60 LOGISTICS INFORMATION MANAGEMENT 3,3

M
ore 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 l i fe costs can be minimised
or avoided altogether.
The Logistics
l i f e Cycle of
a Product
Paul Ryan
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.
THE LOGISTICS LIFE CYCLE OF A PRODUCT 61
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 Li fe 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.
62 LOGISTICS INFORMATION MANAGEMENT 3,3
Table I.
Examples of Logistics Elements Which May Require Specialist Input
High tech.
specialist
Low tech.
mass market
Logistics Life Cycle Stages
Concept
Design
Channels
consideration
Physical
handling
Any
perceived
limits
Research
Confirmation
Mechanical
simplicity
servicing
Transporting
Health
Environmental
Disposal
(waste)
Disposal
(end of life-
cycle)
Unitisation
Production
Prelaunch
Spares
availability
Information
systems
needs
Product
recall
plan
Inventory
level
and
location
Customer
service
levels
Deployment
Support
services
audit
Customer
service
performance
Special
inventory
needs
Information
systems
performance
Environmental
and health
reactions
Maturity
Logistics
systems
cost and
capital
control
Customer
services
review
Inventory
review
Decline
Spares
capital
reduction
Labour
cost
reduction
Customer
service
review
Inventory
review
Disposal
Labour
contracts
spares
servicing
Inventory:
finished
goods
raw
materials
work in
progress
packaging
channel
stock
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
THE LOGISTICS LIFE CYCLE OF A PRODUCT 63
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 t o be Bui l t i nto
Mar ket i ng Life-cycle Pl anni ng
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.