Post-launch, the product manager will be responsible for managing the product lifecycle through its growth, maturity and decline phases. In this final post in my series on managing manufactured products I examine the specific touch points that exist between the operations, engineering, and finance functions when managing the lifecycle of manufactured products. You can read the earlier posts in this series here, here and here.
Sales and Operations Planning (S&OP)
Part of your product launch plan will include an initial sales forecast (or business case) to aid the initial provisioning of materials and inventory of the new product. As your sales team begins to sell the product, they will take over the forecasting effort by registering and tracking specific sales opportunities by customer, often using a Customer Relationship Management (CRM) software system. Informally or formally, an information exchange will process will occur (S&OP) where the sales forecast data will be used to build and maintain supply chain, capacity, and inventory plans. From a lifecycle management perspective, the product manager should monitor the following aspects of that exchange:
- Alignment of sales forecast and business case. If the forecast is falling short of expectations, the S&OP forum is your opportunity to identify and diagnose the problem early, before your executives begin to apply pressure. Increased sales training, promotion, and product improvements are some of the actions to be considered.
- Cannibalization effects, intended or unintended. If your business plan is for sales of new product A to replace legacy product B, the S&OP forecast will give you early indication if that is indeed happening. If it isn’t, then you may need to take explicit action to phase product B out of the market. However, if sales of product C are falling unexpectedly upon introducing A, you may need to intervene differently.
- Impact and timing of product revisions. When there is a pending engineering change to a product that affects its physical characteristics, such change will need to be coordinated with the supply chain planners so that you don’t buy components and materials that are about to become obsolete. Inventory levels should also be decreased, especially if your sales team and customers are anticipating the change, so that you don’t end up with a surplus of an older product revision that nobody wants to buy.
Value Analysis and Value Engineering (VAVE)
Revisions and line extensions of products can be managed using three classes of engineering activity: continuing, sustaining, and value engineering.
Continuing engineering is very familiar to software product managers as it encompasses the work to add or enhance features and functionality of products.
Sustaining engineering is less familiar as it encompasses the work to maintain production of existing products, such as repairing tools and fixtures, qualifying alternate material suppliers, or fixing quality problems. We’ll revisit sustaining engineering in the final section on product obsolescence.
Value engineering is perhaps the least familiar and is often underutilized in product-lifecycle management. Let’s face it, when the requirements document is created for a new product, there’s a fair amount of guesswork in determining which features and functions will truly impact your customers’ buying decisions. You’ll try to cram as many potentially attractive features into your product, within your budget and time constraints, to maximize the probability of adoption. Now that you have some experience in selling the actual product, you can more accurately determine which features your customers really value.
The VAVE objective is very simple – you want to maximize value by increasing the function-to-cost ratio of the product. As products age and competitors catch up, this ratio is key to maintaining margin and the ability to price-to-win. Here is a basic framework for performing a value analysis exercise:
- List the key functions of your existing product. Try to stick with verb-noun statements here. In the wearable fitness tracker example discussed in previous posts, think “measure vitals”, “display vitals”, “resist water”, and “withstand shock”.
- Rank each function according to its importance to the customer. A forced-choice paired comparison matrix is a great way to do this, and allows you to build a model that says “function A contributes 20% of the overall product value, function B contributes 15% of the overall product value” and so on.
- List the physical subassemblies of the product and the loaded cost of goods sold (COGS) of each. In our example, wrist band, power assembly, CPU, display, etc.
- Allocate the loaded COGS of each subassembly to the functions. For example, because your display subassembly consists of an LCD element, a gasket, and a shock-resistant housing, you may allocate 60% of the cost to “display vitals”, 30% to “withstand shock”, and 10% to “resist water”. Accept that this part of the analysis is quite subjective and crude estimates will do just fine.
- Sum the cost contributions and you arrive at a model for the cost to provide each function to the customer. Divide that cost into the value of each function and you have a simple margin calculation for each.
Let’s suppose you identify a function that represents 15% of product’s value, but the cost to achieve that value is 30% of the loaded COGS. Perhaps you put a lot design effort and material cost into shock resistance and it turns out that function isn’t as important to your customer as you originally thought. This function is upside down, and the value engineering objective is to figure out a way to lower the cost of providing that function. VAVE enables you and your team to home in on those aspects of your product that are overdesigned so that you can maximize profitability throughout the product lifecycle.
Many manufacturing organizations struggle to retire products in a timely and efficient manner. This results in an overabundance of SKUs (stock-keeping units) for which a manufacturing capability must be maintained, older lower margin products being sold instead of newer higher margin ones, and overspending on sustaining engineering at the expense of continuing engineering.
The first two elements of a product retirement plan are common between software and physical products. First, there’s a date where you’ll stop selling the product. Second, there’s a date where you’ll stop supporting the product. For manufactured products, a third and final step is to scrap the tools and fixtures used exclusively for that product. Then and only then is the product truly made obsolete.
To determine if a product should be put on a path to obsolescence, review the three classes of engineering activity. If the new features and benefits desired by your customers cannot be achieved via continuing engineering within the existing product architecture, your priority should shift to designing the new one. If your sustaining engineering efforts for the product are consuming too much engineering resource, sell a new or alternate product that requires less support. If you’ve squeezed out all of the value engineering opportunities, turn your attention to creating a new product value proposition for your customer.
As you develop and execute a product retirement plan, be sure to close the loop with the S&OP process. Without visibility to the retirement plan, the sales and operations teams may continue to operate as usual and contrary to the product-line objectives. Early coordination with sales allows ample time to shift customers to new or alternate products and arrange any last time buys of the current one. Likewise, you’ll want your supply-chain team to begin winding down purchases of material used exclusively to manufacture the current product, in accordance with its end-of-life forecast, so that you don’t end up with excess inventory that will need to be sold at a discount.
There you have it, from cradle-to-grave, lust-to-dust, womb-to-tomb, the unique considerations to be made when managing manufactured products. Clearly, the manufacturing environment adds layers of complexity to the product management job, but those who become proficient in these areas truly become CEOs of their product line and position themselves for senior leadership roles in such organizations.