Integrating SCM with Product Lifecycles
All manufactured products move through a cycle of creation to maturity to decline. There are exceptions—a dairy product such as milk, for example—but the general rule is that product evolution is a stark reality within the manufacturing enterprise. Product Lifecycle Management (PLM) software recognizes this.
Let us look at the process of product lifecycle management in the context of supply chain management. A product's lifecycle moves through five definitive stages. They are:
- The new product development stage. This stage is very expensive for the enterprise. The company experiences a lack of sales revenue and sustains considerable losses that are commensurate with the scale and complexity of the product to be launched.
- The introduction to the market stage. This period in the product lifecycle is very costly, with relatively low volume and continued losses again within the scale of the effort.
- The stage of growth. This stage is marked by a gradual reduction of economies of scale, with a step-by-step increase in sales (assuming a successful product), and the emergence and increase of profit.
- The mature stage. The mature stage is defined by very low costs. Sales of the product are at a peak. A reduction in the product's price—possibly through competitive pressures—and significant profitability can be seen.
- The stage of decline. This stage shows a reduction in sales, a continued drop in prices, and a subsequent reduction in profit. Now let's review the basic elements of the supply chain as defined by the Supply-Chain Council's SCOR model: plan, source, make, deliver, and deal with many forms of returns.
At each stage of a product's lifecycle, its usefulness to the supply chain varies considerably. Here's a look at each stage of product lifecycle management:
- During the new product stage, supply chain planning is critical. The company must approach the needs of the product strategically in regard to integrating all the supply chain elements and eventually progressing to a collaborative supply chain. Unless the big picture is secure, what follows may be in jeopardy. Evaluating sources repeatedly as the product takes shape is extremely important. Switching from a metal casting to plastic, for example, may change the nature of supply 180 degrees. The switch from less computer memory to more may make or break a decision. Similarly, mapping out how a product will be manufactured affects not just the function of the product, but its sources, required tooling, appearance, marketability, and place in the customer's heart. In addition, it's never too early to plan the nature of the distribution process, as well as the recognition of the eventual returns process.
- During the market introduction stage, the supply chain is presumably up and running, and continually tuned. By closely examining the supply chain, a company can eventually bring a product's start-up cost into line. One advantage of low sales volume at this point is that it gives those controlling the supply chain a manageable scale of sources, products, and reactions to track. The growth stage occurs when the supply chain kicks into gear in a big way. The cost reductions gained from economies of scale are the result of a lean or agile look at sourcing, manufacturing and distribution, as well as a deeper understanding of customers' reactions and feedback about the product.
- Growth is maintained to a great extent by using customer feedback, as well as feedback from the customer's customer on how the enterprise delivers and maintains the product. A company achieves greater sales volume over the long haul by using the right logistics and by assessing the value of the product to its customers. The right product, at the right time, with the right features, and with the right continuous support from the enterprise will achieve success. This is a big order.
- The mature stage is where the difference between real success and a good try will divide the company. Sustaining good resources, good inbound logistics, good warehousing, good manufacturing practice, good design and marketable changes, good distribution and continued evaluation of customer feedback ensures low cost and high sales volumes. The enterprise that uses the supply chain to position itself favorably as compared to its competitors will have the edge. A drop in prices can be offset by good supply chain tuning. It is at this stage that an enterprise is most likely to see the greatest profitability from the product. One bad misadventure in supply or marketing, or misjudging the customer, however, can quickly bring down the house and cause a decline in sales before it is necessary.
- The decline stage should not be seen as the point where the company gives up. If profit is still to be realized the product can be extended through careful practice and a highly oiled supply chain. It takes a great balancing act to deal both with reduced prices and lagging sales within the framework of reduced profits. It is only through intelligent use of a supply chain strategy that any balance can be reached. This stage is also the point where a product has a chance of rejuvenation. Miracles never cease.