Profits are not gained when you’re using too many valuable production resources on legacy products nearing the end of their product lifecycle. As an original equipment manufacturer (OEM), the future growth and success of your company is dependent upon your discernment when it comes to legacy product obsolescence.
To maximize your profit potential, you need to know how to answer the following questions about the product lifecycle:
What products generate significant revenue and are therefore still worth manufacturing internally?
What products have reached their obsolescence and need to be omitted from your production line?
What products aren’t as active as they once were yet still see some customer demand?
The last question concerning legacy products is the most difficult one to determine, as it hovers over a fairly large middle ground between active and retired. A product just starting the decline of the product lifecycle still has market value.
How do you determine when you have products approaching the downslope of the legacy product lifecycle?
Declining Product Sales
Do you ever wish you weren’t producing a certain product anymore because you’ve been watching its sales continually decline? This is a good indication that you have a legacy product on your hands.
Shrinking Gross Margins
Legacy product obsolescence also occurs when production costs for a product increase every year even though sales haven’t taken a dip. Increased spending on manufacturing, labor and other resources shrinks your overall gross margin. When this happens, you may identify the product as a legacy product.
Longstanding Customers Still Prefer The Product
To some of your customers, new product versions don’t always mean better product versions. Even if an older product is showing signs of obsolescence, if it’s still being installed in many key end-user facilities, it has market validity. Consider it a legacy product, but also consider it a product to continue manufacturing.
Taking Up Too Many Valuable Resources
Key assets for your company – floor space, capital equipment and personnel – are limited resources for your OEM. If you feel that a product is simply taking up too many key assets (which are needed for popular products), you are realizing this product has entered the decline into legacy product obsolescence.
Re-Engineering Product To Satisfy Demand
If your supply chain managers are spending time searching the globe for replacement parts (this especially happens with electronic hardware), or your engineers are re-engineering the part to meet customer demand, you have a legacy product on your hands.
Even though there’s still customer demand for your product, it doesn’t make business sense to continue putting valuable resources into its manufacturing. If this sounds like one of your legacy products, you should consider outsourcing legacy product manufacturing to a contract manufacturer to generate the most revenue for this product.
Ready to learn more about finding the right legacy product manufacturing for your OEM’s products nearing obsolescence? Call me, Craig Zoberis, at 630-948-4879 or click on the button below to speak with a legacy manufacturing expert at FusionOEM.