Obsolescence Insurance, a New High-Margin Business for EMS Companies
by 
AVX Fellow Ron Demcko
Military and aerospace devices used to be the gold standard for quality and performance back in the days when the U.S. defense industry was one of the world’s biggest consumers of electronics components. Now, some industry experts believe, quality and performance advancements are being rivalled by the automotive industry.
“It’s interesting -- the trends we are seeing in automotive parts,” said Ron Demcko, a Fellow at component manufacturer AVX Corp. “Automotive parts are so reliable and are available in such high quantities that their performance is beginning to rival space-grade components.”
Demcko shared his thoughts in the context of the Components for Military & Space Electronics Conference (CMSE) which will be held in March. Component sourcing for military and aerospace (mil/aero) applications has become more complex with the decline of defense spending. Easily-available high-quality automotive electronics could solve some sourcing problems.
There is still demand for ruggedized parts in the mil/aero market but not at consumer-level volumes. Component manufacturers, seeing their ROI decline, have become reluctant to design and manufacture parts exclusively for military specifications (mil-spec). The automotive market could give demand for ruggedized parts a much-needed boost. “There are a lot of discussions around how to design for harsh environments and systems because now it’s important for commercial applications such as self-driving cars,” Demcko said. “These vehicles will have to withstand extreme desert conditions and driving snow.”
Mil-spec components can be pricey and hard to get. In order to fill the gap left by mil-spec parts, the military and aerospace industries have turned to commercial off the shelf components (COTS). Although COTS parts often have the same form, fit and function of mil-spec devices, they may not be able to withstand certain extremes—such as those of outer space. Manufacturers run the risk of field failures unless COTS parts are extensively tested.
Other mil-spec parts are no longer even available from their original component manufacturers (OCMs). Components are often deemed end-of-life (EOL) by OCMs long before military and space equipment becomes obsolete. To make room on their shelves for newer components, OCMs often put EOL parts up for last-time buys. Because the value of these devices may decrease over time, many sales channels, such as authorized distribution, do not want to tie capital up in last-time buys.
Non-authorized or independent distributors have been more willing to take the risk that a military contractor will need parts for repair. However, not all independents adhere to the same quality standards as the authorized channel. Buyers of EOL parts run an increased risk of buying damaged components in the open market. Open market sources have also been known to take damaged or COTS parts and remark them as military grade.
So military components have become a popular target for counterfeiters. The electronics industry has tackled this problem by tightening sourcing requirements. The Counterfeit Components Avoidance Program (CCAP) applies to independents. According to data collected by the CSME, between 2014 and 2015, one CCAP-101 certified distributor reported 22 suspected or rejected parts out of a total of 70 orders. A second certified distributor reported zero rejections out of 99 orders. The second distributor imposes specific requirements on its sources of obsolete components.
Other standards, such as the SAE Aerospace 6496 standard, emphasize authorized distribution. “My sense is the authorized distribution channel has made a big difference,” Demcko said. “There are instances where we work with military contractors and they need a part and they don’t know where to get it. Parts sold through authorized distribution can be validated. It’s a good step toward fewer people getting burned.”
High-quality automotive parts could provide an alternative to COTS or EOL parts. Automotive parts are produced in high enough volumes so that their costs are not prohibitive. And quality control is so strict in the automotive market that the performance of these parts is outstanding and consistent. “When you turn out 40 million of 50 million of these things every day you get pretty good at it,” said Demcko. Readily available components tend to lose their appeal to counterfeiters
The CSME conference covers new technologies and provides in-depth training on counterfeit avoidance, according to Demcko, who is presenting at the event. Counterfeits used to be pretty easy to spot visually because remarking, blacktopping and other methods change the part in some physical way. Now, counterfeit semiconductors are actually being produced off of manufacturing lines with few—if any – physical defects. Parts then must be tested in other, more intrusive ways. “We are talking more detailed front-end inspection,” said Demcko, “microscopic and ‘road’ testing; microwave inspection— and there are much more other advanced tests available.”
These tests, however, add costs in the supply chain. Few OEMs have labs for incoming inspection; some distributors do; and most tests are performed by third parties. Component suppliers are trying to push testing costs down to OEMs. For small OEMs, Demcko said, the costs could be prohibitive. Quality assurance standards such as those established by the mil/aero and automotive industries could reduce the need for testing.
The 20th annual Components for Military & Space Electronics Conference will be held at the Sheraton Four Points Hotel in Los Angeles, CA from March 6 – 9, 2016. The conference program and schedule of events are online at http://www.cti-us.com/pdf/cmseannou16.pdf.
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