Product Obsolescence – an end of life process

The Human Body’s End of Life Process

Avram-Hershko-NYTs-06192012On June 19, 2012 the New York Times published an article, “The Body’s Protein Cleaning Machine” about the Nobel Prize winning chemist Dr. Avram Hershko. His life work has been on understanding how the body’s cells rid themselves of old, defective proteins. Every cell has a protein ubiquitin that tags old and degenerated proteins for destruction. “Maybe you’ve heard of Parkinson’s disease and Alzheimer’s? There we have bad proteins accumulating in the brain and destroying brain cells. The reason we don’t get Alzheimer’s when we are 10 is that when we are young, the bad proteins are disposed of quickly. With age, the cell’s machinery may lose the ability to do that.”

This very interesting notion that the body has a built-in mechanism to rid itself of bad proteins reminded me of old lessons about the need for our businesses to have a similar mechanism. Product obsolescence is a terrible drag on sales and gross margins. A better strategy is to have an end of life process to drive out product obsolescence. Peter Drucker ((Peter Drucker, The Effective Executive, Harper Colophon Books, p.108)) put it this way:

Systematic sloughing off of the old is the one and only way to force the new. There is no lack of ideas in any organization I know. “Creativity” is not our problem. But few organizations ever get going on their own good ideas. Everybody is much too busy on the tasks of yesterday. Putting all programs and activities regularly on trial for their lives and getting rid of those that cannot prove their productivity work wonders in stimulating creativity even in the most hidebound bureaucracy.

Are you persuaded that your business needs An End Of Life Policy?

Perhaps we should back up a moment before exploring methods for tagging and destroying the destructive old products, services, and processes in our businesses and ask, “Am I persuaded that my business needs a process to cast off the old? Am I persuaded that product obsolescence in my business might really be a cancer sucking away the future?”

Here are some questions to ask:

  • Are customers leaving you because they no longer find what they need? 
  • Are prospects not becoming customers because your products and services are not in synch with their needs?
  • Are there products and services that you know of, or have envisioned, that would keep existing customers and attract new ones?
  • Do you have so many products and services that customers are dazed and confused? 
  • Are the gross margins on some of your classic offerings declining to mere break even (or worse, secretly loosing money because you don’t know the gross margins)
  • Are your business processes as expensive (or worse, more expensive) to run this year as two years ago or five years ago?

If you answered one or more of these questions with a “Yes”, don’t be embarrassed, most companies are in the same bed with you.

How to Enforce End of Life for Old Products and Services

  1. Start when you introduce new products and services. Consider the life cycle of products in your industry. For example, computing product technology changes rapidly so planning for obsolescence within six months is a reasonable end of life horizon. Plan for product obsolescence. Build in an end of life date when you will obsolete today’s products even at the moment you are introducing them.
  2. Talk with your customers. Survey your customers. Listen to your customers. Propose new products and services and study their feedback. Do they see your offerings filled with product obsolescence?
  3. Perhaps you are in the antique furniture business and changes in fashion and design trends move much more slowly. Even here looking at your product mix should be at least an annual exercise.
  4. Examine the trends in prices and gross margins for all of your products. It is a commonplace event for aging products to become more commodity like and therefore subject to thinning gross margins.
  5. Study your competitors. This is not to copy them but to see if they are changing their product or service offerings in reaction to perceived changes in the marketplace.
  6. Follow trends and “mega trends” in your industry. Don’t be like Kodak (and there are lots of other examples) and ignore a technology that will change your customers’ behaviors forever.

Building a Product End of Life Policy

The action plan for putting an end of life policy in place requires two phases. First, the review of the performance of your current products and services. How do they fit within the  marketplace, what are their gross margins, how do they support other parts of your offerings? Do you have products already competing with them or now being developed? How old are the equipment that produce the products? Can this equipment be used to produce other products? Answering these types of questions will quickly produce candidates for obsolescence.

Once you have created this list and re-checked your data communicate your plans to customers. Offer them replacement offerings or special final buys. Be prepared for complaints from your own sales and marketing personnel. They are used to selling these old products and will need to refocused on the new opportunities that a refreshed product line will bring to them.

The second phase of your product obsolescence policy is to make obsolescence planning part of the product development process. This requires much of the same market knowledge used in the first phase. What are the technology trends, typical product life cycles, market basket analysis, cost and price trends, gross margins, and so on. Also to one really successful your obsolescence policy needs to be integrated with your overall product and service strategies.

Other consideration include  planning for the impacts on your operations. What is your capital equipment strategy? Lots of dedicated equipment or more focus on flexibility? You will also need to communicate your end of life policy to your sales force and distribution channels. Finally, your long term customers need need to understand the whys and what’s of this policy.