A major problem in chemical industry has been that product development costs are going up whereas the product life cycle is getting shortened. Especially in this industry, which is heavily based on research, it is of a big concern.
Product development costs have gone up for reasons such as:
- Increasing Research and Development costs. Chemical Industry is a research-based business. It requires massive investment for research and development. Specialty chemicals business in particular needs highly skilled labor and that requires paying higher than average salaries to maintain innovation and quality.
- Increasing energy costs. Chemical industry is the largest consumer of energy
- Increasing raw material costs. Commodity chemicals businesses rely heavily on oil and gas. Oil prices have fluctuated a lot in the recent past and is expected to do so in the future.
- Increasing disposal and clean-up costs.
- Increasing costs to oblige with regulations and comply with Safety, Health and Environmental (SHE) issues.
On the other hand, the product life cycle has got shortened for reasons such as:
- Changing specifications for the end industries. For e.g. the changing requirements in sectors such as automotive, construction, packaging, paints, etc.
- Increasing competition from other products introduced by competitors
- Changes in product processing methods with changes in regulations
As a cyclical effect, when the product life cycle gets shorter the product costs further go up. This is because products that have shorter life cycle have high R&D expenses, high marketing expenses, require high new product sales, high costs, high prices and a low degree of vertical integration.
It is all the more important now to be able to introduce new products at low costs and/or extend the product life cycle of existing products. Food Industries have extended the product life cycle by introducing frozen foods. Pharmaceutical companies are extending their products by getting into generics and collaborating with low-cost production facilities. Some ways to extend the product life cycle, generate more revenues and/or decrease costs are:
- Making early promotions about the product
- Releasing products with minor modifications through each stage of the product life cycle
- Making substitute products in the maturity stage
- Discovering processes to turn wastes into some other form of useful products (e.g. turn some organic wastes into fuel)
- Developing low-cost waste disposal options
- Collaborating with other players to share the costs and resources
- Continuously monitoring customer needs and plan well-ahead about future products
- Developing a product development process which will require no or very less modifications when external factors such as regulations change
- Introducing existing products in new markets or for new purposes
- Increasing automation of product manufacturing
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