Why Obsolescence Management Processes are Crucial to Support Corporate Strategy
Since I began working at GDCA, I have had the opportunity to work closely with original equipment manufacturers (OEMs) to better understand and deal with the impact of low-performing older designs. The nature of my work often has me talking with team members throughout their company, and I have noticed just how common it is for each department in the organization to be pulling resolutely in their own direction. In many respects, this makes sense—until it does not.
Although CEOs of OEMs are most definitely skilled drivers tasked with guiding their companies to successfully reach their business objectives, they rely on their departments to move the work forward. Because I have a unique position advising OEMs on long-term product sustainment practices, I frequently witness how individual departments, positioned to meet their own quality management system (QMS) objectives, can inadvertently undermine larger company goals.
Unfortunately, the reality is that if departments do not have the policies and processes in place to support them working together, the company’s journey toward successfully reaching their business objectives will be problematic, slow, and frustrating.
For example, Manufacturing’s main concern is throughput, and Sales’ is to get a purchase order (PO) regardless of the difficulties and resources Manufacturing must handle to build the order.
Recently, I worked with a company in which Sales kept “winning” POs for such low volumes of obsolete products that the company was consistently losing money on the deals.
Most folks I share this story with cannot understand why a company would allow itself to accept such an upside-down order. On the face of it, this makes no sense at all. However, if you look a bit more closely at how these POs are accepted, it begins to make more sense.
It has to do with transparency and alignment. It is important to understand that, broken down into its individual pieces, accepting such an order does make sense because each department is doing its job: Sales is selling, and Manufacturing is delivering. Both departments are working on their assigned tasks. However, because there is no operational framework to guide decision-making, they unwittingly undermine the larger company objectives.
When talking about obsolescence, marketing executives’ response is typically uniform: I do not know the issue; it’s not my department. Yet, the ramifications of poorly driven obsolescence management strategies can lead to out-of-control inventory, disgruntled clients, unfulfilled contracts, and even bankruptcy.
The solution to this problem lies in the vision of the CEO and how the leadership team frames the work and effort for the employees. It takes an engaged and committed CEO to set policies and ask departments to develop supportive processes. Without a policy to support a process to keep these types of “wins” from clogging up the system and undercutting business goals, the horses will continue to pull independently of the driver’s direction. Departments must work intentionally, as a team, to develop standard processes that will set limits in the required investment, sales price, minimum margin required, and impact on client and company, and then consciously uphold these processes.
The importance of such planning was very eloquently expressed by Holger Wussman, the CEO of Kontron Electronics, an electronics manufacturer service provider, during a recent conversation with me:
“The art of a good discontinuation politics is to find the right trade-off between the interests of all stakeholders to keep clients happy with products beyond lifetime. The client is one stakeholder, and clearly, he is the most important one.
I fully agree that various departments have their own reason to prolong the life of a product. Discontinuation is not easy. Emotionally, [the product] is my creation and I have to let it die. Financially, there are no sales provision anymore; and economically, not fully amortization yet. And there is a pressure from the customer’s side, not to kill his product. There is no question that CEOs can struggle with this task.”
Without the commitment and passion of the CEO and a clear vision that is supported by the entire team, policies that support product discontinuation will continue to be unrealized and will hinder any journey toward successful, profitable corporate outcomes.