Managing the Product Lifecycle in a Global Service Network

by Tim Andreae

Reverse Logistics Magazine, Aug/Sept 2007

With margins from initial product sales eroding and OEM competition increasing, aftermarket service is becoming increasingly important as a driver of product profitability and customer satisfaction.

Service continues to receive heightened visibility by executive management in the manufacturing industry. By making the right service strategy decisions, most companies can leverage the aftermarket to boost revenue; surprisingly, this corporate asset still remains under-exploited. Marketing and engineering departments are typically considered the primary drivers of product strategy decisions. In practice, service and logistics departments consistently make multiple strategic choices across the product lifecycle that greatly impact the ultimate profitability and success of the product.

The diagram below, adapted from Shelor & Steele¹, illustrates the major phases of product lifecycle and the dynamic interactions of product shipments, installed base and service parts demand.

The lengths of these cycles may vary dramatically by product, company or industry. In some high tech industries, lifecycle may be measured in months, and to contrast, we recently talked to an elevator company who was supporting products produced in 1880! No matter what the differences, managing these interactions effectively is a daunting task that must be approached systematically. Several key service management decisions impact the overall product strategy -- from initial product planning through end-of-life -- in a global service network.

Product Planning & Introduction: Product planning is one of the most critical stages in determining overall success and profitability of the product. Service design must be tightly aligned with marketing and engineering to ensure the product is designed to be serviceable and the long-term cost implications of service decisions are understood. Specific questions must be answered in the early phase of the product cycle:

• What is the warranty policy and service offering? Warranty policy is a key driver of both product profitability and customer satisfaction. It’s a delicate balance to develop a warranty policy that meets customer expectations, without driving up costs. Lifetime support costs must be modeled and understood based on an expected service and parts demand, as well as full-life support.
• How is the product serviced? Determining who will provide field service and repair capability – internal resources, outsourced providers or dealers – may be driven by overall channel strategy or by the type of repair required. Defining appropriate field replaceable units (FRUs) is driven by a clear understanding of the tradeoffs of stocking vs. time to service.
• What are the logistics network and the qualifications of the provider? Most companies already rely on a logistics network for product support. Each new product should prompt a quick review of whether the network and the core providers are well suited to the new service requirements.
• What is the right amount of inventory to provision?
  Every new product introduces two major uncertainties: How much will it sell, and what will be the failure rates? Predicted failure rates should be conservatively based on engineering estimates or expectations based on similar products. Again, geography is important; placement of spares needs to reflect anticipated MTBF rates and level requirements, planned product sales, and anticipated MTBF rates.
• What are the globalization rollout issues? Often when a product is first rolled out it is supported and sourced centrally, and geographic rollout may be limited as new products require more control. As the product matures it may be managed more locally. With increasing consolidation, both repair and 3PL providers may be able to provide global capability so that decisions are more easily centralized throughout the lifecycle.

Product Growth & Maturation: Products are rarely static – market shifts and technology improvements spawn minor and major changes throughout the lifecycle. Any changes to the product and service strategy impact both lifetime costs and customer satisfaction, and the appropriate analysis tools and supporting management processes must be in place to make the most effective decisions:

• How do you manage engineering changes? Soon after product introduction, engineering changes are driven by customer need, cost and effectiveness requirements, as well as safety considerations. The impact of these changes on inventory and overall cost must be considered in the decision-making process. Product failures often follow a bathtub curve in that a high failure rate is seen at introduction of a product, flattening through maturity and increasing at end-of-life.
• How is reliability data integrated back to design? When the product is in the field, actual failure rates should be analyzed and reviewed with engineering to determine the impact of change and reliability improvements to the lifecycle cost.
• How are warranties converted to follow-on contracts? As warranties or initial contracts expire, manufacturers must offer a compelling follow-on service offering, to prevent competitors from encroaching. It’s important to preserve margins – and be sure that customers clearly understand the service offerings. The warranty conversion rate will also impact the required inventory holdings.
• How does the sourcing and repair strategy evolve? As the product moves out of initial production, sourcing and repair capability may be localized to reduce costs. The network, inventory and cost impact of these changes must be analyzed along with their relation to service levels.
• How is end-of-production managed? The product is typically serviced past end-of-production, and as volume decreases, costs and lead times may increase and specialty manufacturing capability may be required. These decisions impact lot sizing as well as required inventory levels.

End-of-Service-Life: As a product reaches the end-of-life, it is critical to tightly manage inventory levels and balance them with the support strategy and product disposal requirements. Key decisions include:

• What is the appropriate end-of-service-life? End-of-service-life decisions are highly strategic, influenced by new replacement products, the potential impact on other new products’ sales, overall customer satisfaction and lifetime support costs.
• How are lifetime buys managed? When end-of-service is defined, lifetime buys must be evaluated with a consideration of existing inventory. Again, this applies to the supply network, and expected returns.
• How is product disposal managed? With increasing regulation such as WEEE and RoHS driven by environmental concerns, product disposal is an issue throughout the product lifecycle, and particularly as the product is retired at end-of-life.

Defining all of the systems and processes related to lifecycle planning is a significant undertaking and beyond the scope of a short article. The table below summarizes a few of the decision support-related systems and infrastructure requirements and key management processes that should be considered for service logistics through the primary product lifecycle phases – allowing for the most business value possible:

Rather than service being an afterthought to product development, it can be turned into a true competitive differentiator. Forward-thinking manufacturers who follow a structured management decision process and implement service-specific systems will have the ability to effectively manage through the product lifecycle – all the way from initial product planning through to end-of-life.

Sources:
¹ “Product Service Strategy Workshop,” by Mike Shelor, Shelor Associates and Roy Steele, Roshar Associates.

Tim Andreae is the Senior Vice President for Global Marketing for MCA Solutions. MCA is the industry leader of software products for service parts planning and has helped service leaders such as Cisco Systems, KLA-Tencor and Rockwell Collins manage their service supply chains and product lifecycles effectively. MCA is an SAP-Endorsed Business Solution, and, along with its customers, has won multiple industry awards for service excellence.

Reverse Logistics Magazine, Aug/Sept 2007