Supply Chain Leader - Issue 4

Short Product Life Cycles Demand Innovation Throughout the Business
by Pallab Chatterjee

To compete today, consumer goods manufacturers must focus not only on innovations in product development but also on meaningful changes in four key areas of the business—technology, process, partnerships and market strategy.

The consumer goods marketplace has always been fast paced and unpredictable. After all, selling retail products is based on understanding the current needs of end users, then rapidly developing new offerings that address those needs before they inevitably change. Add the challenges of maintaining high product quality and generating strong profits, while managing increasingly complex supply chains from end to end, and it’s easy to see why so many consumer goods manufacturers struggle to achieve lasting success.

Recent trends have made the consumer goods marketplace even more difficult to navigate. Product life cycles have been slashed dramatically. The Internet’s increasing importance as a retail sales channel has increased competition, often from smaller companies whose Web sites might look very similar. In addition to leveling the playing field, the Internet has also contributed to an increase in price transparency, enabling consumers to make quick purchasing decisions based solely on price. The result? Today, prices are dropping faster than ever following an initial market launch, even on the most exciting, innovative products.

Causing prices to fall even faster—and even lower— is the rapid commodization of products today. Even the most groundbreaking technologies or designs are quickly copied or advanced by competitors. The majority of trendy products become obsolete quickly, as they are replaced with “new and improved” concepts that capture shoppers’ attention.

This rapid pace has led to an even greater demand for new products by both retailers and consumers. Retailers are continually adding new shopping seasons, as well as demanding customized products that help differentiate their stores in a crowded marketplace. In addition, today’s consumers expect to see products that are customized to their exact preferences, or that reflect the latest fashion trend.

Facing so many demands from the marketplace—and the pressure to manage a global supply chain at a breakneck pace—manufacturers often struggle merely to keep up. Many companies design and introduce products so rapidly that they don’t have a genuine understanding of the real-world risks, payoffs and rewards associated with each new product, let alone of setting and achieving longterm strategic goals. They make enormous investments in design, tooling, manufacturing and inventory, often without a well-defined plan for maximizing profitability over the entire product life cycle. Often, the life cycle ends before the manufacturer has a sound sense of the product’s ultimate contribution to the business.

Most consumer goods supply chains were not designed to support the success of products with short life cycles.

Why do many consumer goods businesses—even those with qualified executives, state-of-the art facilities, global resources and successful retail partners—struggle to achieve a profit today? And why do so many new products—even the truly revolutionary ones—fail? The answer is simple. While companies are focusing on innovation in their product designs, too often they are trying to support these fast-moving, revolutionary products with an outdated supply chain that can’t keep up.

Competing in a fast-paced, unpredictable retail marketplace means operating with a global supply chain that is designed to deliver the seemingly impossible combination of speed and risk management. But powerful new technology solutions are available to help manage complex, end-to-end supply chains that stretch around the world. To fully leverage these technologies, consumer goods manufacturers will have to tailor their global supply network, and their individual business processes, to the unique demands of today’s marketplace.

The new-generation supply chain

Most consumer goods supply chains were simply not designed—and have not been adequately updated—to support the success of products with short life cycles.

“New-generation” products used to be launched every few years. But today new innovations seem to come every few months, especially in trend-conscious categories such as electronics and apparel.Too many businesses are struggling to adapt their old, “every few years” business models to the realities of launching new products much more frequently.

In addition, supply chains have become increasingly complex, with raw materials suppliers and manufacturing facilities around the world contributing to the ultimate profitability of every product. Overwhelmed by the sheer volume of supply chain information available, manufacturers often choose to focus their attention on the upfront activities associated with product design, instead of gaining strategic insights across the end-to-end product life cycle. To compete in the current marketplace, they’ll have to re-examine their overall approach and take a fresh look at every business process. They’ll need to have in place the best possible information, as well as the best processes and technologies, to make rapid decisions that are truly informed—not just best guesses.

In other words, businesses will need to support their product differentiation by innovating across the enterprise, with business and supply chain processes that match the speed and counteract the uncertainty of today’s marketplace. When innovation occurs across the business, completely re-invented business models will emerge.

To create a new-generation supply chain that will support a company’s short- and long-term success, meaningful change must take place in four key areas—technology, process, partnerships and market strategy. (See Viewpoint on page 45 for James Champy’s insights into resistance to change inside organizations.)

Process innovation: reinvent the supply chain

Nearly every manufacturer has a process improvement initiative in place, but the vast majority of these initiatives are too narrow—focusing on a single metric that may not be related to larger strategic goals. And, while consumer goods manufacturers have invested in sophisticated technology solutions, these tools cannot fulfill their potential unless the end-to-end supply chain is configured in the most efficient manner.To support shorter product life cycles, nearly every process within the supply chain must be reviewed to ensure that it is operating at maximum speed and cost effectiveness. Broad supply chain innovations are needed, as well as a new level of visibility into every corner of the global supply chain. Processes must change from the beginning to the end of the total product life cycle, from prototype development to end-of-life liquidation.

Pioneers in process innovation include Toyota, which revolutionized automotive manufacturing with its tight control of the total supply chain—resulting in high quality, short lead times and outstanding cost efficiencies. Dell is known for its innovative strategy of selling computers directly to consumers, generating enormous profits by eliminating inventory. These kinds of groundbreaking process innovations could help consumer goods manufacturers differentiate themselves in the marketplace, as well as significantly improve their profitability.

Market innovation: make the sale

Consumer goods manufacturers must also innovate through their ability to understand the end users of their products. By achieving far greater insight into consumers’ needs and desires, manufacturers can design products that have a greater probability of success, minimizing the risks that are inherent in short-life-cycle products. Marketing success stories such as the Motorola RAZR and the Apple iPod were both based on generating and meeting unprecedented demand from the marketplace. While neither of these products featured new or dramatically different technologies, their appealing, slim designs— as well as marketing campaigns that addressed end-user needs—resulted in breakthrough sales. Dramatic success stories like these may be the exception. But every consumer goods manufacturer can be inspired by them to achieve a better understanding of marketplace needs, as well as to develop winning launch strategies that generate excitement and increase demand.

As product life cycles are compressed, each individual decision assumes more weight and carries farther-reaching consequences.

For example, during the typical life cycle for a trendy new product, there will be a time when point-of-sale data indicate a drop-off in cash-register sales—often in anticipation of a new, competitive product that is about to launch. Instead of holding a series of panicky meetings, and rushing to make an ill-informed decision, businesses must learn to react in a way that has been determined to manage margin squeeze and extend a specific product’s profitability as long as possible. Meanwhile, other business actions might be triggered, such as expediting the launch of the new product that will replace the current one, so that the organization can boost the chances of its longterm success.

Because every consumer goods business operates with its own set of selling channels, profit margins, transportation and distribution systems, inventory and materials constraints and supply networks, these decision criteria must be customized to each business. In fact, a separate set of decision criteria should be established for every new product to address the unique challenges associated with that particular offering. Businesses face dramatically different challenges when they are introducing an entirely new product genre, versus an improved technology platform or a new product model—and their decisions should be based on an entirely different set of criteria. (See sidebar, “Ensuring Continuous Product Innovation” on next page.)

It may be tempting for consumer goods manufacturers, already overwhelmed with the demands of today’s marketplace, to install a “one size fits all” decision solution. But this approach overlooks the nuances of each new product, and the distinct market environment in which it will be launched.

The new supply chain model

While the new world of short product life cycles has brought enormous success to many companies—including innovators such as Motorola and Apple—the majority of consumer goods manufacturers today are simply not prepared for this new market reality. Most experience uneven results, at best, as they struggle to adapt their old ways of doing business to a new, demanding and competitive landscape. Overall, there are far more failed product launches today than enormously successful ones.

There will always be a certain level of inherent risk when trying to devise and launch new-generation products that are aimed at the ever-changing needs of fickle consumers. But manufacturers can maximize their chances of success by rethinking their supply chain, and their overall business model, to support the new way they need to do business today.

New-generation supply chain solutions can help manufacturers increase visibility and control across the total design-launch-sell-liquidate life cycle of their products, as well as provide critical support for their ongoing decisions about price volumes and market attributes. But leveraging these solutions to their fullest potential usually requires a significant effort to innovate across the global supply chain.

By matching every part of their business model and supply chain to the challenges and competitive imperatives of the marketplace, consumer goods manufacturers can significantly increase the success rates for individual products, as well as their long-term revenues and profits.