logistics lifecycle within the product lifecycle
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DESCRIPTIONThe logistics lifecycle has to go hand in hand with the product lifecycle. There are different phases that needs to be handled with different amount of effort. The goal here is to improve the overall effectiveness and efficiency of the process. The paper provide graphics that illustrates the point above.
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More attention needs to be focused on logistics elements at the planning stage off a product so that during and at the end off a product's life costs can be minimised or avoided altogether.
The Logistics life Cycle of a Product
Product Life Cycle A product life cycle concept is used as a convenient way in which to display graphically the contribution value of a product over time.
The product life cycle is normally represented in marketing texts as having five stages. These are usually entitled:
(1) Development (2) Growth (3) Maturity (4) Saturation (5) Decline.
Figure 1 shows the normal representation of these market stages. Notice that there is a conscious lack of detail about the decline phase. It is assumed that from somewhere within the company will emerge profit to sustain the company's existence. As far as a specific product is concerned, it is as if some lower level immortality is expected or hoped for by the originators of the product. The fact that the product will, in all probability, reach a decline stage is reluctantly accepted. History shows that a high proportion of products launched do in fact fail within a reasonably short period of time. It is therefore very important to incorporate the decline phase in the expected marketing plan for any product. It is more important today due to the impact of competition, substitution and deregulation.
The decline phase can be an expected and planned for occurrence. The product life-cycle time can be short, as in "fad" products. It can be long, as in some basic products such as washing powder. However, significant new investments in any aspect required to change something about the product might be good reason to reappraise the logistics life cycle. Adding in new elements, and allowing for old elements, will help to keep the effects of the changes visible for the benefit of all those involved in the system. The decline phase can occur prematurely when a product fails for any reason. The risk of failure has always been high. This risk of failure is a prime reason for having potential decline phase costs estimated and included as part of the marketing proposal. In this way, a firm can take an overview of the risk exposure across its portfolio of products for each of the businesses it is in.
The logistics life-cycle graph stages also become a useful framework to use to categorise and display investment cost risks, physical factors and information systems needs. Product managers and marketing managers must have optimism. This is what makes the commercial world go round. It is normal for all the effort and emphasis to be placed on the exciting prospects for the product. Marketers accept all the costs involved in the birth and launching of a product. However, the cost of getting out of a product is often overlooked. At the end of a product life cycle the costs involved are frequently seen as being the concern of other functions, such as production and warehousing. Whatever the function, the costs reside in the organisation. The end of the product life is perhaps perceived as a rather gloomy result and one into which it is understandable that effort and in fact exposure is avoided.
Marketing is often described as being concerned with the four "Ps": product, price, promotion and place. The logistics life-cycle concept concerns the "place" function from procurement, through processing to consumption and eventual disposal.
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The Place Function This often appears to be the least interesting of the four "Ps" to marketers. As a result the elements involved may get the least concentration of effort. Yet the risks and costs involved are high and the potential savings which can result from effective management of the elements are significant. Marketing texts often comment that the "place" function requires the executive to determine the channel(s) for distributing the product. Such channels may include:
direct to end customer via a wholesaler to retailer to retailers' central warehouses through selling agents to retailers through the firm's own retail outlets
and others which are constantly evolving.
Frequently the historic pattern of the firm's present product distribution system will dominate the choice of distribution path for a new product. This may be one reason why marketing staff are often not forced into making clear decisions on the effects of new products on the distribution system. The channel is simply thought to be able to cater for whatever increasing volume and range of products may be presented to it. Channel decisions require more consideration as New Zealand society changes. The deregulated environment is providing many options not previously available. Consider, for example, the channel decisions available for cosmetics. One leading brand may ship in pallet lots to other distributors where quantities are split and small lots distributed to retailers. Another brand sends out an average size of four kilo parcels to direct sales agents. The same product but with quite different channel implications. Milk distribution is an example of the dramatic changes occurring in the use of distribution channels.
Often this decision, involving the "channel", goes no further than getting the product onto retailers' shelves. But awareness by consumers of the possible effects of the product on users has increased. Tamperproof sealing, colour additions, nutritional content, irritants in fabrics, and service cost considerations, are examples of additional marketing requirements being increasingly sought by consumers over the last few years.
Disposal of the by-products, packaging and so on, is likely to become increasingly an on-going cost pressure for marketers. Agencies in New Zealand, as around the world, are pushing for manufacturers to be levied on packaging use in order to fund community waste disposal. Bio-degradable packaging is being sought. We see a wide variety of packaging with metallised film and plastic non-returnable containers of many different forms emerging into the product and the rubbish stream. Gas flushing to preserve freshness is a new growth area. The process of irradiation of food has created a high profile antagonistic consumer group. Such packaging may be cost effective in presenting the desired product image and may have advantages in protecting the product and enhancing its life. If they have not already done so, those responsible for the marketing
of products must start considering these logistics aspects in their marketing plans at a very early stage. Finally, what about the physical aspects remaining when the product is changed or taken from the market? That blank space at the end of the product life cycle! This will include raw materials, packaging, possibly specialised machinery capacity, factory space, if not to be used for other purposes, finished stock and any additional cost of moving products through the channels to final consumers. Even a change of packaging can create large cost implications down the channel.
It is suggested that a logistics life-cycle system should be used to complement the traditional marketing life-cycle used in product marketing plans. In this way marketers can be prompted to complete their marketing plans and make allowance for the costs of the "end game" for each product in their portfolio.
The Logistics Life Cycle Figure 2 shows a more complete view of a product life cycle net revenue graph. The cycle is extended to show clearly the birth and death of the product. The definition of a "product" for the purpose of utilising a logistics life-cycle approach is open to individual interpretation. It could be a sole stock keeping unit (SKU), a product range or a signif-icant change to a stable long-life product. The firm not only needs to know the cost of getting into the product but also the cost of getting out of it at the various stages of the life cycle.
Let us further examine each of the life cycle segments.
Concept/Design Some costs are incurred which may or may not be attributable to a specific product. Where possible it may be helpful to include these. For products such as pharmaceuticals or hi-tech products, aerospace, etc., the segment will be very high. The scale of the costs will determine whether or not it is an important category.
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Table I. Examples of Logistics Elements Which May Require Specialist Input
High tech. specialist
Low tech. mass market
Logistics Life Cycle Stages Concept Design
Any perceived limits
Mechanical simplicity servicing
Disposal (end of life-cycle)
Information systems needs
Product recall plan
Inventory level and location
Customer service levels
Support services audit
Customer service performance
Special inventory needs
Information systems performance
Environmental and health reactions
Logistics systems cost and capital control
Customer services review
Spares capital reduction
Labour cost reduction
Customer service review Inventory review
Labour contracts spares servicing
work in progress
Information systems withdrawal Consumer reaction Channel reaction
Research/Confirmation Again the scale will determine the need to include these costs. Many products will start incurring significant market research costs at this point. The cost of assembling capital justification where significant investment is required may also be substantial. Table I shows some of the logistics factors which should now start entering into the draft marketing plans. These logistics elements usually involve physical aspects of the proposed product. It is suggested that such a table can provide a prompt for marketing staff to call in expertise at this early stage of the product. The aim is to obtain as wide a view of some of the special physical aspects before further substantial expenditure is incurred.
Production Prelaunch The investment in raw materials, packaging, production equipment and buildings, trading and financial analysis may be substantial by this stage. Here we see the peak of the costs being ploughed in prior to any revenue being earned by this product to offset these costs. In Table I we see the necessity to consider the effects that introducing this product will have on the physical systems of the company and its chosen distribution channel. For example, does the company have a product recall plan and is this plan suitable for this product? Are the information systems going to provide the right sort of information for the product to be managed through the distribution channels? Will customer service be measurable?
Are those people involved in the inventory and production planning properly trained? Do they have the right objectives to ensure that the expected demand or variation about the mean demand has plans available that are appropriate?
Deployment In this segment positive revenue is expected. However, it is often offset by a heavy investment in launch processes such as advertising, sampling and trade functions. Such expenses can reduce the net profit to a low level from quite high sales revenue during the early stages.
It is at this time that the information systems and logistics support systems should be audited. Is the customer service that the marketer wanted in place? Are the information systems delivering the vital sales and customer information needed for hands-on management of the product? Have any unexpected environmental, handling or health situations occurred? It is vital that the systems are in place during the deployment stage to ensure that the future management of the product is well controlled. This information will be the database from which sensitive marketing decisions can be made.
Maturity This is the segment where dreams come true . . . and some come crashing down. In this segment, revenue must exceed present costs and supply margins sufficient to cover the costs incurred in the previous segments plus a profit
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margin. It is hoped that this euphoric state will last a long time. Unfortunately product life cycle times are shrinking. Global competition and the consumer demand for choice and change are compressing product life cycles. This fact emphasises the importance of adopting a more critical view of the whole life cycle. Marketing managers must ensure that all costs of the product will be taken into account, so that a true and fair view of the expected net results can be seen. It would be wise during the mature stage of the product to review regularly the decline and disposal stages. Determine whether the costs expected when these positions are reached are appropriate to the volumes being experienced during the mature stage. Ensure that proper plans are available in order to guide all of the separate function managers in the organisation.
Decline For whatever reason, the product revenues less costs start to decline. This is a time when marketing staff must bring out the "end game" plan developed and honed during the mature stage. What are the full costs of getting out of this product? They include raw materials, packaging, plant utilisation, staff to put off at a cost, finished goods stock, contracts within the distribution channel, any returned product costs risks.
Disposal Having an "end game" plan means that the marketer will be able to determine that point in the net profit graph at which the decision to terminate the product has already been made. Making the plan beforehand ensures that the decision is clean and business-like. If no plans are in hand then the decision often becomes difficult. Inter-function performances in the company may emerge. Why should the production manager have to write off packaging or get sub-optimal use of his plant for a marketing decision? How can the warehouse manager utilise his space, vehicles and staff now that marketing have terminated a product? If these costs are taken up in the marketing plan, then this type of inter-function resistance is avoided. If these other functional executives are aware of the "end game" plan then they will have been running their operations in a manner able to encompass the disposal stage. The marketing manager can make the decision knowing that he is responsible for the results right through the product life cycle. The costs of the disposal stage are built in, together with the naming and the coming of age. Table I provides some indicative headings that could be included in the disposal phase of a product marketing plan.
Logistic Considerations to be Built into Marketing Life-cycle Planning Products that Need After Sales Service Has the product been engineered to be suitable for servicing or is it a disposable item? Is it to be serviced? Are spares required? Who will do the servicing? Has the service network been set up? Has training been planned? Is feedback arranged?
Products that Might Raise Environmental Reactions Is the packaging going to create an added volume to waste disposal? Is it a new packaging form which might excite a special interest group? How is disposal to be managed? Are there instructions on the pack? Are warnings necessary? Is the company seen to be actively involved?
Products which might be Accused of being Health Risks Is evidence to the contrary available? What is the risk of withdrawal, consumer damage suits, etc., present or future discoveries? Are all handling methods right from production to final environmentally-acceptable disposal, documented and proven? Are all those who will contact the product in possession of the necessary information and training to ensure absolute conformity to laid down safety standards?
Product Return or Recall Are documented procedures available and do all people in the right channel distribution through to the customers know what to do to:
(1) protect the public and (2) protect the company from extravagant actions?
The cost of returning products against the normal flow in the distribution channel is very high. Estimates suggest at least nine times the cost of the normal flow. Each company should have written plans for various levels of concern. Progres-sively higher echelons of management are involved depending upon the indicated scale of severity of the problem.
Conclusion Marketing managers need to focus attention on logistics elements during and at the end of a product's life. This may be in the generic sense or for the specific stock-keeping unit (SKU). By doing so the marketer aims to avoid or minimise costs which may occur through physical aspects of the product and its surrounding physical environment. Major examples of the costs of getting out of products can be seen in New Zealand now. The decline phase of the carcass meat industry is well known and should be sufficient for a shock reaction. The life cycle of many New Zealand products has been shortened with deregulation. The costs of the disposal phase of getting out of these products can be seen as a considerable burden to those companies and possibly to the communities in which they aire situated. The inclusion of a logistics perspective at the planning stage of a product, or a significant change to an existing product is now a necessity. A review of the logistics element should be undertaken at least annually, or when significant changes occur.
A plan of action for the decline phase of products has become an imperative in today's marketplace. The use of this technique will improve the marketer's ability to control and optimise the bottom line results of the firm. It will expose risks at an early stage and allow them to be quantified to enhance decision quality. Improved inter-functional relationships will occur resulting in an enhancement of the professionalism of marketing.
Paul Ryan is General Manager of General Foods Distribution in Auckland, New Zealand.