Karsten Horn, director of international sales for the materials management division at supply chain optimisation specialist INFORM, discusses why the product life cycle is in decline. He also debates the impact this will have on the supply chain and why businesses must give their products greater focus in terms of planning if the organisation is to continue to thrive long-term.
Collapse of the product life cycle
The product life cycle theory, established 45 years ago, asserts that all products have a limited life and pass through distinct stages, each posing different challenges, opportunities, and problems to the business.
One of the most profound changes in the last decade is the dramatic shrinkage and some would argue collapse of product life cycles which bear little resemblance to the world today which is defined by instant obsolescence. In some fast moving industries, this can even occur during the growth phase.
For example, 60 per cent of Apple’s revenue comes from products that didn’t exist three years ago . This indicates that, certainly within the technology sector, product growth, maturity and decline is becoming more rapid, and life cycles are shortening. This isn’t specific to the technology sector either; up to 50 per cent of annual company revenues across a range of industries are derived from new products launched within the past three years. This suggests that long-term product ‘cash cows’, which stay in a company’s portfolio for many years, are becoming a thing of the past.
The collapse of life cycles means that replacing a product or service line every two years is becoming the norm across many industries. Furthermore, if a business is not quick to introduce a product to market, it risks launching goods that have already been superseded by competitors.
This changing environment means that accurate demand planning and forecasting has never been more imperative, and businesses must take a more co-ordinated approach to supply chain management. I believe that key to this is the introduction of technology that enables organisations to quickly and effectively manage operations and gain a greater perspective over the entire supply chain
Strengthening the core
I strongly believe that businesses need greater awareness of every product in their portfolio, especially those that have been a mainstay of the product mix for a long time.
This awareness is even more critical in an environment where the increasing speed in which a product moves through its lifecycle means that demand can change dramatically. Subsequently, businesses must consider implementing technology that can accurately predict future requirements.
An accurate and timely demand plan is a vital component of an effective supply chain. Without this, it would be difficult to effectively allocate supply chain resources and produce correct forecasts, resulting in supply imbalances when it comes to meeting customer demand.
The provision of a complete and accurate picture of demand can be used to evaluate where the product resides in its life, influencing strategic and tactical planning. In addition, this data can provide managers with the control needed to effectively plan and manage each phase of a product’s lifetime.
For example, demand planning technology offers the capability to accurately forecast the demand of new products, short-life or seasonal products and end-of life products, as well as optimise replenishment strategies as required. Just as important, managers are able to see how demand patterns will impact an entire supply chain.
Decision support systems can also allow managers to pinpoint where unforeseen scenarios and hidden risks exist in the supply chain. This can enable businesses to alter operations dependent on changing product requirements and avoid huge losses caused by surplus inventory or backlog orders.
The implementation of an effective forecasting process allows for a greater overview of demand profiles, consumer buying patterns, and other demand signals which can then be adjusted quickly to reflect market changes and buffer against shrinking supply chains.
In my firm opinion, technology is critical for businesses to manage shorter product lifecycles. By keeping forecasts accurate and timely, an organisation can ensure that the right products are available at the right times, thereby maximising margin contribution from the product’s introduction, maturity, replacement, substitution and retirement.
Inventing a new supply chain
Inventory is one of the most valuable assets a company has, but if you ask me, many companies fail to manage it effectively. And as the nature of supply chains changes due to shortening product life cycles, so must the policies used to manage and optimise inventory.
Technology support is becoming critical to selecting and executing a supply chain inventory programme. Companies should seek technology that allows them to optimise the positioning of inventory across the supply chain and that enables collaborative inventory processes with suppliers, helping to manage and forecast these relationships more effectively.
Improving inventory management practices calls for a high degree of collaboration and visibility across the supply chain, as well as more sophisticated optimisation. Companies that do not use technology to enable their supply chain inventory initiatives will not achieve the same level of performance.
I feel the sophistication of supply chain management will continue to grow, with organisations increasingly using inventory principles along the entire life cycle of a product, for example to maximise the launch of a product, a re-brand, or demand variations due to seasonality factors.
Add-on a minute
There is an increasing market across all industries for product accessories, add-ons and upgrades, but with product lifetimes shortening dramatically, the window of opportunity to exploit revenue in this market is small.
I believe it’s vital that organisations attempt to maximise life cycle revenue profits through the after-market, such as upgrades to existing products. Key to achieving this is through optimising the after-market with the correct decision-support systems, which will ensure best practice and enable strategic decision-making. By improving the performance of this division of a business, profit can be immediately driven into the company through increased revenue.
A commitment to competitiveness
Shortening product life cycles make time-to-market critical, and so businesses must utilise technology to ensure a greater perspective and tighter control of the supply chain. This approach will force organisations to favour a greater degree of cross-functional working, speed up response times to market and reduce risk through increasing visibility of demand in the chain.
As a product proceeds through its life cycle the demand characteristics change, and organisations must be committed to changing the supply chain strategy to maintain competitiveness at a moment’s notice. This can be achieved through the use of forecasting and planning technology to monitor a product as it proceeds through its life; matching a product to the most appropriate supply chain strategy for the next stage of its existence.
Using technology to offset shortening life cycles can help managers avoid huge inventory losses and issues with excess orders. The understanding and careful evaluation of the effect of these factors enable the supply chain to become more efficient and in turn drive business competitiveness in the market.
The most successful organisations will have a strong grasp of shortening product life cycles within their industry and put strategies in place to allow them to adapt quickly to changing markets, enabling new sources of revenue to be generated. Businesses that fail to react will risk falling behind competitors, ultimately facing a struggle to remain relevant in a faster-paced world.