Product lifecycle management does not refer to any individual computer software or technique. It is a tool that enables the companies to collect data about the products, evaluate and steer the processes and the overall strategy of the company in the best interest of its stakeholders taking based on the nature of its products, the market and the market share. (Sääksvuori & Immonen, 2011)
The product lifecycle, similar to the industry lifecycle concept lays emphasis on the total life of the product. According to the product life cycle concept, the products that a company offers all pass through five distinct stages, starting from their designing and development stage through introduction in the market, growth and maturity stages and finally face a decline in the market demand which is ultimately reflected in the sales and the profitability of the product itself. The five stages can further be described as:
This is the stage where a product is designed developed in order to be finally launched in the market. This covers the time from the initiation of the idea through the actual designing and development of the product. It also covers the development of prototypes and the testing stage wherever applicable.
During this stage there is no commercial production of the product and there is no revenue generated, but this cost must be considered as a relevant cost for decision making purposes as it is the incurred only to get the product to the stage where the commercial production starts and revenue is generated.
This is the stage where the commercial production starts and the product is actually available in the market. At this stage, the product is new in the market therefore the customer awareness is low. Thus the sales are also low and the revenue generated and the profits earned at this stage are nominal. The sales volume however grows at a slow rate.
This is the stage when the sales volume starts growing at a fast rate. Suring this stage, a lot of investment may be required to increase the capacity. The profits start to grow rapidly as well as the market share.
At this stage, the sales are at the highest level. The cashflow is very favourable and the investment starts paying off as the company achieves economies of scale. The sales are almost stable, but may tend to grow or decline at a very slow rate. The company should start considering investment in new products at this stage.
This is the final stage of the product lifecycle where the sales of the product start to decline. The profits decrease and the cashflow is poor. A company may be making a loss by producing and selling a product which is in its decline stage.
Product lifecycle costing
Product lifecycle costing is an integral part of the product life cycle concept. According to the product lifecycle costing, the total cost of the product over its life should be allocated over its useful life and the revenue and the profits generated from that product be compared to that cost, instead of considering the designing and development cost of the product as a period cost. Thus it is a very useful tool for allocating the costs related to the individual products.
Limitations of PLM
Despite its usefulness, it is very difficult to make an accurate estimate of all the future costs associated to the product, especially for the products with a long lifecycle. Even for the products with the shorter life cycle, it is impossible to predict any changes in the business environment in future that might be affecting the estimated costs and revenues, and the intensity of the impact.
It has also been observed that some products such as Pepsi and Coca-Cola do not have a decline stage. For such products the product life cycle concept is not relevant. Although it is a very useful tool for the industries where innovation is fast and the products tend to have a relatively shorter life cycle. It is also…