electronics, electronics manufacturing, logistics, part obsolescence, Supply Chain, Supply Chain Management
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Logistics Management for Electronics Manufacturing

As part of the manufacturing operations of electronics systems and PCB production, planning for logistics success is imperative. Without a cohesive plan, shortages of components or materials could cause a line down situation. Conversely, a burden of oversupply and inventory can induce large carrying costs that can be prohibitive on profits. Management of information, originating from the customer, all the way through to final shipment of inventory is the key to winning logistics challenges.

Business Objectives Drive Inventories

Internal business objectives should determine the targets for the acceptable amount of inventory to hold at all phases of the production process. This will include:

BOM components

Raw PCBs

Mechanical housings

Cabling harnesses

And any assembly materials needed for the manufacturing process

The required financial metrics for your organization will drive the procurement orders and identify the number of materials that can be held on-hand in a work-in-process point.

Outside of your enterprise, it is important to collaborate with your CM to identify what they can stage at different points in the manufacturing process – Raw materials, Partial/Sub-assemblies, Finished Goods Inventory. A comprehensive logistics plan should consider the impacts involving all stakeholders – internal, CM, distributors, vendors, order fulfillment, shipping, and customers. Identify their capabilities for shipments and schedules as well as the final expectations from customers. Many CMs can ship directly from their warehouse to your customers. Determine if this fits within your company’s objectives.

Develop a Logistics Plan

In order to establish logistics planning for components, review the entire BOM for long lead-time items and custom components. Each BOM item should have a lead-time based on the manufacturer and the distributor. Once the longest lead times are identified, a worst-case logistics schedule can be planned. Full kitting services by your CM can push the burden of this component logistics to their operations team, instead of owning this scheduling internally with your own direct procurement.

Ideally, each component listed in the BOM should have multiple substitutes available. For best planning purposes, identify as many practical substitute components that can be as close to your inventory as possible. This will mitigate the unfortunate circumstance when the primary components are unavailable due to shortages, long lead times or obsolescence. By kitting a system BOM through your CM, a list of viable substitute components can be made available for comparison and selection at the time of quotation.

Scheduling and Forecasting

Logistics scheduling will be determined by order patterns based on end-customer demand. Demand forecasting is key to driving order rates and establishing a final logistics plan. The old adage prevails that without accurate information, garbage in equals garbage out. An electronics manufacturing platform with a network of manufacturing sites can provide access to a factory with optimum capabilities for your needs to minimize logistics hassles.

The logistics of receiving materials into the inventory department at the factory should be reviewed with your CM. This will include how they receive material into their system and the time duration until component availability on the manufacturing floor. By planning to this detail, scheduling of new builds at the CM can be done with a single day resolution. Keep in mind that there may be up to three part number designations to manage for a single component – the manufacturer’s part number, your internal part designation for your schematic and the contract manufacturer’s number. All three have to be in agreement across the entire BOM within your business intelligence databases. 

From the start of the manufacturing lifecycle, the lead time from end product forecast, order and delivery will determine the cycle time and these factors will dictate logistics:

Ordering lead time

Amount of inventory to be held

Assembly schedule

Intermediate shipment duration

To gain manufacturing insight advantage, work in collaboration with your CM for the best ways of sharing information across business intelligence tools. Forecasting, purchase orders, inventory count per stage, and order fulfillment by the CM are all analytics data that can be leveraged with your CM partner for logistics optimization.

Plan in Advance for Future Uncertainty

Some very high-performance systems may reach the technical limit of acceptable sales internationally to the point where they may be restricted by the US Commerce Department. A clear set of technical thresholds are defined by the agency to establish what products will have an export restricted designation. If this is the case for your system, the first set of logistics defense is to have your business planning tools prevent any unauthorized movement of products that could be in violation. These criteria will include product model, geography within the world and the final customer delivery point.  However, manufacturing locations also need to be considered when planning for these products. Intermediate points in the manufacturing process may be considered a final product, so the qualification of the performance at a given factory location should be vetted.

When high demand creates limited available manufacturing capacity for a given time, it is important to establish product priorities with your CM. Otherwise, this decision is left up to unauthorized interpretation.

Part Obsolescence

For many reasons, a parts manufacturer may choose to discontinue selling a particular component, rendering it obsolete. Sometimes they may offer a pin for pin substitute, but this scenario cannot be relied upon. What is typically offered in this situation is an opportunity for “Last Time Buys” over a one to two year time period. This creates a need to develop a plan with your CM to hold inventory and transition to a different BOM. A component obsolescence review plan should have a review owner that either gets automated alerts from manufacturers or intentional software tools that routinely checks for updates. Your CM may have access to this information across wide distribution channels. These verifications should have a known periodicity. Eventually, a final decision maker within the design team needs to be identified for a change to the BOM for obsolete part substitutions. 

Maintain Authorized Distribution Channels

The logistics of scrap material and yield loss is important to plan at the onset of production. These directions should be clear with the CM and any other distribution partner. Finished products or partial subassemblies that are unfit for sale due to electrical or mechanical non-conformance should be disposed of or destroyed in a proper method. Without clarity on this procedure, the material may be used in unauthorized ways and potentially could find its way to the gray market as a substitute for a real product, if being manufactured by a CM that is incentivized to take your intellectual property.

Similarly, gray market components for your system should be avoided with every effort. These spoof devices are maliciously inserted into channels with the intent of masquerading as their authentic electronic counterparts. The fake components may have come from the scrap bin of a semiconductor assembly supplier or re-marked grading from another entire product. Even worse, they may be completely empty packages. Nearly full price can often be charged for the devices with the unsuspecting buyer not becoming aware of the problem until weeks later during a final electrical test step. In times of long lead times, scarcity or deep discounts, using unapproved channel distribution can seem enticing. However, without properly purchasing material through authorized channels that are sanctioned by the original manufacturer, there may be no guarantee that the components are bonafide. It is best to work with a CM that only source parts from reputable distributors. 

End of Life

End-of-life planning should be done during the product development process. It should not be an afterthought during the late stages of its production. When a product reaches the end of its’ life, the logistics of the remaining inventory and work in process material must be planned for some type of disposition. Decide if any materials inventory can be repurposed to other products and reclaimed. If an obsolescence notice must be provided, then that’s the last time buys may be offered to customers from a vendor perspective. A finite amount of demand can then be planned for manufacturing over a fixed time horizon. 

Logistics management planning should be integrated into the product development process. The fundamental underpinning is based on the financial goals of your enterprise for lead times and inventory. However, there will be no substitute for accurate scheduling and forecasting from internal business managers. This will ultimately drive the success of your logistics plan. Work with your CM partner that can offer many options to navigate the logistics from choosing the right factory site location, kitting and finished goods shipments.