Tag: product life cycle

Guest Post: The Gas Station Life Cycle

Prof. Howard Weiss, retired from Temple U.,  shares his thoughts with our readers monthly.

The history of gasoline service stations provides an excellent illustration of life cycles as discussed in Chapter 5 of your Heizer/Render/Munson textbook

Before There Were Gas Stations The first practical gasoline-powered auto was developed in 1886 by Carl Benz. Prior to that, some inventors experimented with steam-powered vehicles, while others relied on kerosene because it was inexpensive, widely available, and burned efficiently. Early motorists purchased gasoline in bulk containers from pharmacies, blacksmith shops, or general stores and then poured the fuel into their vehicles using a funnel. Although this process seems inconvenient today, it was sufficient when automobiles were still a novelty.

Life Cycle Stage 1: Introduction

In 1905 the Automobile Gasoline Company opened the first gas station, in St. Louis. The station consisted of little more than a curbside pump with a hose, allowing motorists to fuel their vehicles directly instead of using portable containers. Gasoline sold for 25 cents a gallon. In 1913, the first drive-in service station opened in Pittsburgh, and also expanded the customer experience by offering free air, water, crankcase service, tire installation, and road maps.

Life Cycle Stage 2: Growth

During the growth stage, automobile ownership expanded rapidly, and so did the number of gasoline outlets. By the 1920s, major oil companies had standardized station designs and logos, creating recognizable national brands. Self-service fueling was introduced in the 1940s and became commonplace during the 1970s, reducing labor costs while increasing customer convenience. Today, many filling stations are combined with convenience stores such as Wawa, where merchandise sales often generate higher profits than gasoline itself.

Life Cycle Stages 3 & 4: Maturity and Decline

The number of gasoline outlets peaked at around 285,000 in 1975 and then entered a steady decline. Small independent stations found it increasingly difficult to compete with larger, multi-pump convenience stores that benefited from economies of scale and higher-margin retail sales. The number has been fairly constant at about 145,000 since 2000.

The growth of EV charging stations, beginning around 2007, interestingly, has not yet produced a corresponding decline in the number of gas stations. The future of gas stations will partially depend on the pace of EV adoption, but its history remains an excellent example that not all life cycles have the same shape.

Classroom Discussion Questions;

  1. What information would you want in order to forecast the number of gasoline outlets that will exist in 2040. 
  2. Could linear regression be used to forecast the number of electric charging stations in 2040? 

Teaching Tip: The Auto Design Life Cycle

1959 Cadillac

In both Chapters 2 and 5 we discuss product life cycle and its strategic importance. In Figure 2.5 (page 40), we identify ten products that are passing through the 4 stages of Introduction, Growth, Maturity and Decline.

Here is an 11th example you can use in class –automobiles–whose changes you can follow through these stages. We start with the 1950’s land yachts like the Cadillac Eldorado.  This was followed by the 1960’s station wagons. Socioeconomic shifts drove Americans’ move out of gas-guzzling embellished cars and into tiny, economical Japanese imports following the oil crises and new tailpipe emissions standards of the 1970s. Then came the 1980s minivan (which almost totally replaced station wagons). In the 2000s, the sport-utility vehicle spurred the minivan’s retreat.

The SUV has devoured the American car market, now accounting for nearly 60% of new vehicles purchased. Stricter vehicle-efficiency standards and governments’ push toward electrification challenge the supremacy of the blunt, heavy SUV. And car designers are tired of drawing them. “We all get bored to death because it’s absolutely ubiquitous,” says GM’s lead designer in The Wall Street Journal (June 13, 2024).

The Zoox electric self-driving urban ‘Toaster.’

The ever-expanding options, along with higher interest rates, are pricing younger and lower-income consumers out of the market. The average new-car price is now nearly $50,000. This has automotive designers, executives and analysts focused on a big question: What comes after the SUV? Will the boxy SUV be followed by even boxier forms?

Electric vehicles have no need for hoods, as their batteries are typically mounted in the floor, and their motors are near the wheels. With no drivers, upcoming autonomous vehicles won’t need dashboards or steering wheels. Executives think that maximizing human and cargo space in such vehicles results in a rounded box on wheels: a nouveau vanlike form nicknamed “the Toaster.”   GM research has shown that this spacious shape can provide passengers in autonomous vehicles more confidence in surrendering control. “It’s more distance between you and a potential accident. The shape also has a “functional, happy character,” adds GM’s designer.

OM in the News: The Life Cycle of the Netflix DVD

“Products are born. They live and they die. They are cast aside by a changing society,” we write in Chapter 5 (Design of Goods and Services, on page 162). And so it is with Netflix DVDs. The headline in The Wall Street Journal (April 21, 2023) reads “Netflix is Mailing its Last DVD, The Die-Hards are in Mourning.”

Netflix said it would close the DVD-rental business it was built upon after shipping more than 5.2 billion discs in 25 years. Viewer tastes—and Netflix’s core revenue pool—have shifted to streaming. Many movie buffs and DVD die-hards have clung to the Netflix DVD service even after others decided discs were too cumbersome. Subscribers say they like the service because Netflix has a bigger catalog of older films than they can find on any streaming platform.

When Netflix first started mailing DVDs, it was a revolutionary alternative that saved subscribers a trip to video rental stores like Blockbuster or Hollywood Video. Subscribers can choose up to three movies or TV shows at a time, and the company sends those discs in the mail.

Netflix has known since 2009 that its DVD business would go the way of other aging technologies as broadband internet access became faster and more affordable. The company began investing more in original streaming content than in new DVDs. That strategy paid off. Netflix’s streaming service ended the first quarter with more than 232 million subscribers. (It had 40 million DVD subscribers over its lifetime).

Netflix didn’t say what it plans to do with its disc catalog after it mails its final DVD in September. Subscribers need to send back their last discs by Oct. 27. Figure 5.2 in your Heizer/Render/Munson text illustrates the sales, cost, profit, and loss in a life cycle such as this.

Classroom discussion questions:

  1. Describe the 4 phases of this product’s life cycle.
  2. Name three other products and identify the phase each is in.

Guest Post: Product/Service Lifecycle– Landlines, Operators and Cellphones

Prof. Howard Weiss is providing Guest Posts while I am travelling abroad.

Recently Bloomberg reported that AT&T will end its operator service in 21 states, meaning that 3 million customers with digital landlines can’t dial 0 and get directory assistance. At the conclusion of World War I, there were roughly 180,000 operators employed by telecommunication companies. The number peaked to 350,000 in the 1950s but is now down to 550.

The decline in the need for operators is due to two obvious factors:.
1) There has been a steep increase in the number of households that have replaced landlines with cellphones. In 2003, 3% of adults had wireless only service; in 2008, 19% had wireless only, whereas as of June 2022, 71% of adults had wireless only service. Unsurprisingly, the percentage usage of wireless only service is related to age in that 89% of persons 25-29 years old do not have landlines whereas only 45% of persons aged 65 and older do not have only landlines. As of 2017, only 10% of the 455 million telephone numbers in the U.S. were for landlines.

2) There has been an increase in the use of the internet to find phone numbers.

Clearly, landlines and operators are both in the Decline stage of the life cycle that is displayed in Figure 5.2 in your Heizer/Render/Munson textbook while cell phones are somewhere between the Growth stage and Early Maturity stage Other products and services that are related to landlines are showing similar declines.

Answering Machines
The first commercially viable answering machine was developed in 1949. Answering machines became more widely used after the restructuring of AT&T in 1984, which was when the machines became affordable and sales reached one million units per year in the U.S.

Voicemail
The main difference between answering machines and voice mail is that messages on answering machines are stored locally whereas voicemail messages are stored in a different location, such as the cloud. Many businesses no longer use voicemail but instead rely on contact forms and emails. In addition, for many consumers, contact via the web is preferred over phone calls.

Classroom discussion questions:
1. What other products are in a growth stage due to the increase in cellphone usage?
2. What professions are in a growth stage due to the increase in cellphone usage?

Guest Post: Smoking– Forecasting and Product Life Cycle

Today’s Guest Post comes from Prof. Howard Weiss, the developer of the Excel OM and POM software that comes free with our text.

Forecasting: For the past 40 years, cigarette smoking has been declining at a rate of 3% to 4%. The
drop can be seen in the figure below and it clearly is following an almost straight line, which makes
forecasting very easy using the trend projection method discussed in Chapter 4.

Some of the more recent decline can be attributed to the introduction of e-cigarettes and vapes. However, smoking is on the rise again during this current pandemic which means that time-series forecasting methods, which rely on past data, would not be very useful for forecasting sales of cigarettes in the foreseeable future.

Product Life Cycle: Below is a figure that displays sales of cigarettes from 1900 to 2015 for 8 different countries on 3 different continents.

What is interesting about the figure is that while smoking started and peaked at different years, for all of
these countries, the pattern is identical for each country to Figure 2.5 in the text, which displays the 4 phases of the life cycle – Introduction, Growth, Maturity, and Decline. It is also interesting to note that the life cycle for cigarettes has been over 100 years.

Classroom Discussion Questions:

  1. Cite another product or service with a life cycle as long as a century.
  2. Do you think you can trust all of the data in the figure?

 

Guest Post: Learning Curves, Batteries and Product Life Cycles

Our Guest Post comes from Prof. Howard Weiss, the developer of Excel OM and POM.  These 2 software packages (that we provide for free) have helped our books become number 1 in U.S. and global markets.

In the figure below, you can see that a 1 kWh lithium-ion battery that cost over $1,100 in 2010 now costs less than $160. Batteries are critical especially as more and more car models are electric or hybrid.

Module E in your Heizer/Render/Munson textbook explains: “… if the learning curve is an 80% rate, the second unit takes 80% of the time of the first unit, the 4th unit takes 80% of the time of the 2nd unit, the 8th unit takes 80% of the time of the 4th unit, and so forth.” Learning curve unit times or costs are based on the volume doubling.

The formula for the time or cost of the Nth unit is TN = T1(Nb)

where TN is the time/cost for the Nth unit and b = (log of the learning rate)/ (log 2)

Using Excel’s Goal Seek we determine that to have the cost reduced from $1160 to $153 would require production in 2019 to be 1183 times the number of units produced in 2010. The steep increase in volume agrees with the introduction stage of product life cycles displayed in text Figure 5.2 (see p. 164).

Classroom discussion questions:
1. What products have had their costs decline as steeply as the batteries in this article?
2. What is the current stage in the product life cycle of Zoom?

OM in the News: The End of the Jumbo Jet Era

The final convoy of A380 fuselages in France

As we point out in Chapter 5 (and in Figure 2.5) every product has a life cycle, an important issue for operations managers, especially in this time of pandemic flux.  And so it appears that The Queen of the Skies-the iconic Boeing 747– is approaching her abdication. British Airway (the 747’s biggest operator) just announced that its 31 747s will never fly again. Its immediate retirement of its 747s marks the demise of the jumbo plane’s 50-year reign, with similar decisions by Delta, United and Air France, reports Financial Times (July 27, 2020). The last 747 in the Qantas fleet recently flew to its final resting place in the Mojave Desert.

The A380 superjumbo jet’s life cycle  was much briefer. Just 13 years after the first A380 flight by Singapore Airlines, Airbus is ceasing production.  Flying, as it slowly recovers after Covid-19, looks like being smaller, nimbler and point-to-point, rather than in huge aircraft collecting passengers at hub airports. The long-haul planes of the future are the 248-336 seat Boeing 787 and the 350-410 seat Airbus A350.

It was also a Chapter 4 forecasting issue, as Airbus got flying’s economics wrong. In 1999, Boeing and Airbus sparred over how many super-large aircraft the market could support. Boeing said fewer than 400 would be needed by 2019. Airbus said nearly 1,500–but sold only 242. Boeing’s 747 prospered through the decades of explosive growth in airline travel, from 310 million passengers in 1970 to 4.5 billion last year. The 747’s best years are now gone, though it has timed its retirement perfectly.

To make matters worse for Boeing and Airbus, they are still making the smaller planes that airlines aren’t collecting, straining their finances, adds The Wall Street Journal (July 27, 2020). Airlines don’t want the aircraft for now, because they are unable to fill them profitably during a historic plunge in demand for flying. The result: finished airplanes with nowhere to fly, and less cash for Boeing, Airbus and their suppliers as they slash production and payrolls. “Clearly, we’re in a situation where we don’t need any aircraft,” said Delta’s CEO.

Classroom discussion questions:

  1. What should Boeing’s OM strategy be at this point?
  2. Why was Airbus’ A380 forecast so inaccurate?

OM in the News: The Short Life Cycle of a Superjumbo Jet

An A380 landing in Heathrow. Production never met its grand ambitions and output quickly fizzled.

Airbus just announced that it is halting production of the A380 superjumbo plane, abandoning the $16 billion project after airlines around the world flocked to smaller, nimbler jets for long-range travel, reports The Wall Street Journal (Feb. 15, 2019). The A380 was the European company’s answer to Boeing’s 747, which brought long-haul travel to the masses 50 years ago and was the undisputed queen of the skies for decades. The A380, which first went into service in 2007, represented a future for long-distance commercial aviation based on big jets, shuttling between major hubs.

Passengers came to love the plane for its spacious, quiet cabins. Most airlines, though, were less enamored, turning instead to a new breed of fuel-efficient smaller jets that gave them the flexibility to serve less popular routes. A380 sales lost momentum early. Airbus never turned a profit on its flagship plane, and write-offs related to the program weighed on the company for years. This week, Dubai-based Emirates Airline, the A380’s biggest customer by far, cut sharply its plans to buy more of them. Airbus’ CEO said the airline’s decision  left the company with “no basis to sustain production.”

In 2000, Airbus unveiled its superjumbo program, saying it would spend $10 billion to build a 555-seat jet in an effort to supplant its U.S. rival’s 747. But development delays and $6 billion in cost overruns set the project back early. Boeing’s 747 has also fallen out of favor, but more gradually. The aircraft is now made mainly to haul cargo. Only about 230 A380s have been built, versus more than 1,500 747’s. But as we point out in Chapter 5, every product has a life cycle–some shorter than others.

Classroom discussion questions:

  1. Why was the 747 more successful in sales and longevity?
  2. Research some of the reasons why the A380 program was an OM nightmare.

OM in the News: The Future of the Auto Industry

The future of the auto industry is going to look like the history of the cell phone, writes IndustryWeek (Dec. 18, 2018). The two even share technology: the lithium-ion battery. As the world’s automakers gradually switch from combustion to charging, some of today’s dominant car companies will share the fate of a few former titans of the smartphone. Remember BlackBerry, Nokia and Palm?

This transition will play out as electric options flood showrooms. In the next 2 years, 85 more battery-powered models will be marketed, bringing the global fleet to 357. VW is near the front of the pack, promising 20 new electric models by 2020 and another 80 by 2025. VW just announced the internal combustion vehicles being designed now will be its last!

Being first, however, is no guarantee of success. Honda’s Insight promised 70 mpg as the first U.S. hybrid in 1999. Yet the Toyota Prius, which reached the market later, became the icon of greener wheels. A crowd of copycat hybrids arrived but none came close to matching the Prius.

For the next decade, old-school car executives will try to pull off a tricky financial stunt: driving returns with gasoline engines until their electric models have enough momentum to start keeping pace. They are essentially using an old technology to fund the transition to the next. Jump to the electric too soon and the whole works will grind to a halt; jump too late and lose the EV race. Startups such as Tesla don’t have to make this awkward jump. They don’t have to worry about feeding a legacy business as it slowly winds down.

Electric drivetrains and smart manufacturing systems have the potential to open up car manufacturing–and remove the stranglehold car companies have had on the business because of the high cost of capital.  And as we note as one of our 10 strategic decisions of OM, Product Design (Ch.5) is critical. Products must be designed to a dynamic market meeting sometimes harsh capital and labor requirements and time constraints. VW, like other auto manufactures is “biting the bullet.”

Classroom discussion questions:

  1. Is VW making a wise decision? (SWOT analysis)?
  2. Where would you place EV and gasoline cars on the product life cycle curve now and in 10 years? (See Figure 2.5 in the text)

 

 

OM in the News: The Beetle’s Life Cycle

All products are born, grow, mature, and eventually decline (see Figure 2.5 on product life cycle). So it should come as no shock that even the venerable Volkswagen Beetle is set to become a thing of the past. VW just announced that it will end production of the vehicle in 2019, reports The New York Times (Sept. 15, 2018). Sales of the model by the German carmaker’s U.S. unit, the only division still turning out Beetles, had declined sharply in recent years. VW is ending production of the Beetle 7 decades after the car was first designed. The original Beetle was designed for Hitler in the 1930s.

The car’s simple design and air-cooled engine eliminated the need for a more complicated water-cooled system and helped make it a postwar hit. Despite the Beetle’s connection to Hitler, it became a symbol of ’60s counterculture and the best-selling import of the era in the U.S. For the Woodstock generation, driving a Beetle or its larger cousin, the VW van, was a form of protest against materialism and the gas guzzlers churned out by the big American carmakers.

By the 1970s, though, the Beetle was showing its age. It was slow, and its heating system barely worked. Volkswagen also had trouble adapting the 1930s technology to increasingly strict pollution standards. The New Beetle, which was introduced in 1997, was meant to tap into nostalgia for its predecessor. The two cars had little in common mechanically. Beneath its Beetle-like exterior, the New Beetle was essentially a Volkswagen Golf. But the car was a hit in the U.S. Although about 1.2 million New Beetles were sold from the product’s introduction through 2010, by last year, annual sales had slipped to just 60,000.

VW was careful not to rule out reviving the model in the future. “Never say never,” said the CEO for VW-America.

Classroom discussion questions:

  1. Name a few products that just don’t seem to ever die.
  2. Name a product for each of the four life cycle stages.

OM in the News: Product Life Cycle and the Boeing 747

1970: The aircrew of the first commercial passenger flight of the Boeing 747, which flew from NYC to London for Pan American Airways.

Having worked on the design team for McDonnell Douglas’ DC-10 jumbo jet in the late 1960’s, I have followed the industry and competition with great interest. The DC-10 died a fairly quick death, but Boeing’s even larger plane, the 747, became the iconic symbol of success when introduced in 1970. Only 180 of the original 747s, dubbed the Queen of the Skies, remain in passenger service. Boeing built more than 1,500 of them but the 24 orders that still remain on the books are all freighters. Delta and United, the last U.S. airlines flying the giant, both retired their remaining 747s late last year.

The 747—six stories tall, with a wingspan more than 70 yards wide and the fully loaded weight of 7 M1 Abrams tanks—was a breakthrough in aviation, writes The Wall Street Journal (June 7, 2018). It revolutionized international air travel, bringing affordable tickets to the masses and making it far easier to jet between continents.

At the time, aircraft design was more focused on supersonic planes such as Europe’s 100-seat Concorde. Not fully believing in the passenger potential for a whale of a plane, Boeing designed the 747 with a distinctive bubble top for the cockpit so that when used to carry freight, containers could be loaded right up to the nose of the plane. The 747 became the most identifiable plane in the skies, and a symbol of American engineering and manufacturing prowess in the 1970s and 1980s.

But its 4 engines led to the plane’s descent from passenger airline service. Two-engine jets burn less fuel yet grew to closely match the 747’s carrying capacity. United had 374 seats on its recently retired 747s; its 777s carry 366 passengers and burn 25% less fuel. Airbus has also struggled with its 4-engine A380 superjumbo. Over the past 12 years, only 223 A380s have been delivered. No airline other than Emirates has placed an A380 order for over 2 years.

Classroom discussion questions:

  1. Referring to Figure 2.1 (page 41), where do the 747, 737, and 787 appear on the Product Life Cycle curve?
  2. Has any plane in commercial production survived longer than the 747? Why?