What challenges do retailers face?
Product lifecycle management | Increase your revenue! Do you have enough stock to meet demand after a product launch? Can you scale up fast enough? How do you react if the new product is not a success? How do you know when the product is becoming obsolete? Can you avoid obsolescence? Companies can make a lot of money through effective product lifecycle management, but it’s a tough job. How can you keep product lifecycles in order?
Every product goes through a product lifecycle consisting of five phases. As a supply chain professional, how can you ensure you keep just enough inventory at every stage? Unfortunately, the duration an item spends at each stage is different for every product, as is the growth curve and total demand. Furthermore, a large number of products fail during the introduction phase and thus move directly to the phase-out aspect of the product lifecycle. That’s just the way it is.
When a product goes into the introduction phase, it should actually have been preceded by another phase. I call this phase zero, or the reflection phase. Does it make sense to introduce a particular product at all? For example, if you already have 380 rubbish bins in your product range, does it make sense to consider launching no 381 to the market place? If we assume that it is indeed worthwhile, the first phase which we encounter is the introduction phase.
The end of the introductory phase is not so difficult to pinpoint; at least in theoretical terms. Exactly what marks the end of the introductory phase, is something you should define as a company in advance. The new product should be allowed a certain amount of time to prove itself, for example, by achieving a certain turnover or margin. Suppose a product should achieve a turnover of €25,000 within 6 months. If the product has reached a turnover of more than €25,000 after 6 months then the product is going towards the growth phase. If not, it moves towards the phase-out phase. In this instance, let’s assume that the product moves on into the growth phase.
Customers seem to like the product and thus, demand continues to grow. At this stage, ensuring availability is absolutely essential: out-of-stocks are disastrous. As a result, service levels are of greater importance than the optimisation of inventory or order transaction costs. However, this doesn’t mean you should forget about inventory completely. Using all the available data it is not only possible but also really important to develop a good forecast!
All the euphoria has to come to an end at some point. Eventually, the time comes where the period of double-digit growth turns into a period of zero growth. And then what should you do? It is basically impossible to predict when this transition will occur so you need to be very alert to when that time finally arrives.
From a logistics point of view, the maturity phase is the easiest phase to manage. Demand patterns are fairly stable resulting in simple forecasting models. The order quantity rules (often based on the EOQ) are fairly straightforward as they are determined by the system parameters. But the inventory strategies, models and order levels certainly differ from those required during the growth phase. Therefore they need to be adjusted in order to prevent the batch sizes and re-order levels from being too large; after all, we started with a trend in the growth phase. In other words, if we do nothing, we will continue to build up excess inventory.
Demand is in decline and we have to intervene again. However, this time it’s a little more complex. The key question now is: should we continue placing purchase orders? Optimisation of order quantities, safety stock and service levels is now of secondary importance to managing the risk of obsolescence. Being Left with excess stock is expensive and as a result it’s important to forecast the remaining demand in the last part of the product lifecycle.
