Circuits Assembly Online Magazine - Procurement ‘Trio’ Poses OEM Issues

A sharp procurement eye must be constantly cast on innumerable potential pitfalls.

With PCB procurement come two extremes you can hardly escape: the new component and the old. And right in the middle are those components not designed in the US. All three scenarios pose challenges and potential pitfalls for OEMs.

It’s important to clearly define “new” in this case to avoid disservice to other, well-documented new components. Here, when these “new” components come on the market, they are not stabilized and time tested. This means that at this early stage of their product lifecycle, meaningful product data are not yet sufficiently available, and they are mostly intended for evaluation use.

Do not rely on an early spec sheet of a brand new component. And don’t take as certain product promotions or conference papers, lest you inadvertently introduce adverse effects to the product, or spend inordinate time trying to source the part only to learn it’s not yet available.

At the other end of this spectrum are old components. These are obsolete devices component makers are no longer producing. In many cases, they are leaded devices, or those once provided in different packages. Most OEMs seeking the continued use of these devices are in military/aerospace and medical electronics. Historically, once a certain device is designed into end-products like these, there is little chance of upgrading that component because OEMs don’t want to undergo additional long, costly and difficult certification.

Assembly site. Then there are foreign OEMs – in most cases, startups – that produce PCB designs in their respective countries using locally designed and manufactured components, but for any number of reasons move production to the US.

Take, for example, a European startup company keen on obtaining critical US certifications. The US-based EMS firm would receive a bill-of-materials (BoM) calling out components available in Europe, but not in the US. In this case, these components would need to be procured from Europe, bringing currency fluctuations, availability and warranty issues into picture. Right away, that EMS firm faces the daunting and time-intensive task of locating and securing each and every component in that BoM. More important, the procurement team must ensure the project remains profitable despite said fluctuations, and be able to honor warranties associated with these components. If the OEM were to delay the project after a contract is signed, and during that period – say three to four months – the currency has fluctuated, what appeared to be a sound business transaction could quickly swing to the red for the EMS firm.

If a foreign company is not intent on receiving US certifications, as a rule-of-thumb, it’s best that company uses a particular component BoM available locally, and perform both pilot and production runs in its respective country. On the other hand, many US OEMs rely on China or Taiwan manufacturing partners to provide local components. It is difficult to cross-match those components with part numbers available in the US. Similar ones might be located, but at different price points. If some components need to be changed in the US, customer verification and approval are paramount before changing the BoM and starting manufacturing.

New components. Designing in new components as described is potentially an inordinately costly mistake at both the OEM and EMS levels. First, production quantities may not be available. Second, bugs may not be ironed out, and the new product might still have some flaws. Design teams must fully understand tradeoffs and pitfalls of favoring newly minted components versus those already successfully used in a myriad of system applications.

Sometimes, the BoM may include more expensive or long lead-time components. A seasoned procurement team steps in to encourage the OEM to opt for an alternate component costing $5 rather than $25 with a two-week rather than a 26-week lead-time, for example. Also, procurement gets involved when they spot a component that can operate equally as well with a lower spec than what the original design calls for. Let’s say the BoM includes a 2A IC, but the design requires only 0.5A current. A highly technical procurement team member can provide the OEM significant savings by utilizing similar, yet less expensive components, and still help maintain the PCB design’s integrity.

Obsolete components. Class III OEMs are most prone to maintaining relatively older components in designs. Once those components are designed in, those particular designs undergo extensive, complex and time-consuming certifications, validations and a host of testing. Component upgrades are undesirable because the OEMs don’t want to go through those costly stages again.

But when they do upgrade, most wait until the last moment, only to discover that those specific components are obsolete and unavailable. This can mean scouring the broker market, or even overseas, designing in the old source code and firmware, and taking the old database and designing it with the new components, new source code and firmware.

Also, the importance of traceability cannot be overemphasized. To maintain strict traceability, Class III OEMs want the EMS to manage well-organized lot code and batch code records over an extended period of time, from five to seven years.

Procurement responsibilities. It’s procurement’s job to quickly identify blatant as well as potential issues so that the OEM understands those issues and the consequences. This includes component return policies. The EMS firm negotiates warranties and assurances along with the purchase contract.
Ideal procurement is synonymous with technical depth, as well as experience in bonded inventory, just-in-time warehousing, price negotiations, contract procurement, and an array of other skills. A good procurement team has at least two to three savvy negotiators. Procurement must interact with the EMS’s incoming inspection team and encourage stringent procedures to avoid counterfeit parts and ensure moisture-sensitive device (MSD) practices are properly managed.

Finally, not all brokers are created equal. Most are reputable and provide highly acceptable components. But a good number are shady, creative, and in some cases, outright crooks. A good procurement team knows how to spot shady brokers.