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System ObsolescenceMinimising the Cost Impact

Presentation to SCAF 21st April 2010


Nigel Wallis

PRINCE2tm Practitioner

COG Chairman

Introduction
Business Development Manager at CMCA(UK)
Current Chairman of the Component Obsolescence
Group (COG)
Involved in Supply Chain Management within
Aerospace and Defence for 20 years
Qualified Project Manager
Now focused exclusively on Obsolescence
Management

Component Obsolescence Group (COG)


In many ways similar to SCAF
Developed to create a forum to allow like-minded
individuals discuss problems and techniques
regarding obsolescence
Background and Experience from MOD, Military and
Aerospace industries so initially this was primary
focus
Expanded into Energy creation, Railways, Oil and Gas
etc

Component Obsolescence Group (COG)


Not for Profit Organisation
Run by its members, for its members
Facilitated by Cognition Association Management
Policy set by Steering Group, which is headed by the
Chairman
Chairmanship for one year, ensuring freshness of
ideas

Component Obsolescence Group (COG)


Established a COG Germany
Looking at establishing a COG France and Italy
Membership nos fairly stable over last 10 years

What is Obsolescence?
Oxford Dictionary Definition of Obsolete:
Adjective: No longer produced or used; out of date

What is Obsolescence?
What it really means is:
If you dont have the part, you cant build your product
You cant ship your product- maybe for quite some time
You cant invoice your product
You may have an unhappy customer
You may incur hugely expensive re-design / requalification costs

What is Obsolescence?

50

25
Time

Typical Life Cycle

Development

Introduction

Growth

Maturity

Decline

Obsolete

What is Obsolescence?
Obsolescence not limited to Electronic Components
(although they are the most severely affected)

Other commodities affected are:


Hardware
Test Equipment
Electromechanical
People and Skills
Software (arguably people)

What is Obsolescence?
In the 1970s / 1980s, Mil / Aero were driving force behind
new designs
Electronics not used extensively, consumer designs slow
to be developed in comparison to Military programmes
Even the Z80, the forerunner of todays modern computer
processors, was used extensively in Military platforms
and still is
During the Dot Com boom of the late 80s early 90s
consumer demand for electronic components rocketed

What is Obsolescence?
1994: William Perry (US Secretary of Defence) urges
Military programmes to use Commercial Parts wherever
possible
Through the 90s, mobile phones, laptops and later iPods
consumed electronic components at unprecedented rate
Aerospace (and some Military) components have to be
rugged, and survive extreme changes in temperature,
vibration etc
Commercial device (on the whole) do not

What is Obsolescence?
RoHS and WEE legislations did not help much
As of 2010, Military / Defence spend accounts for 0.3%*
of the global electronics market (Worth $3.2T by 2012*)
Not only Aerospace and Defence affected
Constantly changing technology means that every
company that manufactures will be affected by
Obsolescence at some stage
Obsolescence occurrences will increase

What is Obsolescence?
The drive for innovation now comes from Apple and Cisco
Systems : not BAE and Boeing

Common Obsolescence Misconceptions


Obsolescence Management only applies to Legacy
equipment
NO! Obsolescence Management should be integral to the
design of the product
Obsolete = unavailable
Not necessarily- but be sure of the source
We dont have any obsolescence issues
True in some cases, but perhaps consider critical
components

So what can be done?


You cant prevent obsolescence from happening
However you CAN manage it
Two methods of Obsolescence Management:

Obsolescence Management

Reactive
Proactive

Reactive Obsolescence Management


Do nothing
Solve each problem as it arises
Find Alternatives
Find Substitutes
Source from Grey Market
Re-use components Cannabilisation

Proactive Obsolescence Management


Monitor your components
This can involve:
Simple Parts list (e.g. Critical Items)
Single BOMS
Indented BOMS
Whole Equipment
Whole System
Whole Platforms

Also Last Time buy and Long Term Storage

Probability Impact and Cost

Probability Impact and Cost

Reactive

Reactive Solution Analysis


Advantages

Disadvantages

Costs nothing until event

Can be costly if event


occurs and no easy solution

It might never happen

It might

Often Alternatives are


available

Sometimes they are not

Reactive Obsolescence Management


A case for the defence!
Is a perfectly valid solution:
As long as it was a conscious decision and not an
oversight
Often used for legacy equipment that has:
Little or no chance of being manufactured again
Can be easily redesigned
Has little or no impact to Customer or you

Probability Impact and Cost


Proactive

Proactive Solution Analysis


Disadvantages

Advantages
Knowledge of individual
component life cycle status

There is a cost for this


activity

There is ALWAYS a cost for


this activity

It wont Save you any


money

It can mitigate what can be


devastating re-design / requal costs

Problems surrounding Proactive Component


Monitoring:
It is often seen as an unnecessary cost
But there is always a cost somewhere
Tendency to think best value is to conduct activity in
house
Is it always the best use of Engineers time to be
researching manufacturers data to ascertain which
parts might be going obsolete? - Your engineers time
is vital
List of parts on a Spreadsheet that are regularly
checked is considered sufficient

Measuring Cost Avoidance


Important to get the Risk Assessment right:
Complex part more likely to cost more to replace /
redesign
Perhaps ironically the most likely to become obsolete
as technology changes at an ever faster pace

Lost Availability due to Poor OM


Availability can be expressed in terms of:
Percentage Available / Non Available
Man Hours / Flying Hours / Time

From an OM perspective:
Obsolescence does not cause failures.
How much availability was lost because of lack of Source of
Supply.
No Source of SupplyPoor Obsolescence Management

Measuring Cost Avoidance


Calculate how much money you have avoided paying
by implementing a cheaper resolution than you would
have if you were reactive
2004 UK MOD commissioned ARINC & QinetiQ to
develop UK metrics. Report published and made
publicly available:
http://www.aof.mod.uk/aofcontent/tactical/engineeri
ng/content/om_cost.htm

Measuring Cost Avoidance


Resolution

Low

Mean

High

Existing Stock

100

200

Reclamation

1,100

1,300

1,500

Alternate

4,800

5,300

5,800

Equivalent
(Substitute)

12,200

13,500

14,800

Aftermarket

12,900

15,900

18,900

Emulation

60,200

73,000

85,700

Minor Redesign

66,600

74,400

82,100

Major Redesign

281,600

305,900

330,200

Non Recurring Engineering Resolution Costs


Value ()
350000
300000
250000
200000
150000

Value ()

100000
50000
0
Existing
Stock

Reclamation

Alternate

Equivelent Aftermarket
(Substitute)

Emulation

Minor
Redesign

Major
Redesign

Calculating Cost Avoidance


Value ()
350000
300000
250000
200000

Cost Avoidance

150000

Value ()

100000
50000
0
Existing
Stock

Reclamation

Alternate

Equivelent Aftermarket
(Substitute)

Emulation

Minor
Redesign

Major
Redesign

Measuring Cost Avoidance


For Example
Cost Metric for Existing Stock -100
Cost Metric for Reclamation -1300 (next highest)
Cost Avoidance Figure for implementing Existing Stock
resolution is 1300 -100 = 1,200

Measuring Cost Avoidance


Resolution
Cost Avoidance Figure
Existing Stock
1,200
Reclamation
4,000
Alternate
8,200
Equivalent (Substitute)
2,400
Aftermarket
57,100
Emulation
1,400
Minor Redesign
231,500
Major Redesign
0

Fictitious Project Example over a 3 Year Period


Resolution

No of
Occurrences

Cost Avoidance
(each)

Existing Stock

14

1,200

16,800

Reclamation

4,000

Alternate

140

8,200

1,148,000

Equivalent
(Substitute)

16

2,400

38,400

Aftermarket

14

57,100

799,400

Emulation

12

1,400

16,800

Minor Redesign

231,500

926,000

Major Redesign

TOTAL

200

2,945,400

Fictitious Project Example over a 3 Year Period


Total Cost Avoidance for Year
2,945,400
Total cost of implementing a proactive Obsolescence
Management program
100,000 per Year
Total Cost Avoidance for 3 year period
2,945,400 minus 300,000 = 2,645,400

Fictitious Project Example over a 3 Year Period


Expressing as Return on Investment (ROI)
(Management language)
Return Investment

Cost Avoidance Investment

Investment

Investment

ROI=

2,645,400 300,000
ROI=
300,000

7.8

Fictitious Project Example over a 3 Year Period

Concerns
Issues

Predominantly Reactive

Predominantly Proactive

Project Actual Calculation


Legacy Systems
Harrier IPT have calculated a cost avoidance figure of
18.5M in a 12 month period as a result of
implementing a proactive Obsolescence Management
programme

CMCA(UK) Obsolescence Management Model


Customer information is cleansed and then uploaded
into our COMPaSS Database
The components are actively checked every quarterwe do not rely on Internet trawler programs
Data is fed back to customer either as a exported
file from the database, or the whole database
Also offer a No Find No Fee Sourcing (Reactive)
service

What makes CMCA(UK) Different?


Each solution designed to Customers requirements
We are Parts Specialists
We cleanse the data
We ACTIVELY monitor the components
Data is pushed to the Customer- they dont have to
research it

What makes CMCA(UK) Different?


We cover every commodity- not just Electronics
Customers only pay for their components to be
monitoredNot everyone else's
No License or subscription fees

Future Developments
In discussions with Cranfield University, COG and
MOD regarding developing a tool to predict system
availability with respect to Obsolescence

Services Offered by CMCA(UK)


Spares Procurement (Reactive Obsolescence
Management)
Component Monitoring (Proactive Obsolescence
Management)
Obsolescence Mitigation Investigations

Services Offered by CMCA(UK)


Long Term Storage in Environmentally controlled,
Nitrogen filled cabinets
Anti-Counterfeiting Procedures and Equipment
NATO Codification
Bespoke Database creation

Contact Details
Nigel Wallis
Business Development Manager
CMCA(UK) Ltd
nigel.wallis@cmcauk.co.uk
07788 150941
www.cmcauk.co.uk
www.cog.org.uk

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