Correctly managing product life cycles can cut costs, reduce required man-hours and streamline manufacturing operations.
In today’s fast-paced world, your products can become outdated in a relatively short period of time, particularly if your company is in the high tech arena. If your company supplies products to OEMs, manufacturers or end customers -- you need to decide the best time to obsolete older items. This article will provide you with pertinent factors to consider when making the obsolescence decision, and will show you how best manage product life cycles.
Factors to consider include but aren’t limited to obsolescence of components, increases in cost of components, new compliance requirements, changes in performance requirements, and technological enhancements.
Products in the declining stage of their life cycle often have a decreasing sales volume and lower turnover ratio, causing higher inventory carrying costs. Production efficiency can also decreases due to several reasons.
As production volumes decline, older products must often be run in smaller batches. Production scheduling changes to accommodate these relatively small batches along with costs of configuring and setting up assembly lines for smaller production runs can greatly increase costs for legacy products.
Along with increased production costs, products nearing their time-to-transition often also have lower end sales prices. This causes declining profit margins, to a point where management might decide the product has reached the end of its life.
Procuring components for legacy products can become a nightmare for manufacturing companies. Components can be made obsolete by a vendor due to various reasons ranging from their own low sales volume to a worldwide and ongoing shortage of critical raw materials.
Even natural disasters can have an impact on the best time to transition a product. For example, the recent tsunami that affected Japan destroyed many manufacturing plants and slowed production in others, making it difficult to procure components for legacy products. In other cases, a supplier just goes out of business, with no other suppliers making a suitable replacement component.
Taking into account all the variables when procuring components for legacy products, it’s often not cost effective for a company to spend even increasing man-hours procuring components that are difficult to obtain or increasing in cost. But obsolescence and increased costs are not the only challenges manufacturers face when dealing with legacy products.
Components for older products need to conform to new standards and requirements such as UL/CUL and CE standards, RoHS, IEC and/or NEMA. Many end customers also require their suppliers be ISO certified, which means component suppliers also need to be ISO certified.
Meeting all of these standards and requirements can cause manufacturers of legacy products to scramble for new suppliers, often raising the cost of components or making it difficult to continue to manufacture the product.
Other factors can also determine if a product should be transitioned to a newer model. Outdated software products often can’t run on newer computer operating systems. Transitioning these older software products may require excessive programming hours, rendering upgrades impractical.
Many controller and operator interface communication protocols have been recently upgraded, leading companies to transition products to keep up with customer demands for incorporation of these newer technologies.
Finally, many older products need to be transitioned because a manufacturer needs to promote a newer superior product. To keep up with the competition, companies often have to update or transition to newer products and technologies; even if that means a current profitable product will be forced into legacy status.
Effective inventory management also plays a key role in the management of product transitions as identifying and evaluating products that are near the end of their life cycle can help avoid excess and obsolete inventory.
Transitioning to a new product is never easy, but there are times when obsolescence of an existing product line is the only choice. Managing the transition correctly can reduce costs, save time and streamline manufacturing operations.