Strategic Purchasing
OEMs Turn to Last-Time Buyers to Manage EOL Parts

OEMs Turn to Last-Time Buyers to Manage EOL Parts

Specialization has always been part of the electronics purchasing landscape among large OEMs and electronics manufacturing services (EMS) providers.

Large global electronics manufacturers often have commodity teams or purchasing councils that are responsible for sourcing specific categories of parts and products, such as semiconductors, passives, interconnect devices, electromechanical parts, and power supplies, among others. Within those broad categories, some companies have buying specialists. For instance, a semiconductor buying team could have members who specialize in dynamic random access memory (DRAM), microprocessors, or application-specific integrated circuits (ASICs).

In recent years, as companies have become leaner and try to do more with less, there has been less specialization in purchasing. Buyers at many companies are responsible for sourcing and managing multiple commodities. However, over the last 10 years or so, more buyers are specializing in end-of-life (EOL) or obsolete parts. Many large OEMs and EMS providers have last-time buy (LTB) purchasers who are responsible for managing EOL parts.

“There has been a steady increase in LTB buyers. That never even used to be a title 10 years ago,” the CEO of an electronics distributor who sells EOL parts and other components said recently. “Now there are people in house specializing in that particular sliver of a need.”

He added that the “big infrastructure guys like General Electric and Motorola” have LTB buyers.

“Those companies build equipment for 911 call centers and cell towers that last 20 years,” he explained. Many of the parts in those systems will become obsolete five years after they are built.

Other electronics companies that build communications equipment and defense and aerospace and industrial systems also have long product lifecycles and, as a result, have LTB purchasers. Defense and aerospace OEMs design and build sophisticated systems that can take years to complete. Many of the parts used in those systems become obsolete even before the systems are put to use in the field—and they often will have to be supported for 10 or more years.

LTB purchasers monitor which parts are about to go EOL and forecast how many of the components their companies will need once a last time buy notice is issued by the component manufacturer. That is no easy task, because forecasting the demand for a part 10 or 20 years in the future is a tall order—even if the design of the system does not change during those years, which is unlikely.

There is serious financial risk in last-time buys. If the purchaser orders too many parts, his company may end up with a large inventory of obsolete parts that may have to be liquidated for pennies on the dollar. If too few components are ordered, company purchasers in the future may have to find alternate sources or parts—or perhaps buy them on the open market, where there is a risk of substandard or counterfeit components. In some cases, part of a system may have to be redesigned, which also is costly.

More large OEM and EMS providers need LTB buyers because chipmakers and other component manufacturers are obsoleting parts at a higher rate than they did 20 years ago. Although the number of EOL notices has declined in recent years because of healthy semiconductor sales, the number of notices will likely rise in the coming years as suppliers devote more capacity to high-demand, more profitable, newer parts. Weak demand is often cited as the main reason component manufacturers stop producing a part.

Another reason is product consolidation.  Sometimes a component manufacturer will reduce its line of similar parts. In other cases, product validation occurs when one company acquires another and decides to eliminate redundant products. There has been an unprecedented amount of consolidation among semiconductor and other component manufacturers over the past year or two, which could result in more EOL notices being issued in the next 12 months.

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