Supply Chain Strategies: Product Life Cycles and Distribution
Supply Chain Strategies and Product Life Cycles
Assessing the Impact of Product Life Cycles on Supply Chain Strategy
To assess the effect of product life cycles on the appropriate supply chain strategy, we need to understand how the demand for a product and the importance of economies of scale change over the life cycle of the product. A typical product life cycle has several stages:
New Product Introduction: The Case of a New Car Design
Consider a new car design. Initially, the car is introduced with a single choice for engine size and in a limited number of colors because the car manufacturer is not certain whether the car will be accepted in the market. In other words, in this early stage of the product life cycle, demand is relatively low and highly variable, and economies of scale are not important, which implies that a pull strategy is appropriate.
Growth and Maturity: Adapting to Market Acceptance
If the car is accepted by the market, then demand starts increasing at an increasing rate. In this case, economies of scale dictate a shift toward a push-based supply chain strategy. Meanwhile, the proliferation in engine sizes and colors of the car due to its popularity increases the importance of the pull-based supply chain. Eventually, we would expect that a push-pull strategy would be adopted by the time the car reaches the mature phase of its life cycle.
Distribution Strategies: Cross-Docking, Direct, and Traditional Warehousing
A cross-docking strategy is appropriate for suppliers of fast-moving, nonperishable products, such as beer, rice, and shampoo, with high overall sales volumes but relatively low demands at individual stores. In this case, cross-docking helps to coordinate shipments of fully loaded trucks.
On the other hand, perishable products for which lead times are critical, e.g., dairy products like milk and yogurt, are best suited to a direct shipment strategy. Also, if individual stores require full truckloads of certain products, then using a warehouse does not reduce transportation costs, so the supplier can ship directly to the stores.
For slow-moving products, such as household appliances, the discount store can benefit from warehousing to reduce the total safety stock in the system and to decrease transportation costs.
Centralized vs. Decentralized Inventory
a. Milk and Dairy Products
Since these are staple products, there is not much variation in demand. Hence, products can be either kept in centralized or local facilities, depending on which mode minimizes the delivery time to the retail outlets.
b. Newspapers
This product acts more on a decentralized mode because demands are variable across locations, and delivery time is the key to making sure that the product gets to the customer in the required time. In addition, local customization may also be possible to incorporate local news, etc., depending on customer differences.
c. MP3 Players
Products are stocked centrally and then distributed across the retail/wholesale outlets based on forecasted demand. Regional inventory is also maintained to respond to short-time changes in demand.
d. Cars
Dealer inventory is mostly decentralized. However, some manufacturers like GM have experimented with a model where the car inventory is centralized at a state level and then distributed to dealers based on customer orders. This is beneficial to smaller dealers, while the incentive for larger dealers is not obvious.
e. Jeans
These have to be decentralized to ensure the availability of products at the outlets where the customer makes the purchases.