The product life cycle is in decline
Written by Karsten Horn, of supply chain optimisation specialist INFORM
One of the most profound changes in the last decade is the dramatic shrinkage of product life cycles.
For example, 50 percent 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if a business is not quick to introduce a product to market, it risks launching goods that have already been superseded by competitors.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. The 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 support the user when forecasting the demand of new, short-life or seasonal products and end-of life products. Demand planning technology also makes it easier for sales and logistic departments to analyse the supply chain, as well as optimise replenishment strategies as required. A particularly important function of demand planning is that managers can see how demand patterns will impact an entire supply chain.
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.
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.
Maximising the end of life phase is especially important, as effective planning can enable a business to optimise its stock accordingly to ensure availability and limit surplus.
Inventing a new supply chain
Inventory is one of the most valuable assets a company has, but many companies fail to manage it effectively. 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.
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.
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.
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.
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”