Product liufe cycle
CONTENT
INTRODUCTION………………………………………………
- THEORETICAL ASPECTS OF PRODUCT LIFE CYCLE
1.1Stages of Product Life Cycle……………..…………………………..…5-12
1.2 Product Life Cycle Analysis………….………………..…………...…
1.3 Product Life Cycle Cost………………………………………..…...…18-
- EXAMPLES OF PRODUCT LIFE CYCLE ON THE BASIS OF INTERNATIONAL COMPANIES
2.1 Maggi. Experience of one of the most successful Nestle brand…...…22-24
2.2 BMW. Company with logical marketing plan………………..……….25-27
CONCLUSION……………………………………………………
LIST OF LITERATURE………………………………………….………
INTRODUCTION
Product life cycle is a business term that refers to the stages in
the progression of a product, from the conception of the product to
the time the product starts to show inevitable signs of retrogression.
A similar example is the life cycles of a butterfly: the processes they
go through, starting from fertilization to the formation of the eggs,
the caterpillar, the pupa and adult. Eventually, the butterfly will
start to show signs of wear and tear until it dies. Knowing the various
stages of the life cycle, the signs to look for and what to expect can
be likened to the product life cycle in business. In this case, the
subject is a product or service and the importance of this process includes
the fact that it allows the manufacturers and various businesses to
gauge the stage of production, which enables it to apply the relevant
marketing principles. A role
of product life cycle in business is its usefulness as a measure of
the state of a product in correlation to the expectations of the consumers
and the manufacturers. For example, it helps to consider the case of
a product in the form of a smartphone that has been introduced into
the market. The phone is received with much anticipation by the consumers
and hailed as the most innovative smartphone yet. As the months progress,
other phone companies bring out their own similar versions of the smartphone,
diminishing the dominance of that particular smartphone on the market.
Aside from this, the consumers are already yearning for a smartphone
that will offer more than this one can.
The makers of the smartphone know that they have to monitor the various
indicators as the phone goes through its various stages in order to
know when to discontinue the product and introduce another updated version
of the phone, or a new one all together. This knowledge gives the manufacturers
of the phone a strategic advantage over the other phone companies. It
allows the company to gain as much as it can from the product in terms
of sales without losing competitive advantage over other companies by
allowing the product to outlive its usefulness, and possibly losing
some customers to competitors with better products.
The actuality of the “Product Life Cycle” theme.
For the present day, by statistics, more than 50% of new companies` products which have been entered to Kazakhstan domestic market disappear. Unfortunately, those marketers who work in our domestic market, have not got a lot of knowledge about marketing as a whole. More so they do not know how to right support new product in the market and to discharge product from its` ruin. That is why, was given especially this theme – to inform and show with a help of examples how to introduce new products to the market and increase their maturity stage. Scientific novelty is conducted in the following: nowadays there are a lot of new companies in the whole market which produce the most claiming products. Of course they had a lot of NEW problems in introduction, growth or maturity stage. But they survived. That is why, exactly at that time studying their mistakes and their removals, it will be very helpfully to new companies which are going to enter to the market to avoid it.
1 THEORETICAL ASPECTS OF PRODUCT LIFE CYCLE
1.1 Stages of Product Life Cycle
Product life-cycle (PLC) Like human beings, products also have an arc. From birth to death, human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. [4, p. 33] Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures.
There are actually more than one definition of product life cycle. The definition may pivot on a customer view, an enterprise view or the product itself:
- Enterprise view - when the product ceases to be produced or supported.
- Customer view - when the product ceases to be used and is disposed of.
- Product - type of product, market segment and whether a single product or part of a range.
To say that a product has a life cycle is to assert three things:
- Products have a limited life,
- Product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller,
- Products require different marketing, financing, manufacturing, purchasing, and human resource strategies in each life cycle stage.
Product life cycle applies to both brand and category of products. Its time period vary from product to product. Modern product life cycles are becoming shorter and shorter as products in mature stages are being renewed by market segmentation and product differentiation.
Companies always attempt to maximize the profit and revenues over the entire life cycle of a product. In order to achieving the desired level of profit, the introduction of the new product at the proper time is crucial. If new product is appealing to consumer and no stiff competition is out there, company can charge high prices and earn high profits.
One of the approach to examine product mix is by looking at different stages of products life cycle. Every product introduced has a specific life span. This life span is divided into different four phases (fig.1):
Phase1: Introduction stage of product life cycle.
Phase 2: Growth stage of product life cycle.
Phase 3: Maturity stage of product life cycle.
Phase4: Decline stage of product life cycle.
Figure 1. Four phases of Product Life Cycle
- Introduction stage of product life cycle.
This is the stage where a product is conceptualized and first brought to market. The goal of any new product introduction is to meet consumer's needs with a quality product at the lowest possible cost in order to return the highest level of profit. The introduction of a new product can be broken down into five distinct parts:
- Idea validation, which is when a company studies a market, looks for areas where needs are not being met by current products, and tries to think of new products that could meet that need. The company's marketing department is responsible for identifying market opportunities and defining who will buy the product, what the primary benefits of the product will be, and how the product will be used.
- Conceptual design occurs when an idea has been approved and begins to take shape. The company has studied available materials, technology, and manufacturing capability and determined that the new product can be created. Once that is done, more thorough specifications are developed, including price and style. Marketing is responsible for minimum and maximum sales estimates, competition review, and market share estimates.
- Specification and design is when the product is nearing release. Final design questions are answered and final product specs are determined so that a prototype can be created.
- Prototype and testing occurs when the first version of a product is created and tested by engineers and by customers. A pilot production run might be made to ensure that engineering decisions made earlier in the process were correct, and to establish quality control. The marketing department is extremely important at this point. It is responsible for developing packaging for the product, conducting the consumer tests through focus groups and other feedback methods, and tracking customer responses to the product.
- Manufacturing ramp-up is the final stage of new product introduction. This is also known as commercialization. This is when the product goes into full production for release to the market. Final checks are made on product reliability and variability. [4, p. 33]
In the introduction phase, sales may be slow as the company builds awareness of its product among potential customers. Advertising is crucial at this stage, so the marketing budget is often substantial. The type of advertising depends on the product. If the product is intended to reach a mass audience, than an advertising campaign built around one theme may be in order. If a product is specialized, or if a company's resources are limited, than smaller advertising campaigns can be used that target very specific audiences. As a product matures, the advertising budget associated with it will most likely shrink since audiences are already aware of the product.
Author Philip Kotler has found that marketing departments can choose from four strategies at the commercialization stage. The first is known as "rapid skimming." The rapid refers to the speed with which the company recovers its development costs on the product—the strategy calls for the new product to be launched at a high price and high promotion level. High prices mean high initial profits (provided the product is purchased at acceptable levels of course), and high promotion means high market recognition. This works best when the new product is unknown in the marketplace.
The opposite method, "slow skimming," entails releasing the product at high price but with low promotion level. Again, the high price is designed to recover costs quickly, while the low promotion level keeps new costs down. This works best in a market that is made up of few major players or products—the small market means everyone already knows about the product when it is released.
The other two strategies involve low prices. The first is known as rapid penetration and involves low price combined with high promotion. This works best in large markets where competition is strong and consumers are price-conscious. The second is called slow penetration, and involves low price and low promotion. This would work in markets where price was an issue but the market was well-defined.
Besides the above marketing techniques, sales promotion is another important consideration when the product is in the introductory phase. According to Kotler and Armstrong in Principles of Marketing, "Sales promotion consists of short-term incentives to encourage purchase or sales of a product or service. Whereas advertising offers reasons to buy a product or service, sales promotion offers reason to buy now." Promotions can include free samples, rebates, and coupons.
At introduction stage, the company core focus is on establishing a market and arising demand for the product. So, the impact on marketing mix is as follows:
Product
Branding, Quality level and intellectual property and protections are
obtained to stimulate consumers for the entire product category. Product
is under more consideration, as first impression is the last impression.
Price
High(skim) pricing is used for making high profits with intention to
cover initial cost in a short period and low pricing is used to penetrate
and gain the market share. company choice of pricing strategy depends
on their goals.
Place
Distribution at this stage is usually selective and scattered.
Promotion
At introductory stage, promotion is done with intention to build brand awareness. Samples/trials
are provided that is fruitful in attracting early adopters and potential
customers. Promotional programs are more essential in this phase. It
is as much important as to produce the product because it positions
the product.
- Growth stage of product life cycle
As the introduction stage of product life cycle ends, the product has spent considerably moderate time into the market where customers / consumers get familiar to the product and start buying the product (or consuming it). As the product is now into the market it becomes more strengthened and faces more intense competition. This competition now offers greater choice to the customer in the form of different product type, packaging and price. The market base expands as more customers by the product. More trade channels are now willing to keep the product and one generally observes softening of prices.
At this time the company soon starts operation on economic levels. There are les product bottlenecks hence cost is low. To remain competitive over a period of time the firm initiates product improvement or modification in the product to stay in the market, but profits taper off at the end of this phase.
Affect on 4 P’s of marketing is as under:
Product
Along with maintaining the existing quality, new features and improvements
in product quality may be done. All this is done to compete and maintain
the market share.
Price
Price is maintained or may increase as company gets high demand at low
competition or it may be reduced to grasp more customers.
Distribution
Distribution becomes more significant with the increase demand and acceptability
of product. More channels are added for intensive distribution in order
to meet increasing demand. On the other hand resellers start getting
interested in the product, so trade discounts are also minimal.
Promotion
At growth stage, promotion is increased. When acceptability of product increases,
more efforts are made for brand preference and loyalty.
- Maturity Stage of product life cycle.
This now brings the product to its maturity stage. There can be ample number of reasons for product getting mature. For example, entry of a new product that may be offering better quality at a cheaper price which has induced the consumer to shift. This calls for some great marketing strategies that could revitalize the product so that the product stays in the market. But at this point, it’s difficult to survive, as there are new entrants that are now offering better priced products. This maturity often leads to death of the product and this is the time when company is incurring losses due to its production (no sign of profits).
Remember, till the time a product is contribution to the growth of the company, the product is continued to be produced. But when the carrying cost increase than cost of production the production is stopped.
Marketing mix decisions include:
product
At maturity stage, companies add features
and modify the product in order to compete in market and differentiate
the product from competition. At this stage, it is best way to get dominance
over competitors and increase market share.
Price
Because of intense competition, at maturity stage, price is reduced
in order to compete. It attracts the price conscious segment and retain
the customers.
Distribution
New channels are added to face intense competition and incentives are
offered to retailers to get shelf preference over competitors.
Promotion
Promotion is done in order to create product differentiation and loyalty.
Incentives are also offered to attract more customers.
- Decline stage
Decline in sales, change in trends and unfavorable economic conditions explains decline stage. At this stage market becomes saturated so sales declines. It may also be due technical obsolescence or customer taste has been changed.
The marketing mix may be modified as follows:
Product
The number of products in the product line may be reduced. Rejuvenate surviving products to make them look new again.
Price
Prices may be lowered to liquidate inventory of discontinued products. Prices may be maintained for continued products serving a niche market.
Distribution
Distribution becomes more selective. Channels that no longer are profitable are phased out.
Promotion
Expenditures are lower and aimed at reinforcing the brand image for continued products.
At decline stage company has 4 options:
- maintaining the product in the hope that your other competitors will withdraw their versions before you, which may create an increase in demand again
- reducing your costs and finding another use for the product - entering into another niche area could increase profits
- reducing marketing support, 'harvesting' the product, coasting along until profits dry up and then discontinuing the product
- discontinuing the product when your profit disappears, or when you unveil a successor product
Some of these methods can form an 'extension strategy' that prolongs the life of your current product or service. This may give you enough time to create a new version, or an entirely new product. However, this strategy will only temporarily delay a product or service's decline.
At declining stage, marketing mix decisions depends on company’s strategy. For example, if company want to harvest, the product will remain same and price will be reduced. In case of liquidation, supply will be reduced dramatically.
Table 1
Summary of product life-cycle characteristics, objectives and strategies
Introduction |
Growth |
Maturity |
Decline | |
Characteristic |
Low sales |
Rapidly rising sales |
Peak sales |
Declining sales |
Marketing Objectives |
Create product awareness and trial |
Maximize market share |
Maximize profit while defending market share |
Reduce expenditure and milk the brand |
Strategies |
Offer a basic product |
Offer product, extensions, service, warranty |
Diversify brand and models |
Phase out weak items |
Price |
Use cost-plus |
Price to penetrate market |
Price to match or best competitors |
Cut price |
Distribution |
Build selective distribution |
Build intensive distribution |
Build more intensive distribution |
Go selective: phase out unprofitable outlets |
Advertising |
Build product awareness among early adopters and dealers |
Build awareness and interest in the mass market |
Stress brand differences and benefits |
Reduce to level needed to retain hard-core loyals |
Sales Promotion |
Use heavy sales promotion to entice trial |
Reduce to take advantage of heavy consumer demand |
Increase to encourage brand switching |
Reduce to minimal level
|
Figure 2. Types of Product Life Cycle
The product life-cycle can also be presented graphically to help understand the four stages and the impact of sales over time(fig.2) . Figure does this, starting with the traditional shape of the life-cycle in the graph in the top left-hand corner. The remaining graphs remind us that the product life-cycle varies a lot in terms of how long the life-cycle lasts and the shape it takes.
1.2 Life cycle analysis
The concept of conducting a detailed examination of the life cycle of
a product or a process is a relatively recent one which emerged in response
to increased environmental awareness on the part of the general public,
industry and governments.
The immediate precursors of life cycle analysis and assessment (LCAs) were the global modeling studies and energy audits of the late 1960s and early 1970s. These attempted to assess the resource cost and environmental implications of different patterns of human behavior.
LCAs were an obvious extension, and became vital to support the development of eco-labeling schemes which are operating or planned in a number of countries around the world. In order for eco-labels to be granted to chosen products, the awarding authority needs to be able to evaluate the manufacturing processes involved, the energy consumption in manufacture and use, and the amount and type of waste generated.
To accurately assess the burdens placed on the environment by the manufacture of an item, the following of a procedure or the use of a certain process, two main stages are involved. The first stage is the collection of data, and the second is the interpretation of that data.
A number of different terms have been coined to describe the processes. One of the first terms used was Life Cycle Analysis, but more recently two terms have come to largely replace that one: Life Cycle Inventory (LCI) and Life Cycle Assessment (LCA). These better reflect the different stages of the process. Other terms such as Cradle to Grave Analysis, Eco-balancing, and Material Flow Analysis are also used.
Whichever name is used to describe it, LCA is a potentially powerful tool which can assist regulators to formulate environmental legislation, help manufacturers analyse their processes and improve their products, and perhaps enable consumers to make more informed choices. Like most tools, it must be correctly used, however. A tendency for LCAs to be used to 'prove' the superiority of one product over another has brought the concept into disrepute in some areas.
What is a Life Cycle Analysis?
Taking as an example the case of a manufactured product, an LCA involves making detailed measurements during the manufacture of the product, from the mining of the raw materials used in its production and distribution, through to its use, possible re-use or recycling, and its eventual disposal.
LCAs enable a manufacturer to quantify how much energy and raw materials are used, and how much solid, liquid and gaseous waste is generated, at each stage of the product's life.
Such a study would normally ignore second generation impacts, such as the energy required to fire the bricks used to build the kilns used to manufacture the raw material.
However, deciding which is the 'cradle' and which the 'grave' for such studies has been one of the points of contention in the relatively new science of LCAs, and in order for LCAs to have value there must be standardisation of methodologies, and consensus as to where to set the limits. Much of the focus worldwide to date has been on agreeing the methods and boundaries to be used when making such analyses, and it seems that agreement may have now been reached.
While carrying out an LCA is a lengthy and very detailed exercise, the data collection stage is - in theory at least - relatively uncomplicated, provided the boundary of the study has been clearly defined, the methodology is rigorously applied, and reliable, high-quality data is available. Those of course are fairly large provisos.
Interpretation
While such a record is helpful and informative, on its own it is not sufficient. Having first compiled the detailed inventory, the next stage should be to evaluate the findings.
This second stage - life cycle assessment - is more difficult, since it requires interpretation of the data, and value judgements to be made.
A Life Cycle Inventory will reveal - for example - how many kilos of pulp, how much electricity, and how many gallons of water, are involved in producing a quantity of paper. Only by then assessing those statistics can a conclusion be reached about the product's environmental impact overall. This includes the necessity to make judgements based on the assembled figures, in order to assess the likely significance of the various impacts. [11, p.33]
Problems
It is here that many of the problems begin. Decisions, without scientific basis, such as whether three tonnes of emitted sulphur is more or less harmful than the emission of just a few pounds of a more toxic pollutant, are necessarily subjective.
- How can one compare heavy energy demand with heavy water use: which imposes greater environmental burden?
- How should the use of non-renewable mineral resources like oil or gas (the ingredients of plastics) be compared with the production of softwoods for paper?
- How should the combined impacts of the landfilling of wastes (air and groundwater pollution, transport impacts etc) be compared with those produced by the burning of wastes for energy production (predominantly emissions to air)?
Some studies attempt to aggregate the various impacts into clearly defined categories, for example, the possible impact on the ozone layer, or the contribution to acid rain.
Others go still further and try to add the aggregated figures to arrive at a single 'score' for the product or process being evaluated. It is doubtful whether such simplification will be of general benefit.
Reliable methods for aggregating figures generated by LCA, and using them to compare the life cycle impacts of different products, do not yet exist. However, a great deal of work is currently being conducted on this aspect of LCAs to arrive at a standardised method of interpreting the collected data.
Contradictions
Many LCAs have reached different and sometimes contradictory conclusions about similar products.
Comparisons are rarely easy because of the different assumptions that are used, for example in the case of food packaging, about the size and form of container, the production and distribution system used, and the forms and type of energy assumed.
To compare two items which are identically sized, identically distributed, and recycled at the same rate is relatively simple, but even that requires assumptions to be made. For example, whether deliveries were made in a 9-tonne truck, or a larger one, whether it used diesel or petrol, and ran on congested city centre roads where fuel efficiencies are lower, or on country roads or motorways where fuel efficiencies might be better.
Comparisons of products which are dissimilar in most respects can only be made by making even more judgments and assumptions.
Preserving the confidentiality of commercially-sensitive raw data without reducing the credibility of LCAs is also a major problem. Another is the understandable reluctance of companies to publish information which may indicate that their own product is somehow inferior to that of a competitor. It is not surprising that many of the studies which are published, and not simply used internally, endorse the views of their sponsors. [9,p.33]
Recycling
Recycling introduces a further real difficulty into the calculations. In the case of materials like steel and aluminium which can technically be recycled an indefinite number of times (with some melt losses), there is no longer a 'grave'. And in the case of pa-per, which can theoretically be reprocessed four or five times before fibres are too short to have viable strength, should calculations assume that it will be recycled four times, or not? What return rates, for example, should be assumed for factory-refillable containers?
For both refillable containers and materials sent for recycling, the transport distance in each specific case is a major influence in the environmental impacts associated with the process.
An LCA which concludes that recycling of low-value renewable materials in one city is environmentally preferable may not hold good for a different, more remote city where reprocessing facilities incur large transport impacts.
LCA in waste management
LCA has begun to be used to evaluate a city or region's future waste management options. The LCA, or environmental assessment, covers the environmental and resource impacts of alternative disposal processes, as well as those other processes which are affected by disposal strategies such as different types of collection schemes for recyclables, changed transport patterns and so on.
Figure 3. LCA in management processes
The complexity of the task, and the number of assumptions showing some of the different routes which waste might take, and some of the environmental impacts incurred along the way (fig.3). Those shown are far from exhaustive.
Why perform LCAs?
LCAs might be conducted by an industry sector to enable it to identify areas where improvements can be made, in environmental terms. Alternatively the LCA may be inten-ded to provide environmental data for the public or for government. In recent years, a number of major companies have cited LCAs in their marketing and advertising, to support claims that their products are 'environmentally friendly' or even 'environmentally superior' to those of their rivals. Many of these claims have been successfully challenged by environmental groups. [8,p.33]
All products have some impact on the environment. Since some products use more resources, cause more pollution or generate more waste than others, the aim is to identify those which are most harmful.
Even for those products whose environmental burdens are relatively low, the LCA should help to identify those stages in production processes and in use which cause or have the potential to cause pollution, and those which have a heavy material or energy demand.
Breaking down the manufacturing process into such fine detail can also be an aid to identifying the use of scarce resources, showing where a more sustainable product could be substituted.
Inconclusive
In most situations it is impossible to prove conclusively using LCAs that any one product or any one process is better in general terms than any other, since many parameters cannot be simplified to the degree necessary to reach such a conclusion.
It seems likely that, in the case of manufactured goods, the most important time for LCA information to be taken into consideration is at the design stage of new products. Where LCA is used to evaluate procedures rather than products, the information can help ensure appropriate choices are made.
Tool
Life Cycle Analysis must be used cautiously, and in the interpretation of the inventory, care must be taken with subjective judgments.
When first conceived, it was predicted that LCA would enable definitive judgements to be made. That misplaced belief has now been discredited. In combination with the trend towards more open disclosure of environmental information by companies, and the desire by consumers to be guided towards the least harmful purchases, the LCA is a vital tool. [10, p.33]
1.3 Life Cycle Cost
The life cycle cost of a product includes not simply the cost of materials and labor to manufacture it, but in fact all costs associated with the product from inception to retirement. The idea of a life cycle approach to cost is not specific to embedded systems, but rather is more generally applied to very expensive capital purchases such as buildings, factory machinery, and military systems (ships, planes, tanks, etc.). However, since embedded system designers are often embedding computers in such expensive systems, it behooves them to understand the financial model for life cycle costing so that they can take this into account in their work.
Kirk & Dell'Isola's book provides a comprehensive look at life cycle costing from the perspective of operating a commercial building, such as an office building (the following discussion is based on material from that book with some augmentation). However, the concepts they discuss apply to many embedded systems in general. (As an aside, an office building is in fact an embedded system. There are computers controlling the climate, operating the elevator system, and in many cases controlling the lighting. In some buildings these three systems are beginning to be coordinated for efficient operation as well as lower cost maintenance.) In general, the factors included in the life cycle are those discussed in the previous section with respect to design and retirement of the product. In general, the idea is to minimize total cost for owning and operating an embedded system over the complete life of that system. This means that in addition to technical design factors, specific economic factors must be considered. [9, p.33]
The life of a product is the shortest of three different aspects of system life:
- Useful Life (utility). This is the obvious notion of equipment lifetime, in which eventually equipment wears out to the point it is beyond reasonable repair. [10, p. 33]
- Technological Life (obsolescence). A system may become expensive or impractical to maintain even though it still is theoretically repairable or operable in general. For example, it may be impossible to find technicians trained in repairing vacuum-tube operated computers, or it may be impossible to find replacement parts for 16 Kb DRAM chips. Or the system may simply not incorporate the latest technology that in and of itself is seen desirable by users (for example, a rotary dial telephone system).
- Economic Life (cost of operation). A system may still be functional, but become too expensive to be worth continuing to use. One example is because of a high cost of repair using obsolete components (this is a typical problem in long-lived embedded systems). Another reason may be that newer versions can be purchased and have lower operating costs so that the "payback" period of making that purchase is brief. This has, for example, happened recently with fuel-efficient furnaces and air conditioners. [11, p.33]
Although it may not be possible to completely predict the lifetime of a system in advance, it is estimated taking these three factors into account. Then, the direct costs of ownership are considered, including:
- Initial purchase cost. Clearly purchase cost is part of total cost. The usual issue is optimizing whether one should pay a higher up-front purchase cost in hopes of reaping lower operating costs. In some cases there is a limit on the amount of money that can be spent, such as a credit line limit, which may cap the allowable purchase cost.
- Energy costs. Operating equipment usually requires energy, and can be a significant portion of total costs. In many cases embedded computers are used to increase energy consumption efficiency, and thus reducing energy cost is a primary goal. As an example, high-end home furnaces perform energy management to maximize heat delivered to the house and minimize heat that escapes into a basement from hot water "stranded" in the basement heating elements when the thermostat reaches its set point.
- Maintenance/Repair/Custodial costs. A low initial purchase cost may be indicative of a system which will need frequent maintenance, repairs, or upkeep. Presumably a higher purchase cost indicates a system that contains more durable components. For an embedded system, it is more likely that components other than computers will break. However, installing sensors, data logging, and diagnostic capabilities for the system can substantially reduce these costs. As an example, elevators may come with minimal diagnostic sensors, but a contract maintenance company may well add sensors in an up-front investment to reduce the cost of later service calls.
- Alteration/replacement costs. In a long-lived system that will be upgraded, it is important to take into account eventually removing or upgrading the equipment. As an example, a component or housing may be glued into place to save on installation costs, but be very difficult to remove, whereas a bolted-in system is more expensive to install, but cheaper to replace. A more specifically electronic example is the use of flash memory to permit field software upgrades without replacing read-only-memory chips. [8, p.33]
Additionally, there are many indirect costs that must be taken into account in a complete financial model. These indirect costs of ownership include:
- Interest (debt service). In some cases the most important indirect cost is the cost of borrowing money to pay the initial purchase cost in order to reduce later operating costs (or, alternately, the opportunity cost of not investing the purchase cost in some other way). Thus, any life cycle savings must be higher than extra initial cost savings to take into account the fact that extra money may need to be borrowed early in the system life cycle, but the savings are reaped later in the life cycle.
- Administrative costs. These can vary considerably, but might include such factors as periodic safety inspections, the cost of arranging for and administering service agreements, the cost of tracking capital equipment via property tags, and the like.
- Staffing of equipment to operate it. In some embedded systems computers are used to automate tasks previously performed by people. Perhaps the best everyday example of this is in elevators, which used to be operated by a trained person, but now are completely automatic. Clearly, saving operator wages is worth a significant increase in initial purchase cost in industrialized countries (but not necessarily in countries with low standards of living).
- Opportunity cost of down time. A system that is frequently unavailable for service may not be as cost-effective as a more dependable system because of reduced productivity, the cost of stockpiling against potential service outages, or the cost of paying operators while their equipment is broken. Minimizing down time is extremely important most embedded system industries, including manufacturing and transportation. [11, p.33] Embedded computers often contribute significantly to dependability by permitting operating in degraded modes while awaiting repair, by alerting maintenance personnel to impending failures, or by helping diagnose problems for quick repair.
- Other non-quantitative factors. Some factors are important, but hard to set a fixed price on. These include potential productivity increases from comfortable employees and comfort taken from dealing with a company with a track record for standing behind their products. [7, p. 33]
The above life cycle costing approach works well for many large-scale embedded systems, where consumers are very sophisticated and equipped to invest for the long term. However, with consumer products it may be much more difficult to create a design that is optimized both to achieve profitable sales as well as maximum utility for the purchaser.
Antonides discusses a combination of economics and psychology for durable goods purchases. While they come to the conclusion that frequency of use is generally related to reliability, and the cost of the good is generally related to its lifetime (when comparing different similar goods of different prices). While this is probably no surprise, the finding that makes life difficult for embedded system designers is that the decision of when to scrap a product is made on a potentially distorted view of life cycle economics. It should be noted that this is a European study and thus not necessarily representative of North American consumers. However, the specific points mentioned seem to ring true in general (the following is an interpretation and amplification, not a quotation)[11, p.33]:
- The opinion of consumers with respect to how their equipment works does not agree with objective technical measurements. In particular, there is a bias to replacing rather than repairing, even when repair would be more economical in a life cycle cost sense.
- Consumers, and especially low-income consumers, tend to underestimate the benefit of paying a higher purchase cost and reaping lower operating costs. This is presumably because they have little cash, and they have little credit or only have access to expensive credit such as credit cards rather than home equity loans. (Thus, many such systems are extremely cost-sensitive, squeezing the budget for embedded system components.)
- The age of the consumer may affect the degree of patience and tendency to perform long-term planning (thus, younger or very old people may not value features such as diagnostics or upgradability; additionally they may not be inclined to wait and save for buying a high-end model).
When taken as a whole, the point of life cycle costing is to take into account all the direct and indirect costs of a product, and optimize for the lowest total cost given the constraints of customer preferences/behaviors.
2 EXAMPLES OF PRODUCT LIFE CYCLE ON THE BASIS OF INTERNATIONAL COMPANIES
2.1 Maggi. Experience of one of the most successful Nestle brand
Maggi is a Nestlé brand of instant soups, stocks, bouillon cubes, ketchups, sauces, seasonings and instant noodles. The original company came into existence in 1872 in Switzerland, when Julius Maggi took over his father's mill. He quickly became a pioneer of industrial food production, aiming to improve the nutritional intake of worker families. Maggi was the first to bring protein-rich legume meal to the market, and followed up with a ready-made soup based on legume meal in 1886. In 1897, Julius Maggi founded the company Maggi GmbH in the German town of Singen where it is still established today.
In parts of Europe, Mexico, Malaysia, Brunei, German-speaking countries and the Netherlands, Czech Republic, Slovenia, Slovakia, Poland and France, "Maggi" is still synonymous with the brand's "Maggi-Würze" (Maggi seasoning sauce), a dark, hydrolysed vegetable protein based sauce which is very similar to East Asian soy sauce except for that it does not actually contain soy.[1] It was introduced in 1886, as a cheap substitute for meat extract. It has since become a well-known part of everyday culinary culture in Switzerland, Austria and especially in Germany. It is also well known in Poland and the Netherlands.
The bouillon cube or "Maggi cube" was introduced in 1908, which was another meat substitution product. Because chicken and beef broths are so common in the cuisines of many different countries, the company's products have a large worldwide market.
In 1947, following several changes in ownership and corporate structure, Maggi's holding company merged with the Nestlé company to form Nestlé-Alimentana S.A., currently known in its francophone homebase as Nestlé S.A..
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- Project Expert
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- PowerPoint – средство для создания презентаций
- Practical usage of punctuation marks
- Price wars
- Private Banking
- Problems of oral translation
- Problem-solving activities in ESL
