Most organization rushed into launching a new product with all the excitement and glamour without considering the risk of the launch. So what are the challenges facing the launch of a product? There were numerous challenges spanning across all the company functions but for this discussion here we will focus on the impact on supply chain.
Phasing in New Products and out Current Products
The introduction of new products into the supply chain will affect upstream and downstream activities. First sourcing for the right supplies and committing to an initial volume. Some components could be made from specially designed equipment for eg a mould or a die and once it is cast, it will produce one unique product. As a result of this, the design that calls for a use of existing component or modular design of parts may give the flexibility to have more sources of supply. This is just one aspect in the upstream activity.
On the downstream acitivity, the timing to phase in the new products is critical especially if it involves replacing a current product. The organization has to set a timeline for the phase in. This will minimise the amount of obsolescence in the current product. If there is an alternate market for the current product eg exports to overseas, it will lessen the impact on the obsolescence. However a timeline to phase in is still critical.
Market Mediation Cost
This cost is defined as the cost to “mark down” a product if supply exceeds demand due to uncertain response to the new product or the opportunity cost if there is a stockout situation. Managing this cost sounds more like an art than science since nobody can give an accurate demand forecast. However the marketing can get a feel of the response if the product is already launched at another location or gathering a market survey of the kind of improvement that the customers expect in the next version of the product. Sometimes, a small batch can be made to “test” out the response of the product based on a sample population size across a wide demography. An important key is to consider if the current supply chain is responsive enough to react to fluctuations in true market demand (instead of a perceived one as seen in the bullwhip effect).
Transforming Supply Chain
As the demand of the new product becomes more stable and predictable, supply chain has to respond to the changing needs of the market. It may be time to design build to stock inventory and allowing the S&OP process to take over the planning process. There may also be new threat appearing such as a competing product or a higher cost in raw material. Therefore the supply chain has to adapt to meet new challenges either in the upstream or the downstream. Of course to transform the supply chain as the product matures also comes with a cost. As the need to derive a cost efficient supply chain without compromising the service level, the expected margins of the product may change too. The management leadership has to take a decisive approach of triggering the right supply chain response to align with the product life cycle.