As a human being, we all consume products and/or services all the time. This morning you got up and ate your breakfast, e.g., eggs, milk, bread, fresh fruits, and the like. After the breakfast, you drove your car to work or school. At your office, you used your computer, perhaps equipped with 27” LCD monitor. During your break, you drank a cup of coffee and played with your iPhone. So on and so forth. You probably take it for granted that you can enjoy all of these products. But if you take a closer look at how each of these products can be made and eventually delivered to you, you will realize that each one of these is no short of miracle. For example, which fruit do you like? Consider fresh strawberries. In order for the strawberries to be on your breakfast table, there must be numerous functions, activities, transactions, and people involved in planting, cultivating, delivering, and consuming strawberries. Moreover, all of these functions, activities, transactions, and people are connected as an integral chain, through which physical products like strawberries themselves and virtual elements such as information and communication flow back and forth constantly. By grouping related functions or activities, we have a supply chain, comprised of four primary functions such as supplier, manufacturer, distributor, and finally consumer. A supply chain is essentially a value chain. For the society or economy as a whole, the goal is to maximize value, i.e., to create satisfactory value without spending too much. In order to create the maximum value for the strawberry supply chain, every participant in the chain must carry out its function efficiently. In addition, all of the members must coordinate with each other effectively in order to ensure value maximization. We have to face the same issues for almost all the products and services we take for granted in our everyday life, e.g., cars, hamburgers, haircuts, surgeries, movies, banks, restaurants, and you name it! In this course, we want to understand fundamental principles of value creation for the consumers or the market. We try to answer questions like how the product or service is made, how the value-creating activities or functions are coordinated, who should play what leadership roles in realizing all these, and so on. As our course title hints, we approach all of these issues from a learning perspective, which is dynamic in nature and emphasizes long-term capability building rather than short-term symptomatic problem solving.
Value Life Cycle Part 1
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Introduction to Value, Value Creation, and Supply Chain Management
In this chapter, we will learn what a supply chain is, what supply chain management is all about, and why it is important to grasp the fundamentals of supply chain management in creating real value for the customers.
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Bowon KimProfessor
KAIST Business School
Now, I want to talk about concept value life cycle.
But actually, you heard about product life cycle.
Now what is product life cycle?
Product life cycle is widely known concept, especially marketing, right?
So the product follows a certain, cycle.
And then it says that the product usually goes through multiple stages.
First it is introduction stage, and then it will grow fast.
So, growth stage.
And then it is mature, so, maturity
stage and finally it may decline.
So that's product life cycle.
You probably learn about product life cycle.
And now I want to talk about value life cycle.
Value life cycle actually is integration of
new product innovation as applied to management.
Traditionally, I think that supply chain management
is closely related with product life cycle.
In other words so project management is about how to prepare for this growth.
In other words the company should prepare for mass
production, and as the product reaches maturity and
declining probably efficiency becomes more important
and therefore, the company has to design this whole supply
chain in a way to measure that the, the company can make those
products in a most efficient way.
In a most cost and saving way and so on and so forth.
So I think that traditionally supply chain management is very closely related to the
product life cycle and how to manage this product life cycle in an efficient way.
That's an important issue in supply chain management.
What about this new product development, the new product innovation.
Well, first of all, new product innovation is very important.
If the company wants to have sustainable competitive advantage.
Where does the competitive advantage come from?
Only when the company has certain, you know, products and services that are
valued by customers more than those produced by the company's competitors.
So without developing new products on a continuous basis, the
company cannot sustain its competitive advances in the long run.
We can think about many examples in the real world.
We know that there are some companies that
were enjoying high profit and high market share.
But suddenly, those companies just disappeared from the market.
When something like that happen, usually that's because
the company failed to develop the next generation product.
So, developing new product on a continues basis, in other words, the new
product innovation, is serve, is a very important condition.
For the form it's competitive advantage in a sustainable manner.
So I will just say that the new
product innovation is essential condition for sustainable competitive advantage.
But very unfortunately although there are many areas
in business, new product development was not really
started by you know, particular business function.
Sometimes folks in marketing started new product development.
Or sometimes people in operations management look
at the issues of a new product development.
So somehow it was treated as a separate
issue and maybe the research was done in a
little bit informal way or haphazard way.
And as I already told you supply chain management traditionally focused on
existing products and services and it is related to it product life cycle.
So basically these two areas, although they
look very, very much related with each other,
unfortunately these two areas were started separately.
At this you know, not in a thoroughly formal way.
In other words these two subjects sometimes you know, some researches
look at these two issues, but not in a formal way.
But anyway, you know that was a duality.
New product innovation was one thing and supply chain management was another.
But the thing is that we now should integrate these two topics,
these two you know, approaches, these two subject together.
You know, that to create a value, in a new dura sense.
So, that's the concept of integration
of new product innovation and supply management.
By doing so, what I want to do is, I want to look at the entire cycle
from new product development to the end of product life cycle.
So firm, or the company must understand the value life cycle.
Including new product innovation and supply chain management.
If it, if it, if it really wants to achieve
competitive advantage in the global market, especially on a sustainable basis.
Look at this one.
As I said, product life cycle
starts with new product introduction.
In other words, this is a introduction stage.
And then growth follows.
And then maturity and eventually in might decline.
So, when the new product is transferred from R and
D environment or development, environment to
manufacturing or implementation environment.
We call that as initial transfer or initial transition.
So usually pilot production is done, and then
there is some fine tuning before ramp
up production or large quantity, 'kay?
Mass production.
After that following the product life cycle that
is going to be on going production activities.
So this is product life cycle and more traditional
supply chain management was focused on this product lifecycle.
How we can design is also prinatural?
How we can identify suppliers?
So that we can enjoy this you know economies that was scared or we can enjoy
efficiency; when our product reach this maturity and declining stage.
But think about this, you know, introduction period.
Introduction period just starts when new product is actually developed,
or the new product is done, or new product development is completed.
Then, if we go a little further back in this whole timeline.
In other words, if we, if we want
to have a new product developed for this introduction
stage for product life cycle, that means that there
gotta be some steps, there gotta be some stages.
Through which the new product is actually conceived and
designed and developed and tested and so on and so forth.
Another is we have to look at the life before the starting of product life cycle.
And then we can think about at the very beginning probably there was concept
development, maybe voice of a customers, the marketing function
heard about the voice of customers and you know try
to actively, actively identify voice of a customers, that's concept development.
And there was, the concept is the evolved.
Then there are some processes, maybe all this functions get
involved, and then eventually they develop new product.
[SOUND].
And this is an example of the patterns, in terms of a number of alternatives.
In other words, at the very beginning,
or, you know, there are multiple concepts available.
And as time goes on, probably more alternatives are found.
But as we approach the starting point of a product life cycle the
number of alternatives were reduced and eventually there'd
be only one final prototype or one final type of product.
Then must be transported to the introduction
stage of a, for the life cycle.
And there we stop.
Nowadays, what is important is not just managing this you know, product
life cycle without paying attention to how we developed the new product.
That's kind of a risky.
And because now a days we have to think about design for manufacture ability.
What does that mean?
When we conceive, when we develop the concept of the product.
When we design the products at that time you already must
of think about what's going to happen in our product life cycle.
In other words, when we design our product,
we already think about what kind of a suppliers we use.
What kind of a distribution channels we use
and what kind of customers we're going target at.
In other words when we design this new product we already
have to think about what are the supply chain management factors?
How we should design this product, so as to be very effective in later stage?
In other words, when we actually manage the
product life cycle, how can you make sure
that we manage it, we coordinate all these
functions and activities very efficiently and also very effectively.
In order to do that, we have to
design the product, with thinking about the issues already.
And therefore for the firm to have sustainable
competitive advantage, it must pay attention to not
only product life cycle is there, but also
all new product innovation, new product development as well.
So in this course when we think about supply chain management issues,
we want to look at new product development issues at the same time.
In sum or in effect, we want to look at this entire cycle encompassing
new product development cycle and product life cycle.
So when we look at this entire cycle, from the concept development of
new product to, the decline of or to the end of product life cycle.
We call that as value life cycle, which I believe is going be a
very important concept in our course, so product management.
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