The Inventory Planners Guide to Managing Product Life Cycle
- Four main classifications of a product life cycle
- Three considerations for stocking a declining product in the product life cycle
A product life cycle is a business management technique that defines a list of stages in the lifespan of commercial or consumer products. Product Life cycles are used for determining the lifespan of these products; such as the normal phases through which a product goes over its lifespan.
Every manufacturer and distributor of after market parts needs to have a pulse on the different stages of their product life cycle to ensure inventory levels are being accurately forecasted and replenishment reorder points are in alignment with customer demand.
From the time a new product is launched to the market, it will invariably go through a typical life span where demand will traverse though 9 different demand types from initial product launch to the end of the lifecycle.
As the product moves around the demand stages that are outlined in the graph below, different forecasting and planning techniques are required to effectively forecast for that type of pattern. Here is an example how a product life cycle changes over time as it migrates from one pattern to the next.
Four main classifications of a product life cycle
1. Launch – This is the stage of the product life cycle in which a new product is first made available in the market. In the introduction stage, customers are few, competition is low if the product is a unique idea, sales are low and risk is high. There are heavy distribution and promotion expenses to ramp up this new product and an inventory planner needs to ramp up inventory levels to ensure product is available as sales begin to rise.
2. Growth – As a product increases in popularity with consumers, then sales will start to rise. It may be a rapid growth or a slower one, but the growth trend will still be positive. Growth rates can be highly variable and sporadic. Successful inventory planners will frequently run demand forecasts to ensure they have the right stock levels, safety stock and reorder points to optimize their cost model while ensuring a high order fill rate.
3. Maturity – Once the product is well established and the consumer marketplace has been saturated or has met their satisfaction with the product, then the growth slows down and begins to level off. In this stage, inventory planners will typically see erratic, slow or fast spikes in customer demand. This demand pattern type can vary greatly and will require frequent forecasts to ensure stocked items are optimized.
This is the primary stage of the product life cycle where managers of stock will want to begin inventory planning to reduce their target customer service levels in order to lower inventory levels for the oncoming decline of product demand.
This is a hard trade off for most companies as they do not want to risk missing sales due to lower inventory levels and stock outs, but the costs associated with carrying large quantities of excess or obsolete stock could be a huge burden on the financials if not managed properly.
4. Decline – After a product has reached its maturity stage, sooner or later sales will fall due to changes in consumer demand or due to newer product offerings being supplied to the market competitor products.
Different products have different growth and decline patterns. Smart inventory planners have already accounted for the decline in demand have typically taken a number of actions to ensure stock levels are being reduced at an appropriate level to avoid getting stuck with obsolete stock.
Three considerations for stocking a declining product in the product life cycle
- Lower Service levels: Inventory planners have to start lowering their target service levels (i.e. reducing the availability of their product to the market)
- Reduced safety stock levels: Product reorder or replenishment levels for the safety stock levels should also be reduced in accordance with the slowing of demand.
- Eliminate Excess & Obsolete Stock: At the very end of the product life cycle, excess stock (which is overstock that does not have a defined customer demand) and obsolete stock (stock that has zero demand) have been reduced to almost nothing as the product ends its lifecycle to ensure a companies investment isn’t tied up in inventory or lost all together.
Further visual information for the product life cycle can be found here:
Understanding and following the different stages of your product in the product life cycle will help you to better forecast your demand, ensure you don’t miss sales opportunities, as well as, you will have healthier stock levels over time and not end up will large quantities of obsolete stock piling up in your warehouses.
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