Now’s the Time for Electronics OEMs to Shape Their Futures

In view of the COVID-19 disruption and anticipated aftermath in the embedded electronics industry, computer board OEMs face an existential challenge right now: How do they best allocate their resources to satisfy the competing objectives of 1) sustaining legacy designs, while also 2) winning and capturing the market for inspiring new designs?

If OEMs spend too many resources on sustaining old designs, they risk losing too many new design wins to competitors. If they focus too narrowly on introducing new products, and leave customers loyal to old designs in the lurch, they risk losing out on new design wins.

No one knows what “normal” will look like after the immediate pandemic fallout, but successful companies will be keeping an eye on the future, while they navigate their current, urgent crisis response.

Here are some practices that electronics OEMs should immediately consider, both to weather the COVID-19 storm and to position themselves for fast sailing when things improve.

Differentiate between the immediate crisis fallout and the long-term economic recovery

It’s easy to get sucked into making immediate changes in response to the current crisis. That’s why it’s important to consider how those reactive decisions support or undermine long-term success. Gartner suggests a perspective and mindset that OEMs should consider when considering immediate decisions as well as long-term strategy.

Right now, large capital equipment manufacturers in critical sectors are dealing with supply chain instability as suppliers contend with pandemic fallout. Other equipment makers are experiencing order delays—either because their customers’ demand has slowed or because they’re focusing their efforts on the immediate struggle to survive.

At the same time, equipment end users like the Department of Defense (DoD) are figuring out how they will deal with the effects of COVID-19 on defense supply chains. And these effects are complicated by the fact that many defense systems rely on commercial parts that are sold to nondefense commercial customers, many of them severely affected by the pandemic.

During this immediate period, when the DoD moves to shore up their supply chain, manufacturers who make and use embedded computer boards are likely to see a delay in their pipelines. They may even see an increase in request for quotes (RFQs) for old designs—which may themselves already be “obsolete.”

Soon after this initial reactive period of shoring up vulnerable supply chains (and while the trauma is still fresh in everyone’s mind), I predict the DoD and commercial equipment makers will accelerate their efforts to radically streamline their acquisition and modernization capabilities, while innovating how to sustain their legacy systems in an effort to do more with fewer resources. 

Regardless of how the larger economy rebounds, there is evidence that there will be a significant volume of new projects and design-win opportunities. The National Defense Industrial Association (NDIA) reports that approximately $160 billion has been authorized and appropriated by Congress but has not yet been obligated toward individual contracts.

The companies who win these contracts will be the ones positioned to respond quickly to these opportunities. Companies without the resources to win this work will find themselves left behind.

Forecast your 2020 sustainment work

Immediately, production teams should review their 2020 backlog to identify which orders involve old designs and are therefore likely to have extra-special obsolescence needs—so they can estimate what resources will be needed to successfully deliver the work. For example, products that include obsolete components will require more procurement work than usual. If a product has not been built within the last year or so, there may be barriers to restarting the production line.

Each of these flagged orders should then be profiled to identify which resources will be needed to support them. For example, if there are one or two engineers who know how to troubleshoot production fallout, this fact should be captured. If there are critical component obsolescence issues to be dealt with, suitable sustaining engineering time should be allocated to the assessment.

Based on their backlog assessment, production teams should establish a process for performing this assessment for all future orders and RFQs as they come in.

Rank each sustainment order’s impact on your resources

To prioritize which orders you will allocate resources to, OEMs should evaluate each order’s exceptional resource needs against its revenue contribution for the year. The resource assessment needs to be granular enough to identify resource bottlenecks; it should also consider available resources over time. For example, if you anticipate scheduling several high-maintenance orders in the same month, but you have only a limited number of highly skilled test technicians, either you should plan now to reallocate more resources or face foreseeable production delays when the time comes.

Maintaining this view of the relative value of each sustainment order will enable you to quickly assess which order will begin to exceed your teams’ true capacity and disrupt higher-value work.

Pick your sustainment options

Once you have a good idea of the relative value of each sustainment order’s predicted effort, the following recommendations can help you choose your options for dealing with orders that you determine may pose a risk to your core business priorities:

• Assess your sustainment priorities: Identify how much in-house resource is needed for the highest-value sustainment work (20% of the orders provide 80% of the value). Think about where you draw the cut line between desirable and undesirable orders.
• Expand your in-house sustainment capacity: If needed, hire additional component engineers and procurement resources to deal with typical production bottlenecks. Also, limit the support given by design engineering teams to a few named resources to minimize the risk of having your highest-value engineers pulled into urgent support work for lower-value orders.
•  Off-load surplus sustainment work: Develop processes to outsource all the work that exceeds your in-house capacity. Whether you choose to break the work up and send it out piecemeal, or you partner with a full-service legacy equipment manufacturer (LEM), it’s essential that your supplier management business processes are sufficient to deal with the routine exceptions of supporting obsolete designs.

As everyone navigates through the fallout of the COVID-19 pandemic, people should take care not to fall back into old practices. Instead, they should consider how the pandemic’s aftermath could unfold and how they want their response to look.

A good place to start is to consider all the processes and policies they need to put in place now to preserve the delivery of core products, taking care to address the traditional bottlenecks caused by the support of old product designs.  

Choices made now will profoundly affect our futures.

Stay healthy and safe, everyone.

Ethan Plotkin, CEO, GDCA Inc.