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Last-Time-Buy Funding Issues for Military Contractors

In some of my previous blogs, I discussed different aspects of the obsolescence management problem and offered up a variety of solutions, culminating in the semiconductor lifecycle management (SLiM) program.

In this blog, I will look at one of the biggest disconnects between original semiconductor suppliers and military/aerospace contractors — the mismatch between supplier Last Time Buys (LTBs) and military program funding. (See: Nuts & Bolts of Semiconductor Lifecycle Management, Part 1 and Nuts & Bolts of Semiconductor Lifecycle Management, Part 2.)

The majority of original semiconductor suppliers are focused on commercial or industrial markets, and the military market is either an afterthought or not considered at all. These suppliers plan their product line introductions and discontinuances around the lifecycle of the high-volume, short-lifetime commercial programs. When the product demand for these programs decline, the supplier then offers up a last-time-buy (LTB) to support the customers who need product out in the future. These suppliers do not plan with the military/aerospace customer in mind; they simply announce last-time-buys, raise prices, and then exit the business.

Commercial and industrial users can successfully work around the LTB requirements. They can forecast the long-term demand for their products, translate this into product needs, and then make business decisions about how much money they are willing to commit today for the ability to continue their product life. These companies can look at a variety of financial factors to determine if spending extra money today will be justified in order to ensure meeting their end customer demand in the future. They can weigh the risks of not being able to obtain more devices or having to pay higher prices later against the investment required to purchase excess inventory. They can also consider a product redesign and can upgrade to newer components.

In theory, the military/aerospace contractor should be able to use the same analysis techniques as discussed above, and they certainly do. However, the military contractor does not have the flexibility to commit to LTB purchases in the same way a commercial company can. Since they are driven by program funding, the military/aerospace contractor cannot commit dollars that have not yet been awarded, even when they are fairly certain that the demand will be there in the future.

So, the contractor is limited to only purchasing enough products to satisfy already awarded contracts and is forced to put future program extensions into the fickle hands of the obsolescence marketplace. The product redesign option is rarely a good option due to the high costs of redesign and requalification.

Working with a SLiM provider can offer a solution to the LTB funding dilemma. The successful SLiM supplier can offer a bridge between the strict LTB dates and the long-term demand for military/aerospace programs. By involving the SLiM supplier with both the military contractor and the original semiconductor supplier prior to the conclusion of the LTB process (or ideally even before the process starts), the SLiM supplier can offer a variety of solutions to continue production of the obsolete devices.

These solutions can include the purchase of inventory to be stored for the military contractor; the purchase of die to be stored for future builds as needed; the transfer of product information including device, package, and test information; and can ensure the uninterrupted supply of devices as military programs get extended.

7 comments on “Last-Time-Buy Funding Issues for Military Contractors

  1. Eldredge
    December 1, 2011

    The qualification testing required for military applications is also a factor. In the case of component obsolescence, military contractors may also have the option to redesign and upgreade to a newer replacement. But the cost to do so is ofter far greater than it is for commercial applications, because the military application must be tested to far more rigorous environmental standards, and must be approved and funded by the government.

  2. Barbara Jorgensen
    December 1, 2011

    I've never thought of the funding vs. LTB decision. It seems obvious now–every year, the US government has to hammer out a budget and military spending is always an issue. It makes an already-difficult forecast situation even worse. Commerical users of chips can't get it right–it must be even worse in mil/aero.

  3. bolaji ojo
    December 1, 2011

    Barbara, The last-time-buy issue is a complicated one for all manufacturers but as you noted, it is even more perplexing for companies in the military market. The problem is complicated by the size of the sector and the limited number of companies that can or that are allowed to participate there. Getting certified is only the beginning, servicing an industry segment where products last 20 or more years is an additional burden.

  4. Eldredge
    December 2, 2011

    @Bolaji – In addition to the items you mention, the volume of components in the mil/aero arena is often a lot smaller than commercial applications. Generally, the commercial applications drive the market on that basis.

  5. rwiles
    December 2, 2011

    Excellent discussion. It is certainly true that manufacturers overlook the military market when issuing LTBs. The ability to forecast is one thing that most could improve, but assuming good forecasting, government contractors simply cannot spend money that they have not yet been awarded. 

    There are companies who offer programs to support this problem with special purchase agreements and long term storage capabilities. In some cases this means making a proxy LTB for a customer, and other times it means making a wafer purchase during the LTB cycle and storing die until it is needed and funding is available. While the end cost of products with these programs may be marginally higher than the original selling price, they are much more affordable than re-design and qualification costs, as others have commented on.

  6. Barbara Jorgensen
    December 2, 2011

    Bolaji–at the same time, it strikes me that moving more toward commerical products–as the mil/aero marekt has been doing– was supposed to eliminate some of the uncertainty around component sourcing. Commercial products are thought to be more easily and widely avialble so therefore less dependent on things like funding. It was a good theory while it lasted.

  7. prabhakar_deosthali
    December 6, 2011

    The issue here looks to be ,not whether there is a technical solution available to take care of End of life situation but whether the govt funding will be awarded at that time for such a purchase.

    Here in my opinion , it would be the defence department's responsibility to allocate upfront approved budget for such LTB based upon the defence contractors recommendations  and the then( at the time of LTB) goverment's responsibility  to honour such advance commitements.

    This is like buying a 20 year insurance policy with guranteed returns at maturity to take care of the exingencies at that time.

    Cant' military administration plan that way?

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