How Product Lifecycles Affect Inventory Management

November 29, 2011
Just when you thought managing inventory was challenging enough, something else gets added to the equation to make it even more complex: Product lifecycles. That’s right. It’s not enough to just have the right number of products in stock; you also need to know how long you should keep selling them. A product lifecycle is how long a certain product can be sold before it’s replaced by a new model or another product that meets the same need for less.

Product lifecycle chart, Fishbowl Inventory Blog

Products with short lifecycles include electronics, like the latest Apple iPad, smartphone or video game system. Technology is constantly improving, so these items will likely be rapidly replaced every couple years or sooner. Products with long lifecycles include oil, natural gas and other fuel sources, as well as a variety of foods. Entire infrastructures are built around oil and natural gas, so it can take decades to phase them out. Food will always be necessary, though customers’ tastes might change based on seasons or other conditions.

Your product lifecycle management needs to become just as important as your inventory management. What are the stages a product goes through and how do they affect how you should manage your inventory? Let’s go through each stage: 1. Introduction. In the beginning of a product’s life, you’re still working out the kinks in it and testing the waters. It’s best to keep inventory and production levels low so it won’t be too hard to make changes to the product. As early adopters start to pay attention to your product and spread the word, you’ll need to slowly raise your inventory levels to keep up with the newfound demand. 2. Growth. Once a product hits a critical mass of consumer interest, you can start ratcheting up production. As you grow into new markets, you’ll need to optimize inventory levels in multiple locations to make sure you have enough products in each location to meet demand. It’s critical to keep delivery times short and manufacturing lines running smoothly to stay ahead of the competition. 3. Maturity. When a market becomes saturated and sales hit their peak, it’s time to start scaling back production little by little. Even when a product reaches its saturation level in some markets, it might still be growing in others, so keep a close eye on sales at each of your retail locations. Don’t just look at overall sales. A good way to separate and analyze all of this data is by using a warehouse management system. 4. Decline. As a product becomes obsolete and less popular, it’s time to scale back production and start moving on to the next big thing. When you reach the point where you’re sales don’t cover your production costs, it’s time to discontinue that product altogether. How can you tell where a product is in its lifecycle? A dead giveaway is if the following things are increasing or decreasing:
  • Number of competitors
  • Markets the product is in
  • Sales (total and by location)
If you don’t have access to in-depth information on these items, a good place to start is with a warehouse management system. By staying on top of your product lifecycle management, you’ll be better prepared for demand shifts and other changes coming on the horizon.