Convergence of Facilities in Low Cost Operation Areas

In this chapter, the convergence of manufacturing facilities is discussed. Very little room is left for the differentiation of products in the late standardized stage. Although companies source globally to reduce the cost, they should cut down their cost even further. In addition, the demand for a product begins to decline sharply at the end of the life cycle because of the saturation of the market or the emergence of alternative products. As a result, companies should make the most of economies of scale in a low cost operation area. Companies converge their manufacturing facilities into low cost operation areas or withdraw completely from the market.

Total Dispersion

In the middle of the standardized stage, the severe competition in the market promotes the total dispersion of the manufacturing facilities. Various types of companies, such as leading companies, followers, and cost cutters, can exist in the same market because of the advancement of the product design and the production process invites newcomers and enables them to compete with others equally. It is natural that an appropriate strategy differs based on the company type. All types of consumers, the extreme innovator, the innovator, the early adopter, the early majority, the late majority, and the laggard, also exist in the market in this stage. Although their preferences are different, they, in particular the late majority and the laggard, want the price to fall. In addition, the demand grows globally. To respond to the consumer’s request and the global demand, the total dispersion of the manufacturing facility advances globally.

Extreme Innovators and Innovators

In this chapter, the innovators and extreme innovators are discussed. These types of consumers are very important because they grow the infant market. The extreme innovators purchase an incomplete product at high price and contribute to the product development. Then the innovators purchase an immature product at a relatively high price and their reviews have great effects on the future diffusion. We also follow their second and later purchases because their behavior in repeat purchases has a strong relation with the alternation of product generations. In other words, they are the motive power for the alternation of products or the change to the alternative products.

Development of Products

This chapter explains the advancement and the price decline of products based on the VCR case. After the dominant design emerges, the product advances incrementally or cumulatively because the dominant design sets a standard design of the product and a framework for the competition. Many new generation products appeared in the market with innovative functions to spur sales. Some of them became popular and others did not. In the VCR case, most consumers bought a monaural VHS machine and, then later, a HiFi VHS machine. On the other hand, most consumers did not purchase S-VHS, D-VHS, and other advanced machines because those were too expensive in comparison with their performance. As a result, the alternation of generations of the VCR occurred only once, from the monaural to the HiFi machine.

Analytic Research and Quantitative Models

This chapter provides two kinds of background information that we consider important to the subject area. First, we surveyed the supply chain management, operations management, and management science literatures for those works contacting life-cycle issues and at the same time that use quantitative or modeling approaches. We then developed synoptic summaries of these publications and provide some analysis of their central topics, trends, and themes. Hopefully the results will be a helpful reference guide to the related literature to date for both practicing managers and researchers. In the second part of the chapter, we introduce the standard quantitative methods and models used for mathematical life-cycle models. These have been developed under the label of diffusion models and most of the work has been carried out by marketing scientists. This topic should be useful to practitioners in making forecasts, constructing estimates related to capacity, and other supply chain management forecast and planning issues. We also note that some research needs in this area.

Review of Life Cycle Theories

In this chapter, we discuss the life cycle theories related to the business. The concept of the life cycle has been widely used in marketing. The Product Life Cycle (PLC) is the most well-known one, in which the time is divided into four stages based on the change of sales. It is expanded by combining it with the study of the various consumer types. Other life cycles have been developed from the viewpoint of the innovation and manufacturing facility location. The advancement of technology is the driver for the diffusion of a new product. Sometimes it obsoletes a category of products. The location of manufacturing facilities changes according to the market and technology condition as Product Cycle Theory demonstrates. A concept of the industrial life cycle and a linkage between the life cycle and SCM also are argued in this chapter.

Physical Location

Vernon’s product cycle theory is reexamined and extended in the first half of this chapter. It did not originally address the recent environmental changes, the global economy, supply chain management, and the rise of developing countries. The geographic location of manufacturing facilities is discussed from the viewpoint of the innovations. The physical location at the beginning of the VCR industry is explained in the latter half of this chapter. Although there was a great global demand for the VCR from the beginning, Japanese companies exclusively manufactured almost all VCRs in Japan and exported them all over the world. Manufacturability is the critical factor at the beginning as Vernon’s product cycle theory demonstrated.

Emergence of Destructive New Technologies

In this chapter, we discuss the emergence of alternative products. Under conditions of severe competition, companies launch alternative products to gain the initiative and to promote increased sales, although the R&D and manufacturing cause large cost increases. In the case of the VCR, many alternative products, such as EVR, TED, and the laser disk, have existed since the 1960s and were improved many times in attempts to beat VHS. However, VHS (a magnetic recording system) remained the de facto standard until the DVD and HDD recorders replaced the VHS around 2000. Here we explain the reasons why VHS products were able to become the de facto standard for a few decades and how the alternative products, DVD and HDD recorders, ultimately replaced the VHS.

SCM Models

In this chapter, a basic concept of the SCM is discussed. A key factor for the SCM might be to control the dynamic interactions among the supply chain partners. Supply chains form a multi-echelon system to offer the products to the customers efficiently. However, they are composed of various partners whose purpose and interests do not always harmonize. In addition, supply chain processes are so long and complex that unexpected results might be happened for supply chains. The information distortion within the supply chains is the one of the major obstacles to control the supply chain effi- ciently and effectively. As a result, supply chains would be damaged by the bullwhip effect and the boom and bust. To highlight the character of SCM, a comparison is also made among the similar concepts, the business logistics, the physical distribution and Keiretsu.

Early Adopters and Early Majority

In this chapter, the characteristics and the role of the early adopters and early majority are reviewed from the life cycle perspective following the VCR case study. Both of these groups of consumers purchase a mature or more advanced product at a reasonable price. Their adoption demonstrates that the product performance has enough future possibilities. On the other hand, manufacturers should expand their manufacturing facilities quickly because the demand starts growing dramatically. The early adopters (13.6 percent) are almost six times as many as innovators (2.3 percent) and the early majority (34.1 percent) is about 2.5 times as many as early adopters. Once a diffusion process starts, the spread is very rapid in the first group.