Abstract:

Long life cycle products, commonly found in aviation, medical and critical infrastructure applications, are often fielded and supported for long periods of time (20 years or more). The manufacture and support of long life cycle products rely on the availability of suitable parts, which over long periods of time, leaves the parts susceptible to a number of possible supply chain disruptions such as suppliers exiting the market, counterfeit part risks, and part obsolescence. Strategic sourcing offers one way of avoiding the risk of part unavailability (and its associated penalties) but at the expense of qualification and support costs for multiple suppliers. Existing methods used to study part sourcing decisions are procurement-centric where cost trade-off focus on part pricing, negotiation practices and purchase volumes. These studies are commonplace in strategic part management for short life cycle, high-volume products; however, procurement-driven decision-making provides little or no insight into the accumulation of life cycle cost (attributed to the adoption and use of the part), which can be significantly larger than procurement costs for long life cycle, low-volume products. This paper presents a methodology to perform trade-off analyses and identify the conditions under which sourcing strategies (with a predetermined number of suppliers) will be cost effective based on the organization's capability to streamline qualification and support activities. The method utilizes a part total cost of ownership (TCO) approach to identify the life cycle cost trade-offs between extending a part's procurement life through multi-sourcing versus the additional cost of qualifying and supporting the alternative sources for long life cycle product applications. The method is demonstrated for electronic parts in an example case study of linear regulators subject to obsolescence and shows that the cost of qualifying and supporting a second source determines if the organization is likely to benefit from extending the part's effective procurement life when procurement and inventory costs are small contributions to the part's TCO. The model presented offers a means to determine the "break-even" learning index necessary to make a second sourcing strategy viable.

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