Electronic Part Total Cost Of Ownership And Sourcing Decisions For Long Life Cycle Products
Prabhakar, Varun Jonathan
Sandborn, Peter A.
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The manufacture and support of long life cycle products rely on the availability of suitable parts from competent suppliers which, over long periods of time, leaves parts susceptible to a number of possible long-term supply chain disruptions. Potential supply chain failures can be supplier-related (e.g., bankruptcy, changes in manufacturing process, non-compliance), parts-related (e.g., obsolescence, reliability, design changes), logistical (e.g., transportation mishaps, natural disasters, accidental occurrences) and political/legislative (e.g., trade regulations, embargo, national conflict). Solutions to mitigating the risk of supply chain failure include the strategic formulation of suitable part sourcing strategies. Sourcing strategies refer to the selection of a set of suppliers from which to purchase parts; sourcing strategies include sole, single, dual, second and multi-sourcing. Utilizing various sourcing strategies offer one way of offsetting or avoiding the risk of part unavailability (and its associated penalties) as well as possible benefits from competitive pricing. Although supply chain risks and sourcing strategies have been extensively studied for high-volume, short life cycle products, the applicability of existing work to long life cycle products is unknown. Existing methods used to study part sourcing decisions in high-volume consumer oriented applications are procurement-centric where cost tradeoffs on the part level focus on part pricing, negotiation practices and purchase volumes. These studies are commonplace for strategic part management for short life cycle products; however, conventional procurement approaches offer only a limited view for parts used in long life cycle products. Procurement-driven decision making provides little to no insight into the accumulation of life cycle cost (attributed to the adoption, use and support of the part), which can be significantly larger than procurement costs in long life cycle products. This dissertation defines the sourcing constraints imposed by the shortage of suppliers as a part becomes obsolete or is subject to other long-term supply chain disruptions. A life cycle approach is presented to compare the total cost of ownership of introducing and supporting a set of suppliers, for electronic parts in long life cycle products, against the benefit of reduced long-term supply chain disruption risk. The estimation of risk combines the likelihood or probability of long-term supply chain disruptions (throughout the part's procurement and support life within an OEM's product portfolio) with the consequence of the disruption (impact on the part's total cost of ownership) to determine the "expected cost" associated with a particular sourcing strategy. This dissertation focuses on comparing sourcing strategies used in long life cycle systems and provides application-specific insight into the cost benefits of sourcing strategies towards proactively mitigating DMSMS type part obsolescence.