A part total cost of ownership model for long life cycle electronic systems

Abstract

Dedicated part selection and management groups within large original equipment manufacturers are responsible for various tasks involved with managing parts or components used in electronic systems. The tasks range from part adoption to obsolescence management and include numerous assembly and support activities that are performed on a regular basis. Long life cycle electronic systems typically utilise commercial ‘off-the shelf’ parts, which subject them to the same supply chain constraints imposed by a market that is oriented towards short-term, high-volume products. Relevant issues involve a high frequency of part procurement obsolescence, reliability concerns, and the risk of long-term supply-chain disruptions. Unfortunately, initial part selection decisions are often driven by procurement management processes with little or no insight into the total cost of ownership (TCO) of the part's adoption and use within the organisation. The part TCO model proposed in this article enables better informed part selection and management decisions. The article discusses and demonstrates the model's use in Lifetime Buy and Design Reuse case studies for an example surface-mount electronic part. Additionally, the model proposed in this article is well suited for addressing the impacts of part number reduction, retirement of parts from databases, organisational adoption of new parts, sourcing strategies and part-specific long-term supply chain disruptions by influencing initial component selection and providing guidance on what actions taken at the component management level provide the maximum payback (or maximum future cost avoidance).

Keywords:

• total cost of ownership
• through-life cost
• long life cycle
• electronic systems
• part management
• product platform design

Acknowledgements

This work was funded in part by the CALCE Electronic Products and System Consortium at the University of Maryland. Specifically, we express our appreciation to Bo Eriksson at Ericsson AB for his key inputs to the development of the part total cost of ownership model.

Notes

 1. In this article, the effective TCO refers to the life cycle cost of the part from the part customer's point of view, which should not be confused with cost of ownership, which is a manufacturing cost modelling methodology that focuses on the fraction of the life cycle cost of a facility that is consumed by an instance of a product.

 2. Part type definitions are as follows: type 1 – resistors, capacitors, inductors and mechanical parts; type 2 – integrated circuits, oscillators, filters, board connectors; type 3 – ASICs, RF connectors, RF integrated circuits, DC/DC, synthesisers, optical transceivers (TRX); and type 4 – RF transistors, circulators, isolators.

 3. Note, several typographical errors should be corrected in (Trichy et al. 2001): In (2) and (3), in Trichy et al., the maximum of the summation should be n−1 instead of n, and (4a) can be used for either definition of f _p with changed to . In (13) in Trichy et al., the subscript of N _r should be i−1 instead of i when i > 0.

 4. Lead finishes are very relevant for electronic parts since traditional tin-lead solder finishes were banned for many electronic product sectors in 2003 by the RoHS directive (Ganesan and Pecht 2006).

 5. FIT (Failures in time) rate – Number of part failures in 10⁹ device-hours of operation.

 6. Products for which the cost sustainment (operating and supporting) is significantly larger than the cost of procurement, e.g. airplanes, military systems, infrastructure communications systems and power plant controls (Sandborn and Myers 2008).

 7. Operational availability is the probability that a system will be able to function when called upon to do so. Availability depends on the system's reliability (how often it fails) and its maintainability (how quickly it can be repaired or restored to operation when it does fail).

 8. Note, the higher procurement cost for smaller YTO is also due to cost of money, i.e. even without considering deflation in the part costs, one would rather buy the parts in the future than today due to a non-zero discount rate.

 9. An electronic manufacturer announces that their part or the process of fabrication has changed by issuing a PCN. In 2006, over 340,000 PCNs were issued for active and passive electronic parts (Baca 2007) where the changes ranged from modifications to the part marking and delivery packaging, to parametric changes and lead finishes. Over 18% of all the procurable electronic parts will have PCNs issued on them in any given year, (Baca 2007). The change indicated by a PCN on a part used in a particular product may or may not be relevant, but every PCN should be evaluated to determine whether action is needed.

10. For the analysis results given here, we have assumed that the cost of the problem resolution in a single product is C _res = $100,000, that we have resources to perform a maximum of one full resolution every 6 months (resolution rate = 0.5 resolutions/quarter), and the cost of unresolved problems is C _unres = $50,000/product/quarter.