Second sourcing is an essential strategy for modern technology

Second sourcing is an essential strategy for modern technology

An essential aspect of managing a supply chain is reducing exposure to risk so that supply remains uninterrupted. With natural disasters seeming to feature more frequently on the news these days, the risk that a factory can no longer produce is very real. Somewhat less dramatic but equally impactful to supply is a supplier taking a commercial decision to issue a product discontinuation notification (PDN) for an old(er) product.

With technology moving so fast and new generations often offering better performance than the previous while being cheaper to manufacture, the chances of a product being discontinued are high. Even if the replacement is claimed to be ‘drop in’, this must be verified by engineering which can take time and interrupt manufacturing. In some cases, a partial redesign may be required, driving both cost and risk. If the end product holds safety approvals then the timescale can be much longer.

While a ‘lifetime buy’ may offer some respite there are risks and costs here as cash will be tied up in inventory that, ultimately, may not all be required. Sourcing from an obsolete component broker may allow manufacturing to continue, but the impact on the bottom line is usually significant – and there is always the risk of counterfeits.

To avoid this situation, second sourcing at the design stage is a valuable strategy. In fact, many companies mandate that designers must identify components that have the same form factor (pin compatibility) and identical (or better) electrical specifications as the original component (drop-in compatibility) which other competing suppliers are still actively producing.

This approach allows an OEM to continue manufacturing the end product and has several advantages when done proactively. If their ‘preferred’ component is no longer being made or becomes the subject of a PDN then orders can be moved to an alternate supplier with little or no impact on the supply chain. With multiple sources, the OEM also has greater price leverage, allowing them more opportunity to meet challenging cost targets.

There are many benefits to making second sourcing the primary mode of operation.

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