Profitable end game strategy by intelligent investment
Falling LED prices are rapidly accelerating the transition from conventional lamps to LED lamps. While Philips Lighting is a leader in the transition to LEDs, its conventional products are facing falling demand.
To address this, the business put together a dedicated team to create a fact-based product life cycle strategy aimed at having a profitable end game, a so-called ‘golden tail’. Contrary to common belief in end-of-life product management, the team did not just cut products out of the range but also made intelligent investments. The result was increased profitability for a range of products near the end of their lifecycles.
Product life cycle strategies utilize a clear, strict approach
The product life cycle strategy improvement project was conducted using the Design for eXcellence (DfX) methodology (see figure). This approach begins with a rapid diagnostic to identify opportunities, followed by idea generation, and culminating in iterative rounds to enrich the ideas. During these iterations, ideas are vetted on the basis of quantitative data and feasibility of implementation. Ideas that fail the vetting process are abandoned. These enrichment iterations are grounded in a well-tested range of tools and methods. Furthermore, DfX helps ensure strict discipline, drive real progress, and gain stakeholder commitment.
Product life cycle strategy with Design for eXcellence (DfX) methodology
Ultimately, the DfX approach of targeting, ideating, enriching, and pruning ideas led to breakthroughs in a number of unforeseen areas. It even provided a means to address the paradoxical challenge of making sensible investments in a declining business.
3 product life cycle strategies improvement project examples
What were some of the product life cycle strategy results and how were they achieved?
Product life cycle strategies improvement project 1:
Reducing product complexity by up to 70%
One workstream of the project started by taking the worldwide market segmentation with similar regulatory requirements and went on to understand the various changes in regulations by geography. Furthermore, data was gathered on markets, channels, customers, suppliers, and competitors.
This extensive collection of data served as a sound basis for modeling and supported intelligent decision making on sourcing, material management and manufacturing allocation. It also helped identify and assess cost reduction opportunities for the product life cycle strategy.
Early validation of proposed product life cycle strategy solutions with members of the market organizations, helped resolve key uncertainties whether these solutions would be accepted. For example, by providing transparency on the cost of product features, we enabled fact-based decision making and ensured acceptance by the markets.
Another example of a breakthrough in reducing complexity was arrived at by developing solid cost and supply chain models. These models provided an aligned and clear view of the real cost of complexity, including logistic costs, warehousing, required stock levels of the large range of products, sales lost due to stock-outs and cost of obsolescence. As a result, the complexity of numerous product ranges was reduced by as much as forty to seventy percent.
Product life cycle strategies improvement project 2:
Implementing a simplified building-block architecture
Another area of breakthrough results was the creation of a new architecture based on building blocks instead of various dedicated lamp designs. Using this modular approach, products for different regions with different legislative and business requirements could still be put together from a limited number of different components. This radically reduced overall product cost and allowed material sourcing to be rationalized greatly.
By using different scenarios of how and how fast markets could decline, architecture design was tested and made more robust. Even in severe situations, such as a particular geographical market shrinking by 70% per year, architectural flexibility allowed for profitability.
Product life cycle strategies improvement project 3:
Reshaping the complete global industrial footprint
The conventional lighting business was forced to take many challenging and unconventional decisions. These encompassed investing in a new and strongly condensed industrial footprint for the restructured product portfolio. It resulted in marrying a regional sourcing structure to global component and materials standards.
Generating impressive results and a future-proof model
The results of this product life cycle strategy ‘golden tail’ approach, of which we shared only a few in this article, went beyond expectations. Within one year the category went from a negative to a positive bottom line. The outlook remains profitable, whatever extreme market change may come, leading to a truly ‘golden tail’.
Key to the success of the product life cycle strategy improvement projects were clear goals and a mandate, a short and fixed time span, dedicated team, thorough diagnosis based on proven tools and methods, and quick market validation. This extensive fact-based approach married with proactive stakeholder management made making difficult product life cycle strategy decisions easier.
If this was the result for your end-of-life product range, imagine what margin improvement and additional sales a ‘golden tail’ product life cycle strategy can produce for your business.
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- Development productivity
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Related article: Design for Excellence in all product life cycles
Exactly one year ago we held our initial DfX managing the golden tail convention, starting a process toward achieving extremely valuable objectives. At that time, we all understood this was not the end, but the start of a challenging plan encompassing the entire value stream. I am extremely proud and can confirm today, that we fully completed all actions and sub-projects as committed, all 100% within the given timeframe.
I express my sincere appreciation to all colleagues who made this brilliant success happen! Without their professional, cross-functional thinking, dedication, team spirit and perseverance, this success would never have been possible! And the complexity reduction process continues…
Global Marketing Director