Planned Obsolescence in the Durable Goods Industry

Durable goods, also referred to as hard goods, are items that are not supposed to quickly wear out, or more specifically, goods that yield utility over time.

Planned obsolescence, or built-in obsolescence, is a policy of planning or designing a product with an artificially limited useful life, so it will become obsolete after a certain period of time.

To some extent durable goods manufacturers can predict aggregate demand based on the average useful life for their products. Of course people like me, who stretch the limits on the useful life of a product, tend to throw outliers into the data. With a mechanical engineering degree in my pocket, I have a knack for being able to diagnose issues with mechanical systems and then fix them.

The consumer durables industry is experiencing significant supply chain threats, from product proliferation, intense global competition, evolving regulations and constrained supply brought on by a long period of sustained growth as shown in the graph below. Only an extremely efficient and resilient supply chain can deliver high-quality, differentiated products at the cost and service levels consumers expect.

However even with two years of fairly consistent growth, demand volatility in durable goods continues to be a concern. Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, dropped 0.6 percent in May as demand for transportation equipment fell 1.0 percent. That followed a 1.0 percent decrease in durable goods orders in April. Orders for motor vehicles and parts plunged 4.2 percent last month, the biggest drop since January 2015, after advancing 1.2 percent in April.

Below are four of the main supply chain threats faced by the Durable Goods Industry and how to combat them to stay competitive.

1. Rapid Changes in the Global Marketplace
The demand for consumer durable goods is highly correlated to economic strength, making the industry largely dependent on disposable income. Disposable income can ebb and flow abruptly due to natural and man-made disruptions, leaving durable goods manufacturers scrambling to dispose of excess inventory. Durable goods manufacturers need the ability to quickly adapt to changes using integrated business planning, what-if scenarios, simulations, and other advanced tools that enable prediction and analysis of potential market changes across multiple time horizons.

2. Expanding Consumer Product Preferences and Resulting Explosion in Inventory
The consumer durable industry is experiencing rapid product innovation. Regional preferences and a variety of cost-conscious to luxury product features are driving proliferation of components, work-in-process assemblies and finished products. Combine this with limited life-spans due to rapidly advancing technology and fickle customer tastes, and you get a constant cycle of product introductions and discontinuations to manage. This variety, complexity and variability makes it harder to accurately forecast demand, leading to more just-in-case inventory. Companies need to enhance their ability to forecast product demand at all stages of a product’s life cycle through the use of advanced demand planning capabilities including artificial intelligence, demand sensing and social media. Companies also need to adopt capabilities to combat the growth of inventory including product life-cycle planning, postponement strategies and Multi-echelon Inventory Optimization (MEIO).

3. Fluctuating Capacity Requirements
Variability in demand for consumer durable products can lead to significant manufacturing capacity issues, especially for those companies that plan and operate multiple distribution channels supported by multiple manufacturing plants. Planning and operating multiple supply chains leads to inefficiencies that can wipe out tight operating margins making capacity optimization essential. An industry best practice is to optimize all operations across the extended supply chain simultaneously, using a near real-time electronic representation of the supply chain called a digital twin and considering as many constraints as possible.

4. Supply Chain Talent Shortage
Building advanced supply chain capabilities is more important than ever to attracting and retaining qualified supply chain talent. Top supply chain talent tends to migrate to companies that have invested in modern solutions that allow them to conduct advanced analysis and problem solving. Durable goods companies need to aggressively pursue the adoption of advanced supply chain capabilities by building a robust multi-phase plan to improve business process and data management capabilities, enabling systems, and talent management processes.

Planned obsolescence in the durable goods industry is a common practice. To stay ahead of the competition, companies might want to consider applying planned obsolescence to their supply chain capabilities. Reviewing supply chain capabilities on a regular basis enables the adoption of the latest best-practices and advanced enabling technology, helping to ensure your supply chain continues to be able to meet threats and capture opportunities.