Your Small Business Guide to Product Life Cycle Management
How Do You Manage the Launch and End-of-Life of Your Products?
What does sales want?
- Sell everything this guy wants!
What does supply chain want?
- Optimize production
- Optimize logistics
- Deliver on time
- Spend as little money as possible getting that done
A sales professional in the golf club industry, for example, would want their company to sell every putter, wedge, iron, hybrid, fairway club and driver that a golfer would want to put in his bag. That's many different part numbers to manage, plus a high volatility in demand, shipping and inventory control.
But a sales professional needs to be able to service the customer's lower demand items in order to be strategically positioned to meet the high demand items.
A supply chain professional in the golf club industry looks at that potential high mix, high touch product offering with a shudder. Optimize, optimize, optimize! A perfectly optimized golf club production line would run only one club (maybe a five iron) and run it three shifts each day, seven days every week.
And the sales guy just stormed out of the sales and operations planning meeting.
Product Life Cycle
Obviously, there's a happy medium between the sales guy's utopia and the supply chain guy's fantasy world. That happy medium is a place where you offer a mix of products — some of them being more profitable than others. And your customers are happy because you offer a wide enough range of products to meet their needs.
As importantly, your Chief Financial Officer (or bookkeeper or maybe just you, if your business is that small) is happy because your lower margin products are doing what they need to do strategically (keeping your customers engaged) while your higher margin products do all the heavy lifting.
But how do you decide what to add to your product offering? And how do you bring products to their end of life (EOL) without a gaggle of unhappy customers or holding obsolete inventory?
Consider these phases of the products in your small business:
- New Product Launches
- Sustaining Products
- End of Life
Product lifecycle management is something that big companies do that small companies can emulate — and supply chain is here to help.
New Product Launches
Launching new products is always a very optimistic time for any company. There’s the anticipation of announcing to the world that you’ve got something new to talk about. There’s all that potential new revenue that you’re counting in your dreams. And there’s all the buzz that no doubt will follow once the world finds out about your wonderful new product.
But the truth is: product launches are the first step in product lifecycle management. And there are many, many details that go into launching a new product.
Many of the details require supply chain management to get them right.
- Product cost
- Product lead times
- Demand planning
- Inventory management
Launching a product that people want to buy is a wonderful thing. However, launching a product that people can afford to buy is even more wonderful. And launching a product that people can afford and that drives profitability for your company is an even more wonderful than all that.
But how do you know how to set the retail price for your new product?
There are two views on product pricing:
- What can the market accept?
- What do my costs dictate?
By studying market forces, you can get a pretty good idea what you SHOULD charge for your product.
This kind of study can sometimes be as simple as asking a group of people what they would pay for it. You can also study competitive pricing.
And then you need to understand your product costs — to see if you can reasonably achieve that retail price.
Supply chain can help with that. Let’s say your product needs to retail at $20. And your cost of goods is $10. You might think that you’re good. You might be if you’re selling directly to the $20 customer. But if you’re selling to a wholesaler, who’s then going to sell to the retailer, who’s then going to sell to the $20 customer… well, you’re not good.
If you need to get your cost of goods down in the $4-$7 range, you’ll need to employ supply chain optimization techniques like sourcing projects and supplier negotiations to meet those targets.
Product Lead Times
Now that you know how much you will sell your new product for and how much your new product will cost you — do you know how long it will take to get it to your customer?
Product launch lead times can differ than ongoing production lead times because, in most cases, you and your suppliers are managing the initial production runs for your new product. Your supplier might tell you that it’ll take them six weeks to make your new product, but — instead of six weeks — it may be 12 to 20 weeks before you see it.
Plan for product launch lead times by really understanding the drivers that influence initial production runs. Your suppliers are going to need to acquire new raw materials and set up production lines for the first time. Quality control specifications and logistics processes need to be established.
Work with your suppliers carefully to understand the time it will take for each of those steps. In many cases, your suppliers will want to please you — but it's up to you to double click on all of their "Yes, we can do that" answers to find the real truth behind your product launch lead times.
Demand planning is difficult in the best of circumstances. A customer forecast is going to be wrong — you should know that going in.
It is either going to be wrong by one piece or one million pieces but it will be wrong. Or, if the quantity happens to be right, their need by date will be off by a day or a week or month. And it will either be late or early.
Demand planners get told that their impossible task is to use uncertain and erroneous information to help drive crucial financial and operations decisions.
So how do you demand plan for the launch a new product?
- Customer pre-orders
- Customer forecasts
- Competitive landscape
- Historical analysis
- Gut instinct
It's always useful to get customer pre-orders ahead of a product launch. That's one very good way to understand the volume of product you need when you go to market. But these kids of pre-orders are rare. Most customers want to be able to see and feel a product — and maybe even sell a few — before they make a commitment to a commercial purchase.
Customer forecasts are the next best way to know how much you'll need. Forecasts from customers aren't binding in any financial way but can help you determine launch quantities. Forecasts can be formalized — in as much as you can send spreadsheets out to your customers and have them fill out monthly or weekly buckets; or you can have coffee with a customer and ask them, "So how many of my new product do you think you'll need?"
This might also be a good time to do a little market research and ask them what price range they think your new product should land in.
And make sure you're keeping your lead times in mind before telling your customers when you can deliver.
Successful new product launches require careful attention to detail when it comes to inventory management. You'll want to maximize your sales and without overspending on an unnecessary product. Having a robust inventory management program means that you're taking into account all the work you did with lead times and demand planning.
By keeping careful track of not only the inventory you have on hand — but the inventory that's inbound from your suppliers — you can ensure you have enough on hand to support your launch, but not too much that you're closing the product out before its natural end of life.
The next step in your product's lifecycle starts when it enters your sustaining product portfolio. These sustain products are the ones that you consider part of your small business offering.
You'll need to make sure — during this sustaining phase — that your supply chain continues to deliver to your customers what they want, when they want it and to do that by spending as little of your small business' money as possible.
One of the biggest challenges in the sustaining phase is determining which of your products gets to stay there, and which ones need to move on to EOL.
End of Life (EOL)
How do you know when to EOL a product? That can sometimes be a very painful decision for small business owners. But consider your sales of a product, your inventory position and when you need to make or order more of that product. If you've been selling 100 pieces per year of a product and you're down to 75 pieces, but the minimum order quantity for new production is 10,000 pieces — it's time to EOL that product.
EOL'ing a product needs to be a decision derived by looking at market factors, but also financial and supply chain ones.
Work your inventory down while at the same time letting your customer it will no longer be available soon.
And then let them know about that fantastic, new product you're going to launch to replace it. Sit down with that customer, over coffee, and ask them how many of that new product they think they'll want to order.