How to Manage Operations During a Product’s Growth Phase
Many products that make it out of the incubator fail in the growth phase. The growth phase is almost always turbulent. The product faces both internal and external obstacles. Demand, market forces, and the competition are rapidly evolving.
The characteristics and operation strategies for a product in the growth phase include rapidly increasing and unpredictable demand, gradual increases in competition and decreases in product price, expanding your supply chain, and investing in developing standard processes to improve scalability and begin to reduce defects.
Adjust to growing demand
Demand rapidly changes in the growth phase, making traditional forecasting methods especially unreliable. You must observe the trend and adjust your inventory and capacity to meet this changing demand.
Another factor influencing demand is that the customer profile may be changing as the product penetrates the market. In the incubation phase of a high-tech product, the primary customer is usually technically sophisticated, but later buyers may be less so. This change may require product changes to make the product desirable to a larger market. In addition, you may introduce new features, increasing the appeal to a greater customer base.
When demand is unpredictable, producing enough product to meet it is difficult. Because bringing new capacity on-line by adding facilities, purchasing equipment, or hiring and training workers often requires time, you may find your capacity levels lagging behind demand.
During this growth phase, many companies transition to fixed capacity and make investments in automation and equipment. These assets allow you to increase production in an efficient manner at a lower cost structure, taking advantage of economies of scale.
Product proliferation often occurs during the growth phase. This increase in product variety requires that you maintain focus on keeping your capacity flexible to accommodate producing smaller volumes of more variations. You can benefit by designing products to be as similar as possible while at the same time maintaining product differentiation.
During the growth phase, an emphasis on process improvement is vital to increase production and reduce costs out of the system. Production lead time takes on a critical role in your organization. By reducing the time it takes to produce a product, you can increase capacity and reduce the amount of inventory required to keep up with increasing demand.
Maintain enough inventory
In the growth phase, inventory takes on a significant role in improving market position. Competition is usually fierce, and if you don’t have your product on the shelf when the customer wants it, the customer will probably buy a competitor’s product. Not only will you lose that sale, but it may cost you future sales and customer goodwill.
Most companies adapt some form of make-to-stock process, producing to a forecast in anticipation of future demand. However, you can counterbalance the amount of inventory that you need to hold with effective capacity management and lead time reduction.
Slowly decrease your pricing
Falling prices is a normal condition for most products in the growth phase due to the increase of competition in the marketplace. Many firms try to get around this decrease in price by introducing incremental changes to the product. When the new feature is released, the product is usually sold at a premium over the price of the older product.
You can often turn a very nice profit at the lower price if you pay attention to reducing your costs and taking advantage of growing market opportunities.
Grow your supply chain
Just as the product is going through a growth spurt, so must the supply chain. As cutting costs to maintain profits becomes necessary, you should start looking at ways to make your supply chain more efficient. Though you don’t want to alienate the suppliers that helped you through the incubation phase, they need to grow with you in a growing market.
During the growth phase, you may consider offshoring or globalizing your supply chain. This is a complex decision, and you must consider many factors. One benefit of globalizing your supply chain is that doing so can get you into new markets and expand the demand for your product.
Distinguish your product from competitors’ products
During the growth phase, the market size grows, and more and more competitors enter. This increased competition pushes prices down and puts a premium on quality products that are available on the shelf (or online) when the customer wants to purchase them. At the same time that you’re focusing on quality, functionality, and availability, you must also continually look for ways to reduce costs.
Your marketing of the product can change during this phase as it becomes important to distinguish your product from the pack. The growth phase is when you build your brand, which requires establishing a product image and promoting the product to a mass market, usually through extensive advertising. The key is to place your product above the others in the eye of the customer.
Up production to meet increased demand
Although a firm failing in the growth phase may seem implausible — after all, who could possibly fail with increasing demand? — companies often face their greatest challenges during this phase. In the incubation phase firms face little if any competition, and the entrance of competitors into the market often catches them off guard and unprepared to actually compete.
Perhaps the greatest cause of death in this phase is an inability to grow with the market. You may not have the capacity or the managing ability to keep up with the increasing demand. This results in lost sales because product isn’t available, disappointing potential customers and sending them into the welcoming arms of entering competitors.
In an effort to increase production, be careful not to lose your focus on quality. This can have devastating results if you’re trying to build a reputation in the market.