Happy’s Essential Skills: Project/Product Life Cycle

Estimated reading time: 12 minutes

Figure 2 shows the change in profit making period for various industries during the 1990s and the particular pressure on the electronics industry.

Figure 2: The change in pay-off and product life span over the 1990s.

The product life-cycle span (PLS) is the upper line and is the length of time the product will remain on the market. The pay-off period is the lower line and is the time for the product profits to pay-off the development costs. The grey area represents clear profit. For the electronics industry the pay-off period has risen by on average 5.5% but the PLS has fallen by 46%. This has the effect of squeezing the time the products have to make profits. The time it takes profits to pay for all the development costs is an important metric called the break-even time (BET)^[4]. Also, notice that the electronics industries represent the narrowest part of the graph. This means that, although other industries’ profits are being squeezed as well, there is particular pressure on the electronics industry.

Increasing Profits During the PLC Process

A reduction in potential profits gained requires solutions. Figure 3 is a typical product’s sales and profit cycles. The sales cycle shows no sales while the product is being developed, increase in sales on introduction to a market, steady growth of sales to a constant level during product maturity and the drop in sales during decline.

Figure 3: Profit and sales cycles for a typical product’s introduction, maturity and decline.

We can divide the diagram into three areas:

1. Product development: There are no sales therefore the profit is negative.
2. Product introduction to the market and growth: Profits increase sharply as sales rise.
3. Maturity and decline: sales steady and eventually decline and the profits steadily decline throughout.

Looking at Profits During the PLC Process

There are three issues to consider here:

Issue 1

The first issue is the initial loss during the developmental or PLC stage (including product design, prototype manufacturing and ramp to volume production-Figure 4).

As there are no sales of the product then the development costs provide a negative profit. To increase the clear profit made by the product further downstream, we can:

1. Reduce the costs during the development stage (the depth of the dip). Smaller development costs will mean a faster return on investment (ROI); once the product’s sales pay off the ROI, then the product will make real profit.
2. Reduce the development time. The shorter the development time, the sooner the product is introduced and the sooner it starts to generate returns (Figure 5).

Figure 4: The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the development phase.

Figure 5: The benefits of early introduction of a product to market.

Figure 5 is a graph showing the effects of introducing a product early, by shortening the development time. These effects are:

1. Extension of product sales life: Products introduced earlier seldom become obsolete later. Consequently, each month saved from the development cycle implies an extension to the sales period.
2. Increased market share: The first product to the market has a 100% market share until competition catches up and releases its own. In some markets such as software and machine tools, once a system is purchased the buyer is virtually locked into the product type due to the high premium required to change.
3. Higher profit margins: With no other competitor, a company can enjoy pricing freedom and higher margins. The price may decrease later as competitor’s products enter the market.

In contrast, Figure 5 also shows the effect of a late product introduction. The lower line shows the reduction in sales due to competition already selling similar products, and a reduction in sales life because irrespective of when a product was introduced it is likely to start to decline in sales at the same point.

Development time and cost reduction can be achieved by using tools like concurrent engineering, DfM, and value analysis during the design phases, and Lean manufacturing and TQM during prototype manufacturing^[5].

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