The Importance of Controlling your Bill of Materials

If you want to manufacture products you need parts. If you want to manufacture good products, you need good parts. And if you want to manufacture good products that have a consistent long-term presence in your chosen market, you need consistent long-term access to good parts.

In theory, this is obvious but in practice it may be challenging. Ideally, engineers, purchasers and component engineering managers would freeze the bill of materials (BoM) once the design department and the production engineering team has signed off on it. Fixing the BoM ensures the product will always be manufactured to specification. However, right now the semiconductor industry is battling against its own form of ‘Long Covid’; the economical aftereffects of the global pandemic. Many OEMs now find themselves facing uncertainty several months into the future and expecting increased average selling prices.

In practice, achieving a stable supply chain – even under the best market conditions – is harder than most would expect. The semiconductor industry exists in a permanent state of mismatch between supply and demand, not least because of the time it takes to build new factories. Early in 2020, car makers started cancelling semiconductor orders in the belief that car sales would be badly affected by the pandemic. Many of these devices were made by commercial foundry partners. When the car-industry orders dried up, the foundries turned their capacity over to producing chips for phones, tablets, laptops, monitors and game consoles. In short, they supplied the companies making the products we were buying so we could live, work, and play at home. When car sales recovered, car makers found that capacity had been reallocated to other customers whose demand showed no sign of going away. As a result, the whole automotive industry was facing allocation due to an increased demand from other sectors. By December of 2020, some foundries were already booked out for the whole of 2021. The effect has been that some auto production lines have been idled for want of relatively simple but specific semiconductors, such as motor-control ICs for powered seats. Some car makers have responded to parts shortages by simplifying their products: if they can’t get seat-motor driver ICs, they remove powered seats from their options lists. Leading marques have reported some degree of ‘down-speccing’ and giving customers rebates or charging a lower sales price.

Outside the confines of the automotive industry, OEMs in other vertical sectors are also thinking hard about what compromises they can make to keep production lines running. However, for many, it is not as simple as removing an option; the product must meet predetermined parameters. Take storage as an example, manufacturers build their reputations on providing high-quality, reliable storage solutions that offer defined capacities and performance, based on specific technologies from approved suppliers. This is where production challenges might demand an equivalent part. The question is, will an equivalent part do, or must you hold out for the approved part? If you can use high-quality equivalent parts, will you enter into a short-term arrangement to get them, or do you have to form long-term relationships with new suppliers? When supply chains become compromised it casts a shadow over the JIT (Just-In-Time) approach to manufacturing. OEMs know they may encounter vendors or intermediaries offering parts that are difficult to qualify. This may include partial reels of genuine parts, or components that have been relabelled to conceal their true age. In some cases, it could include parts that have been rejected or refurbished, or even made on ‘ghost shifts’ in the same factory as genuine parts but without the same level of testing. The extreme includes outright fakes, which copy a brand and a part number, but are of unknown quality, functionality, performance, and reliability. In striving to keep production lines going, even credible suppliers may modify their products to ensure continued supply. This could include using alternative bond-wire materials, substrates suppliers, packaging, and testing suppliers. The important consideration is that these changes are communicated. The customer needs to know they can trust that the products they purchase are indeed comparable in form, fit and function. They must also be made aware of any potential impact on the long-term reliability of the products. The challenge for OEMs is to introduce enough flexibility to keep production lines running, while understanding that what they’re being offered may not be entirely the same part they have originally qualified. Trust in your suppliers is key to making sure there is transparency throughout the jungle of possible modifications.

Supply chain management is always challenging, and the pandemic has made it even more so. OEMs may need to broaden their range of suppliers, rapidly, to keep their production lines going. All sectors have felt the same pain, which has caused many to revisit the ‘Just In Time’ approach to manufacturing. Many OEMs are looking closely at the benefits in maintaining higher stocks of critical parts. However, the foundations of supply chain management have not changed. Strong and trusted relationships are key, those relationships may be established or still developing, but ultimately, they need to be reliable. Openness is part of that reliability. Suppliers and customers must be confident in the way they share sensitive information. it is only through openness that mutual trust and success can really be shared.