Every manufacturer and distributor of after-market parts needs to know the different stages of their product life cycle to ensure inventory levels are being accurately forecasted and replenishment reorder points are in alignment with customer demand.

Different stages of a product life cycle

From the time a new product is launched to the market, it will invariably go through a typical life span where demand will traverse though nine different demand types from initial product launch to the end of the life cycle.

As the product moves through the demand stages that are outlined in Figure 1. 2, different forecasting and planning techniques are required to effectively forecast demand. Figure 1 2 illustrates how a product life cycle changes over time as it migrates from one pattern to the next.

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The four main stages of a product life cycle are:

1 | Launch:  There are heavy distribution and promotion expenses to sell this new product and an inventory planner may need to increase inventory levels to ensure product is available as sales begin to rise.

2 | Growth: As a product increases in popularity with consumers, sales will start to rise. It may be a rapid growth or a slower one, but the growth trend will still be positive. Growth rates can be highly variable and sporadic. Successful inventory planners will frequently run demand forecasts to ensure they have the right stock levels, safety stock and reorder points to optimize their cost model while ensuring a high order fill rate.

3 | Maturity: Once the product is well established and the consumer marketplace has been saturated or has met their satisfaction with the product, then the growth slows down and begins to level off. In this stage, inventory planners will typically see erratic, slow or fast spikes in customer demand. This demand pattern type can vary greatly and will require frequent forecasts to ensure stocked items are optimized.

This is the primary stage of the product life cycle where managers of stock will want to begin inventory planning to reduce their target customer service levels in order to lower inventory levels for the oncoming decline of product demand.

This is a difficult transition for most companies as they do not want to risk missing sales due to lower inventory levels and stock outs, but the costs associated with carrying large quantities of excess or obsolete stock could be a huge financial burden if not managed properly.

4 | Decline: After a product has reached its maturity stage, sales will eventually fall due to changes in consumer demand or due to newer product offerings or competing products being supplied to the market.

Different products have different growth and decline patterns. Smart inventory planners that have already accounted for the decline in demand have typically taken a number of actions to ensure stock levels are being reduced at an appropriate level to avoid being left with obsolete stock.

Orders will diminish as contract time periods end, and suppliers must be careful not to be caught with dead and obsolete stocks of raw materials, components or finished products.

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Inventory management is especially important for manufacturers and retailers. For manufacturers, the objective is to reduce both the total amount of inventory and the length of time that items stay in inventory. For retailers, the objective is to maintain inventory that matches demand and to reduce the incidence of stock-outs or goods that remain in storage for too long.

Using KPI measurements of individual inventory items rather than aggregates to provide more useful, specific measurements and other inventory analysis data gathered through stock management software programs, it is possible to identify ways of improving the flow of inputs and outputs.

There are several inventory management strategies that organizations can use to maintain optimal inventory levels while ensuring that customer needs are met. These strategies include:

1. Improving data collection

In international supply chains, it is essential that organizations know where inventory is, the lead times for products to reach customers, and the amounts and lead times of raw materials reaching production plants. Without this information, organizations cannot adequately gauge their inventory levels and will inevitably gather too much safety stock.

To manage inventory and identify where cuts can be made, organizations should establish a regular counting system, such as cycle counts, in which all inventory is monitored and compared to other information coming in from the supply chain.

2. Reducing lead times

The longer an organization’s lead time, the more inventory it must have in its system. Organizations can investigate faster ways of getting products to customers, whether by using more efficient transport systems or by locating production plants closer to main customer hubs. The costs involved with inventory storage are so substantial that the additional expenses associated with more expensive transportation options might be justified.

3. Increasing production speed

An organization must have enough inventory to meet customer demand. If it can produce goods faster or receive them faster from a manufacturer, it can meet the same level of demand with less inventory.

For example, if it takes one month to make a product, inventory levels must cover at least four weeks’ worth of demand. If it only takes one day to make a product, inventory levels of two days’ supply will adequately cover demand and leave a small buffer zone.

Want to learn more about how to manage your company’s supply chain and logistics? Check out the FITTskills Global Value Chain online course!

4. Avoiding economies of scale

Many organizations purchase vast amounts of raw materials or components because it is cheaper to buy in bulk. However, purchasing bulk supplies can cost much more in inventory storage costs than it saves in purchasing price. Organizations should purchase only what is needed to meet the level of customer demand. This is an aspect of just-in-time inventory, however, the industry sector and the product type must be considered.

5. Using hedge inventory

Hedging is a form of inventory buildup used as insurance against a potential adverse effect, such as a labour strike or a supply interruption. Because hedging involves speculation and is based on forecasts of events that might not happen, the risks and potential costs are very high. However, it can sometimes help organizations remain profitable when adverse conditions do occur.

6. Basing inventory management on market demand

Forecasts are necessary to help manage inventory, but they are really only educated guesses. Forecasts for months or even a year ahead are very likely to be inaccurate. Organizations should pair forecasts with market demand to decide when to replenish finished goods. This will keep inventory levels aligned with the amounts that customers are actually purchasing.

7. Using partnerships

Organizations can also reduce inventory levels by working with supplier partnerships. Many of these strategies require a high level of trust between both the supplying and buying organizations in the partnership and shared online information systems that both partners can use to access essential information, such as product shipping information.

8. Having a quick response

A quick response helps balance consumer demands with the needs of a retailer to minimize inventory. Suppliers who collaborate with retailers have access to the point-of-sales data generated at checkouts. Retailers are still responsible for ordering supplies, but suppliers are able to manage inventory and reduce lead times because they can develop more accurate demand forecasts. This enables suppliers to co-ordinate shipments that match closely to customer demand.

Quick response strategies have been especially useful for grocery retailers that traditionally have a fast and high turnover with low profit margins. This strategy provides the following benefits:

• Inventory levels in stores can be lower.
• All goods can be tracked.
• Waste is reduced because deliveries from suppliers are matched to sales.

For strategies to succeed, foreign suppliers must be willing to work closely with their customers to find inventory management solutions. Some of these strategies can also be part of contractual negotiations during procurement processes. Buyers need to ensure that they take into consideration the factors that impact global sourcing, such as shipping times and costs, and are realistic about lead times when managing inventory.

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Forecasters agree that importers and exporters can expect to see an increase in shipping costs in 2018. Fuel costs are on the rise, hurricanes and other natural disasters have upset supply chains, and an improving economy means a higher volume of business and more demand on shipping companies. While a perfect storm for higher shipping costs might be brewing, there are ways you can fight back against rising logistics costs to save your business money.

1. Reduce touchpoints

As a general rule, the more times your shipments change hands or go through processing, the more expensive they become. Even if you’re looking at two similarly priced routes, the one with more touchpoints will likely cost your business more in the long run; more stops mean longer shipping times and more handling means greater opportunity for errors. You can reduce processing and handling by decreasing the number of warehouses you use, looking for simplified routes and locating suppliers that are closer to your shipping destinations.

2. Maximize shipping and inventory space

One of the biggest money wasters in logistics is partially filled trucks or warehouses. Maximize your shipping and warehouse space to cut costs. Order larger shipments at once to fill trucks and hold inventory on hand to reduce the need for expedited shipments due to a shortage of stock. Make sure your shelving and storage strategy within your warehouse is truly maximizing the space.

Of course, maximizing your inventory space and increasing order volume to reduce shipping costs means you absolutely have to keep accurate inventory and sales statistics to reduce the risk of overstocking items or misplacing inventory.

3. Collaborate on logistics

It might sound radical, but collaborating with other businesses on logistics can help you to lower your logistics costs. You can work with businesses in your area, or your suppliers, to see if you can share the burden of logistics. When you share logistics with other companies, you can fill shipping units faster and purchase things like fuel in higher volumes to take advantage of bulk costs.

4. Keep your supply chain flexible

Too often, businesses stick with their supply-chain strategy because it’s the way they have done things for years, or even decades. Sticking with the status quo will cost you any competitive edge over your competition. Periodically evaluate your supply chain to determine if it’s meeting your needs and is the most efficient way to move your goods and supplies from place to place.

The smartest companies maintain flexible supply chains, with multiple shipping options, so they can adjust their chain quickly in reaction to pricing changes or supply chain interruptions.

5. Consider reverse logistics

Customers have grown to expect quick and convenient returns, which means companies now need to have a reverse-logistics strategy if they’re shipping direct to their customers. Reverse logistics can get costly and complicated. Know how you will deal with a return request so that the process is seamless for customers, and have a strategy in place for return shipping, receiving and processing returned goods.

6. Take advantage of the latest technology

At this point, all businesses that deal with supply chains should have a management system in place that helps them to track and monitor supply chain shipments and costs. If you’re not taking advantage of supply chain management software, it’s something you should be considering. You should also be aware of what’s on the horizon.

From blockchain technology to complex logistics analytics software, there are new applications being developed specifically to help companies simplify supply chains and reduce logistics costs.

If you’re not implementing technology that could help you do business better, you’re missing out on potential cost savings.

In trade, upticks in logistics costs are inevitable, and businesses have to know how to deal with them. The coming year is forecasted to bring significant supply chain cost increases. Have a plan for how your business will fight back to mitigate your supply chain costs and continue to profit.

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The aim is to ensure the right balance between levels of production, inventory, transportation and customer supply, to identify all potential resources, and to use the most appropriate resources in the most effective manner.

Taking a comprehensive approach to ensure supply chain planning success

A supply chain plan is a written document that details the strategy a company must employ to develop or improve a global supply chain.

Supply chain plans must have the following qualities:

1. They must ensure end-to-end management of the supply chain.
2. They must be as simple and as streamlined as possible.
3. They must minimize the complexity of supply chain operations to reduce costs.
4. They must include clear processes that can be understood by all users.
5. They must be able to be reliably applied across the supply chain.
6. They must be adaptable in response to changing customer demands or business conditions.
7. They must map to company strategic objectives.

Use your supply chain plan to add value to your entire business

Before starting to map out a global supply chain plan, managers must have a very clear idea of their company’s business plan.

A business plan is a company’s formal statement of its business goals and its plan for achieving them. For companies wanting to trade internationally, these goals will often have a financial focus, such as improving profits or reducing costs.

They might also focus on branding issues, such as improving customer perceptions, or be based on new research and development initiatives.

Examples of strategic business goals include the following:

• To become the global leader in the industry
• To improve customer service in one or more markets
• To develop innovative new processes
• To ensure a low customer turnover in identified markets
• To become more competitive in the domestic market
• To achieve a set level of growth and profitability
• To invest in global community initiatives and reduce the company’s environmental footprint
• To establish a sustainable, competitive entry into a foreign market

Follow through on your plan to achieve strategic goals

The strategic goals outlined in a business plan will have an important influence on the strategies that must be used to develop or improve a supply chain and on the way in which a supply chain can be structured and managed.

They will also indicate the types of improvement that need to be made in the supply chain.

For example, if a company’s business plan states that a goal is to improve customer satisfaction levels in a foreign market from 85 percent to 95 percent, managers will want to identify where changes can be made in the supply chain to increase customer satisfaction.

Perhaps the company can establish distribution centers in the market to reduce the time it takes for products to reach customers. Perhaps the company can collaborate with another organization in that market to provide a service directly to local customers.

Companies that map their supply chain plan to their business plan in this way are more likely to see improvements in their business performance.

Your supply chain plan can be a top priority for your business

Different divisions within a company and different company initiatives will always compete for access to limited funds within a corporation.

Often, supply chain initiatives that require capital expenditure are in competition for the same funds as other projects.

One strategy that can be used to increase the likelihood of successful supply chain project financing is to make sure the project closely links to corporate objectives.

The fact that that the project can increase customer satisfaction while reducing administrative costs should be articulated so that company executives understand that it will increase returns on investment.

What steps do you need to take with your supply chain planning?

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Dr. Kannan Vanumamalai, CITP®|FIBP®, is the Marketing Manager at Kheeran Inspection Services Inc. in Edmonton, Alberta.

With twenty years of international trade experience and an exceptional academic background in trade, Kannan’s skills and knowledge are equaled only by his passion for his work.

Kannan’s career started when, after completing both his Bachelor’s and his Master’s degrees in commerce, he became a management trainee with Varadhalakshmi Mills Ltd in Madurai, India.

At the end of his trainee period, the company decided to give him the opportunity to select the area of business in which he wanted to specialize.

“I chose international trade,” he explains.

I realized that, for an international trade professional, each work day will be a lively day composed of lots of challenges, problems, solutions, decision making situations, rules, regulations and so on.

Kannan spent a total of just over five years at the company, under the title of Executive (Purchase and Imports).

With the sole responsibility for all man-made fiber imports, he monitored inventory, made purchases when needed, ensured all documents and licenses were in place and guided it through all customs clearances to get materials to the mills when needed.

After a brief stint taking care of exports for another mill, Kannan returned to the import side of trade as an Assistant General Manager (Imports) for Machado Sons P Ltd—a leading Custom House Agents company at the port in Tuticorin, India.

In the role, he was able to expand on his previous import experience by combining responsibilities for customs clearance and import documentation with a broader-scale marketing role.

His new duties included bringing in new customers, providing them guidance, updating customers with any changes in the import policies/rules, ensuring customer satisfaction and retention, and promoting the company’s import clearance services.

Kannan also expanded his educational credentials during the thirteen years he spent in the role. Since it required a greater focus on marketing than his previous positions, he earned his MBA with a focus in marketing, as well as his M.Phil in international business.

He then followed those up by earning his Ph.D in Management in 2011 from the Birla Institute of Technology in Mesra, India, with a focus on international logistics and marketing.

In 2011, Kannan also received two international awards. First, he won ‘The Emerging Economies Doctoral Student Award (EEDSA)’ from the Production and Operations Management Society (POMS), USA for his contributions to the subject ‘operations management’.

He then also received the ‘Highly Commented Award for Excellence 2011’ from the Emerald Literati Network in the UK, for a research article he had published in ‘Benchmarking: An International Journal’ the previous year.

On top of these awards, he has published several articles in reputed management journals, and is a regular presenter at Indian as well as international conferences on topics related to international logistics, shipping, export/import, services marketing, etc.

In 2013, Kannan transitioned to his current role, which allows him to focus on international marketing full-time.

Balancing everything from market research studies to product development to client satisfaction, budgeting, accounts management, and training, he has found the opportunity to excel in a role where he can draw from all of his education and experience.

When Kannan learned about FITT and the CITP®|FIBP® designation, he immediately recognized the benefits it could have for his career and decided to apply.

I understand that the CITP®|FIBP® designation will bring international recognition to my knowledge and experience in international trade. I also realize that it will help me to develop networking with other international trade experts.

Kannan described his reaction to earning the designation as “elated.” He says he hopes it will help him toward his goal of gaining a top-level management position in a global corporation in the shipping, freight forwarding or international logistics industry.

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Product design can also address the costs involved with transportation and inventory. These are often critical supply chain cost drivers, especially when inventory levels must be kept high to ensure service levels.

Product design can address these supply chain issues using the following three key components:

• Packaging and transportation
• Concurrent and parallel processing
• Standardization

Packing and transportation

One of the most important areas of product design is ensuring that products can be packed and stored efficiently. Goods that can be packed compactly are obviously cheaper to transport. A common example of this use of product design is flat-pack furniture.

As well as cost reductions, retailers are more likely to choose a supplier with products that take up less storage space and that can be stacked easily.

Weight is also a product-design issue that will affect transportation costs. A company might find that more expensive, lighter materials are cost effective when reduced transportation expenses are taken into account.

Concurrent and parallel processing

Lead times associated with suppliers, manufacturing processes and deliveries are a major interruption to the flow of the global supply chain.

In many manufacturing situations, a series of products or components are produced and then put together to make a final product. Delays can occur between each stage in the manufacturing process.

In concurrent and parallel processing, the manufacturing process is redesigned so that all production steps take place at the same time. This reduces manufacturing lead time and reduces inventory costs.

Standardization

Companies can standardize product components or processes. In product standardization, common components are used in many different products. This reduces the requirements for extensive component inventories and reduces costs.

In process standardization, the manufacturing process is standardized as much as possible for all different products. Products are only customized and differentiated late in the production process.

Process standardization usually involves redesigning products so that they can be customized late in production.

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