stored to be able to fulfill long-term obligations. The plus side of this solution is that the entire chain of suppliers doesn’t need to be secured, it is not necessary to obtain production know-how, and costs are calculable. However, as electronics require specialized storage conditions, there can be quality degradation of components that have a limited lifespan. Furthermore, determining the quantity of devices for long-term storage is purely a guess. This means that the biggest challenge will be to define market needs several years in advance. Also, what must not be neglected is the financial dimension of the bound capital.

Functionally compatible replacements are an alternative way to secure long-term obligations. They guarantee that up-to-date technology is used; the production can be less expensive as serial prices are applied and delivery times are short. The big “but” with this solution is the question of whether a newly developed replacement is backward compatible and/or how much engineering work must be done to achieve interoperability of the system. If achieving this has been guaranteed, new acceptance tests have to be taken into account along with their corresponding costs and expenditure of time. In addition, the risk of technical malfunction of such technological solutions should not be underestimated.

One further alternative is to fully redesign the product with new, state-of-the-art technology while maintaining or improving all the functionality of the replaced, old technology. Yes, this is indeed a possibility. However, one crucial obstacle is that often the necessary construction data cannot be transferred, or only transferred with great difficulty, to the current version of the CAD and/or CAE tools. Furthermore, depending on the redesign and how extensive the acceptance testing, redesigns are generally expensive and time-consuming. Last, but not least, to efficiently carry-out the activities required for a redesign, broad product knowledge is necessary.

A fourth solution is available to ensure that the production of spare parts and/or repairs of the electronic devices remains possible for the length of the agreed upon time. The basis for this solution is a contract with an electronics manufacturing services (EMS) provider. Similar to any health insurance plan, the OEM has to pay a regular fee for services that come into action in times of need. The contract can be tailored to the specific customer’s demand, selecting service elements such as “component care”, “product care” (e.g. maintaining the necessary documentation, production and test equipment), as well as “infrastructure care”. The service agreement, in essence, secures product availability for the agreed upon time.

Which is the best solution to enable the OEM to provide the optimal and technically best results in the shortest possible time and at a fair price? There is no general, easy answer. But one thing is for sure: the concept of securing long-term obligations should be part of a comprehensive product life-cycle management program, and it should be decided and delineated in the new product introduction phase. However, even if the OEM doesn’t realize until after the NPI phase that he needs to refocus on his long-term obligations, the risk of a crisis situation with its possible penalties or loss of image can be minimized by acting quickly and opening communication both internally and with his partners.

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