Unformatted text preview: INTEL CORPORATION
Product Transitions and Demand Generation Feryal Erhun MS&E, Stanford University Rate of Innovation Is Increasing and Product Life Cycles Are Shortening
Life cycles of most electronic goods are well under one year Semiconductor industry has been following the Moore's law and launching products every 18-24 months Sales Result: Frequent product rollovers and managing multiple product generations simultaneously
2 Importance of Product Transitions
Frequent product introductions:
70% of HP's products are less than 2 years old. 40% of Staples' office products change every year. There are 30 ramp-down + ramp-up of products every six months at Nokia. Product transitions constitute the most vulnerable time for companies to fail or lose market shares. 40% of product transitions have led to product failures. Worst case: company failure.
3 Industry Realities
600 product changes/week Best-in-class "on-time" NPI under 40% 80% of NPI attempts require product content negotiations Product change timing issues increase inventory 10%-20% Change-driven component shortages reduce capacity 10%-15% Inability to consolidate buying increases COGS 5%+
4 What Is a Product Transition?
Product transition (or product rollover) is the process of introduction of new product and the eventual displacement of old products.
Sales New product Old product Time Planned new product launch
5 Demand Risk Factors 6 Supply Risk Factors 7 Transition Factors
Environmental Indicators Marketing Indicators Product Capability Product Pricing Adoption Rate Low Risk High Risk Internal Execution/Risk Competition Introduction Timing Value Chain Alignment Supply Risks
8 Intel's Supply Chain Complexity 9 Signals for Strategy Revision 10 Transition Factors for P4
Product Pricing Marketing Indicator Product Capability Environmental Indicators Adoption Rate Internal Execution Competition Timing Value Chain Alignment 11 Decisions
Demand side decisions:
Rethink pricing of the P4 processor relative to Pentium III? Offer bigger incentives and rebates instead of cutting the prices? Marketing:
Advertise P4 more intensely? Timing and roadmaps:
Accelerate the introduction of the 2.0 GHz processor and the cheaper SDRAM-based chipset?
12 Decisions (cont'd)
Supply side decisions:
Drive internal improvements through die shrink conversion faster? Change current capacity allocation between PIII and P4? Value chain alignment:
Move to DDR-SDRAM immediately? 13 Reduce P4 Price?
Pros Cons 14 Incentives and Rebates for P4
Pros Cons 15 Advertise P4 More Intensely?
Pros Cons 16 Product Roadmap
2.0 GHz Processor and the SDRAM-based Chipset Pros Cons 17 Internal Improvements
Pros Cons 18 Move to DDR-SDRAM Immediately?
Pros Cons 19 What Should Intel Do? 20 Transition Playbook
Map out in advance primary strategy, risks, and contingency strategies Explore ways to minimize risks Define and monitor key supply chain indicators Coordinate plans and actions across multiple functions in alignment with pre-defined strategies Invoke contingencies as needed Measure performance
21 Example of Dynamics of Dual Roll
Disposal by markdown Excess inventory of old product Switch to other dual roll No action Adjust new price Silent dual roll Delay intro of new Primary Strategy Call the play Risk Resolution Events after play initiated Contingency Strategy Modify the play
22 Dual roll by price Out of stock of old product Delivery delay of new product Example of P4 Dynamics
Customer incentives Subsidize RDRAM Dual roll by price Slow sales of P4 (Hi platform cost) Accelerate DDR-SDRAM Price cut/breakaway Shift capacity out Primary Strategy Call the play Risk Resolution Events after play initiated Contingency Strategy Modify the play
23 What Actually Happened: Intel's Breakaway Campaign
Breakaway campaign's primary goal was "P4 demand generation" Intel's breakaway campaign consisted of :
Accelerating product roadmaps - Instance of Intel's One Generation Ahead (OGA) Strategy Moving products down in price point Introducing one new low price point Timing these changes with the launch of WinXP
24 Impact of Breakaway Campaign
Demand side impact: 1. Record demand for the new SDRAM compatible platform (exceeded expectations) 2. RDRAM platform sales declined over the following quarters 3. Intel's products regained the lead in the market Supply side impact: 1. Availability of Intel's SDRAM platform components was tight, due in large to the die size 2. Supply returned to normal balance 1-2 quarters after DDR platform launch 3. Second generation P4 product helped store that balance
Product transitions can be a source of competitive advantage. Product transition requires careful design of primary and contingent strategies. Primary strategy based on tight control of demand and supply risks. Successful contingent strategies require agile supply chains: information integration, design postponement, production flexibility, quick response, demand generation, and sound contingency planning.
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