Managing Component Life Cycles in Dynamic Technological Environments

INTRODUCTION The emergence of global markets in the 1990s has brought about an astonishing rate of change in the product and process technology in many industries. The impact of this environmental uncertainty perhaps is felt most significantly by the materials manager, who must constantly be aware of shifts in material requirements, engineering changes, and availability of supply. This has resulted in a different type of approach to supply base management, in which sourcing strategies must be evaluated within the context of a product's changing life cycle characteristics. The concept of product life cycles is well-known.|1^ Based on longitudinal analyses of growth and diffusion patterns, most products have been observed to proceed through four distinct phases: (1) product introduction, (2) growth, (3) maturity, and (4) decline. In general, the early stages of the life cycle are associated with a greater variety of features and less than perfect quality, while products in the growth, mature, and decline phases have progressively more tailored material specifications, with greater emphasis on unit cost reductions. In certain industries, however, there is evidence to suggest that these product life cycles do not fully capture the dynamics occurring at an individual component level. Moreover, the authors have observed through discussions with suppliers and purchasing managers in high-tech industries that a series of smaller life cycles exist within the total product life cycle. There are referred to as "component life cycles." These cycles are different from product life cycles, in that their shape and duration are a function of the technological attributes of a given "functional block" contained within the larger product. The implications for supply chain management in dealing with these component life cycles is the subject of this article. In particular, the article provides a contingency planning framework for purchasing managers who must plan in advance for unexpected shifts in rates and patterns of demand for high-tech components. FUNCTIONAL BLOCKS AND COMPONENT LIFE CYCLES High-tech product innovations can be conceptualized as a set of smaller functional blocks, each of which consists of one or more components performing a specific function. This concept is illustrated in Figure 1. All the functional blocks interact as a whole to carry out the function of the entire product. An example of such a product is the personal computer (PC), which can be broken down into the "mother" board, the power source, the co-processor, the hard drive, the keyboard, the monitor, and the frame. From a design perspective, these functional blocks provide various capabilities that the designer relies upon to execute the design intent. Component life cycles are closely tied to the notion of functional blocks. Moreover, the function served by a particular component, with respect to the performance specification required within its functional block, must be carefully monitored vis-a-vis competing technologies that may perform the same function but at a lower cost, with improved reliability, or with a higher level of performance. Referring to the previous example, in the early 1980s personal computers had 128K RAM chips, and subsequently went through a series of changes leading to today's computers, which often have more than 20 megabytes of RAM. Thus, as a particular functional block within an innovation evolves from the design stage to full production and through subsequent stages of the product life cycle, components can be replaced, simplified, or simply become obsolete as a result of changing technical specifications or new technological capability. COMPONENT LIFE CYCLE DRIVERS In general, there are five reasons for the replacement of a particular component within a functional block. In some cases, more than one criterion may have an effect on the replacement decision. …