I’ve written several posts about product life-cycle management (PLCM). Most of these have focused on knowing what phase your product currently occupies in its market, what its next phase will be, and how you should outline your next plan of attack. However, as is often the case, there are bound to be some visitors who are unfamiliar with these four phases of a product’s life. Therefore, today we’ll review these four phases, but concentrate specifically on how companies should reduce inventory in the fourth phase of their product’s life. It’s during this fourth and final phase that companies should be planning to reduce their inventory counts of parts and raw materials. If managed properly, companies can reduce their inventory while setting the stage for their next product introduction.
A Quick Review of PLCM Principles
Product life-cycle management simply describes the four phases of a product’s life in its market. The first is the introduction phase. The second is the growth phase. The third is the peak phase, while the fourth is the decline phase. Some models refer to these as “stages” and have different names describing the product’s introduction period, its growth period, its peak period and its eventual end of life period. Most models follow these four aforementioned phases, or a variation thereof. However, on very rare occasions there is a fifth phase of PLCM called the “rebirth” phase. While rare, it does sometimes occur.
If you want to read about this aforementioned fifth phase, please refer to “The Fifth Cycle of Product Life Cycle Management: Rebirth & Growth”. The video in this post explains the fifth cycle of life-cycle management. This post also includes further insight into all phases of a product's life. However, for now, we’ll focus on these well-defined four phases and how companies should reduce their inventory holding costs in the fourth “decline” phase.
In the above graph the Y-axis (vertical) could represent millions of units sold, while the X-axis (horizontal) could represent number of years of sales
The above video is from the post: Your Product's Exit Strategy and the Final Stage of Product Life-Cycle Management
Reducing Inventory in the Fourth Phase of PLCM
So, why is it so important to know exactly what phase your product is currently in? I get asked this question all the time. Most of the time, these questions come from companies that rationalize their costs of inventory. They either ignore their inventory costs entirely, or don’t understand their severity – until it’s too late of course! Most of the time, they go day-to-day making their product, never knowing for certain what stage that product is in its life-cycle. Then that day comes. The day when they suddenly realize their product offering is outdated. Then they start caring about their inventory. Unfortunately, by then it’s too late. Therefore, the reason you must understand where your product is in its life-cycle is because you could be left holding inventory you can’t sell, and can’t move to other production requirements.
This is the most important part of life-cycle management. Your product could literally take years, or even decades, to go through all four of its life-cycle phases. Or, it could literally speed through all four phases within months. For instance, the compact disc is a product whose beginnings can be traced back to the mid 1980s, and while there are still pockets of demand for the CD, it’s pretty fair to assume that its life-cycle is near its end. However, it’s a different story for computer manufacturers; today’s product introduction is tomorrow’s outdated offering.
“So, why is it important to reduce inventory costs in the fourth phase?”
What was the first thought that came to mind when you read the example of the computer and the CD? Hopefully you thought about which company is better able to handle a scale down in inventory. For example, the CD manufacturer has plenty of time to scale down their inventory. After all, it’s a gradual decline and one that simply doesn’t happen overnight. However, it’s something entirely different for the computer manufacturer. They’ve likely gone through these four phases with other product offerings. As such, they know first hand how important it is to scale down their inventory before that final fourth phase is completed.
So, which computer company best understands PLCM? Why it’s Dell computers of course! Dell has literally raised the bar on how inventory is managed through their “Push-Pull” inventory management approach. That approach is predicated on providing custom-made computers in a fraction of the time of competitors – and they do this by pushing standard parts. How does Dell do this? They pre-assemble the majority of their product offering (let’s assume 70%) and then complete the remaining 30% to the customer’s needs. However, that 70% is made up of “standard sub-components,” which allow Dell to easily move these standard subparts to other product offerings. Therefore, any fourth phase, or end of life period, is offset by moving over those standard parts to another computer design.
Standard Parts = Reduced Design Costs = Easier PLCM Management
Standard sub-components are the key to success with Dell’s strategy. This strategy allows companies to move sub-component materials, spare parts, and assemblies from one product offering to the next. When one product offering enters its fourth and final phase, the company makes plans to move those sub-component parts to new product offerings. In essence, it’s scalable because Dell wants it to be.
That’s really all there is to reducing inventory during the 4th and final phase. You can make this final phase much easier to manage if you make it a point to use as many standard sub-components in your designs as possible. Instead of designing a product and asking “what standard parts fit?”, you should be starting your design with the standard parts in mind first. The reason why that final phase of PLCM is so difficult to manage is because most companies fragment their designs. They simply don’t incorporate enough standard parts. This issue is only exacerbated by the fact that they don’t track their product’s life-cycle. When they encounter that final phase, they have an inventory full of sub-components, raw materials and sub-assembly parts, they can't sell and can’t use elsewhere.
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