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MEMO To: Weedie’s Management Team
Subject: Product Life Cycle Management Information and Recommendations
Every product, process and even supplier has a life cycle that Weedie’s and their purchasing manager needs to understand. This understanding of the product life cycle greatly helps with supply planning and properly aligned supplier selection and management while simultaneously addressing and reducing risk across the supply chain (Mahapatra et al., 2006). Weedie’s managers need to create sourcing and supply management strategies in all stages of their product’s life cycles from product development through to decline or even withdrawal (Aitken et al., 2003). Active participation in life cycle planning, management and decision-making provides an insight into the performance of all areas of the company. It is critical for Weedie’s to ensure their supply chain strategies are agile and fully integrated with their product’s life cycles (Christopher et al., 2006).
Every product has a natural and limited life or product life cycle through which it is expected to pass. Product life cycles can vary in duration from months to years but are always in constant motion. Life cycles can be considerably shorter with a technology driven, fad, trend or seasonal consumer product. The six customary phases in a product’s life cycle are development, the introductory stage, the growth stage, the maturity stage, the decline stage and withdrawal. Marketing, financial, manufacturing, purchasing and human resource requirements of a product will vary depending on the current stage of it’s life cycle. Each stage is distinctly different and often warrant altered value chains (Golder & Tellis, 2004). Each stage of the product life cycle poses different challenges, problems and opportunities. As a result, Weedie’s purchasing manager needs to create purchasing and supply strategies that reflect the unique needs of each phase.
A product is in the maturity stage of it’s life cycle when it is has progressed past the growth stage but has not yet reached the decline stage. During the maturity stage the product has well established itself in the market and has reached the height of it’s popularity. Sales continue to grow, eventually peak and then inevitably slow down. As the product enters the maturity phase production slows down to reflect reduced customer demand as a result of market saturation and increased competition. Therefore, the purchasing quantities are lower creating quantity driven upward price pressure (Wernerfelt, 1985). Materials may be more difficult to procure as suppliers experience their own product life cycle challenges and those of their lower tier suppliers (Christopher et al., 2006). Supplier contracts may be carried through from the growth stage into the maturity stage but suppliers may not profit from the operating margins they once did. Purchasing managers should try to maintain strong supplier relationships during the maturity stage to ensure supplier interest doesn’t dissipate due to changing business conditions and to ensure high service levels are maintained (Mahapatra et al., 2006).
Challenges of the maturity stage:
- Sales Volumes Peak – as a result of the steady increase in sales during the growth stage, the market starts to become saturated so there are now fewer customers. The vast majority of consumers who would buy the product have already purchased it. As a result, sales growth begins to slow down as the product has already reached relatively widespread acceptance in the marketplace.
- Market Share Reduces – there is now a large volume of companies all competing for a share in the market. In the maturity stage there is the highest levels of competition and it becomes increasingly challenging for businesses to maintain their market share (Agarwal, 1997). Repeat business and repeat purchases replace new customer buying (Catry & Chevalier, 1974).
- Profits Decline – during the maturity stage of the product life cycle the market as a whole makes the most profit however, individual companies start to experience a reduction in their profits. Profits must be shared amongst all the competing firms in the market and with sales peaking during this stage any businesses that lost market share and experience a fall in sales will experience a subsequent fall off in profits (Catry & Chevalier, 1974). This loss of profits can be compounded by the falling prices that are often seen when the sheer volume of competitors leads some of them to compete on price in order to attract more customers (Wernerfelt, 1985).
Benefits of the maturity stage:
- Reduction in Costs – during the growth stage increased production volumes cause economies of scale which lead to cost reductions. In the maturity stage of the product life cycle development in production can lead to more efficient means to manufacture high volumes of a particular product leading to a further fall in costs.
- Differentiation – even though the market may reach saturation during the maturity stage companies might be capable of growing their market share and their profits by other means (Catry & Chevalier, 1974). Through the use of innovations in marketing and promotion and by offering more diverse product features companies can actually achieve a greater market share through brand and feature differentiation (Cohen & Whang, 1997).
Actions that the purchasing manager of Weedie’s should take during the maturity stage include:
- Improving specific features in order to resell the product.
- Reducing prices to fend off competition.
- Intensifying distribution, advertising and promotional efforts.
- Differentiating the product in the hope that new customers will start to buy the product.
- Finding a new targeted market.
Maturity is the longest lasting stage in the product life cycle and can be very challenging for a purchasing manager to manage. During the first two stages of the product life cycle Weedie’s established a market, grew sales of their products to achieve as large a share of the market as they could and became market leaders. However, during maturity the primary focus for Weedie’s should be maintaining their market share in the face of a number of different challenges. With sales reaching their peak and the market becoming saturated it can be very problematic for Weedie’s to try to maintain their profits given the intense and advanced competition present who will have begun to erode the Weedie’s position and market share (Agarwal, 1997). As a result, Weedie’s should seek new innovations and features to render their products more attractive to their consumer so as to maintain their market share and avoid product decline. Despite best efforts, decline in demand for some product lines is inevitable due to competition, market saturation, new technologies and changes in consumer trends.
Non-Traditional Life Cycles
Trending products are those which are extremely popular for a very short period of time. Weedie’s can make or lose a significant amount of money on trends. If the company can sell most of its stock and exit the market for these products before it reaches it’s peak Weedie’s will make a large profit. However, when a trend ends it ends very quickly and Weedie’s may get caught with a large amount of product inventory that no one wants to purchase.
Seasonal products are those which are popular during a particular season. Weedie’s needs to keep an adequate inventory of this type of stock to meet seasonal demand but will have to sell through all of this stock before the season ends. If Weedie’s holds too much inventory this will be left over at the end of the season with the strong possibility that many of the products will be out of fashion or favour when the season starts again next year.
Careful consideration should be employed by the purchasing manager before deciding to withdraw a product from the market even if this product is proving to no longer be profitable. Once the final decision to withdraw the product is made all sales will cease. It is vital that all stakeholders including manufacturers and suppliers are prepared for this event. Although not obligatory, if product withdrawal goes ahead it would be advised from a customer service point of view to forewarn existing customers that Weedie’s are intending to discontinue selected product lines. This will allow consumers an opportunity to place final orders and purchase the last available inventory while still possible.
During the withdrawal stage of the product life cycle cost management is absolutely crucial for both the purchasing manager and the Weedie’s company itself. An in-depth and well-thought out plan will be needed to minimize costs incurred from withdrawing products from the market and to ensure the company is in a proactive rather than a reactive position. It may be an option to develop and introduce a new, improved product which can take advantage of the existing infrastructure and established routes to market. Withdrawal of a product may provide Weedie’s with the opportunity to organically pare down the number of suppliers it manages within it’s supply chain leading to reduced risk and lower costs. If Weedie’s so wish new suppliers can be sought with improved technology and better terms.
When applying the product life cycle curve Weedie’s must remember that it is unpredictable, ever-changing and ultimately, only a model. While it is important to acknowledge that products have a limited lifetime and appreciate the different stages of the product life cycle this simplified model should not be the sole source of information which dictates business strategy and product withdrawal decisions (Day, 1981). Although it is a very useful, valid and logical management tool for forward planning and preparation within the business, the product life cycle model must be used with care and cannot, with certainty, predict the future sales and profits of Weedie’s and it’s various product lines (Harrell & Taylor, 1981).
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- Wernerfelt, B. (1985). The dynamics of prices and market shares over the product life cycle. Management Science, 31(8), 928-939.
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