What in the world could the lighting business have in common with a fish market? Well, historically absolutely nothing. However, with the introduction of LED technology, along with all of the wonderful benefits of energy savings, longer life and better light; the industry is now forced to accept the risks of managing a perishable asset, a common challenge in any fish market.
For decades, the light bulb business marched along to the consistent cadence of the standard lamp replacement cycle. In the commercial lighting market, facility managers would use their MRO budgets to purchase light bulbs in small quantities in order to replace bulbs that had reached the end of their life.
Along comes LED lighting and suddenly everything changes.
Opportunity increased dramatically for customers as LED light bulbs offered the unique ability to decouple from the traditional replacement market and instead forge an entirely new path of pure demand creation, driving large projects based on an economic value proposition.
Along with this excitement came some very real risks, which were unfamiliar to the existing light bulb ecosystem, specifically, learning how to manage a perishable asset.
New LED lamps from unknown manufacturers or even from large established brands that were simply “sourced” from offshore suppliers created a significant technology risk. Will they work when I plug them into a fixture? Will they work over a long period of time? Continuous evolution of the underlying LED chip technology introduced the reality of a generational risk.
In the LED lighting industry, relentless improvements in production efficiency have put continuous downward pressure on costs and the associated market price moved at a pace never before experienced by the industry. The possibility that the value of your inventory could quickly be “under water” vs. the market price became a reality.
All these risks caused the distribution channels for lamps to become highly conservative and severely limit the amount of stock they were willing to put on the shelf. This served to transfer a majority of the risk to the manufacturers. The manufacturers in turn tried to manage their risk by limiting production until they received firm purchase orders. This exposed the reality of the long lead-times typical of an LED based supply chain.
Out of stock and long waits for product were completely new to the light bulb customer base. They had been trained to expect immediate delivery for nearly any lamp product they requested. Customer satisfaction suffered and lost opportunity spread.
In Part 2, we will explore possible solutions for the LED Lighting business.
How must the industry evolve to meet the needs of the customers and at the same time manage the new risks inherent to a fast moving technology business? Check back soon to find out more!
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