The Flawed Logic of Planned Obsolescence

In the last month, technology titan Apple has found itself caught in the crossfire of customers (and a few mainstream media publications) accusing them of “planned obsolescence” in regard to their decision to slow down processing speeds in older iPhones.

Hardly an original concept, the idea behind a planned obsolescence conspiracy is simple: Manufacturers deliberately design their products to malfunction or “wear out” in a shorter time frame than they are capable of producing, thus forcing consumers back into the market quickly to purchase a replacement product.

While the springboard for the discussion is dubious at best (Apple itself has released a detailed statement explaining its actions, as well as a $50 discount to users who need a battery replacement), the discussion nevertheless has pushed the term planned obsolescence into the national spotlight, and buyer, sellers, and analysts alike have been dedicating many an article to discussing its relevance, if any, in today’s marketplace.

As EDX Electronics has spent over 26 years optimizing the supply chains of equipment manufacturers across the world, we have developed a unique perspective on the role obsolescence plays in all phases of a product’s lifecycle. And while we support how consumers and manufacturers have embraced the discussion of obsolescence, it has largely moved away from what should be the true heart of the debate.

Instead of questioning how planned obsolescence is unethical, the real discussion should be about overcoming it in a way that manufacturers and consumers can mutually benefit.

The Grain of Truth

The first thing to realize about planned obsolescence is that it does exist and has existed for over a century – although not in the way consumers might expect.

In any industry, from healthcare to aviation to consumer electronics, stagnation is the kiss of death. The moment a manufacturer stops providing innovation and value to support their customer’s evolving needs is the day they lose their foothold in the marketplace. A product with an extended lifecycle may present a degree of value for the consumer, but this value is based on an assumption that the needs of the customer will never exceed what the industry is capable of providing.

To illustrate, let’s look at ultrasound machines. While everyone is aware of how ultrasounds can benefit expecting mothers, the technology has also played a significant role in the early detection of certain cancers. In 2014, in fact, IBM announced a new testing platform that can detect melanoma with a 95 percent success rate – a roughly 20 percent improvement over traditional methods.

Consumers, with regards to cancer diagnoses and treatments, universally agree that the earlier and more accurate tests are, the better. But imagine a world where the original ultrasound machines were introduced, and designed, to be used indefinitely. While technically nothing would prevent IBM or another manufacturer from improving early detection technologies, there would be next to no market incentive to do so.

Innovation is reliant on the market’s demand for products, and marginally improved ultrasound-based specs alone are not going to be enough to pry a sufficient number medical professionals away from a legacy product that continues to provide a quality – if slightly outdated – service. Obsolescence provides manufacturers the customer base needed to continually move their industry forward. In fact, you could even argue that obsolescence is the driving force behind a manufacturer’s agenda to provide value to customers in the form of smarter, faster, more efficient products.

Do manufacturers plan for obsolescence? Of course they do! Nothing lasts forever, and in their pursuit of innovation, they try to launch their products according to when they anticipate a surging demand in the market. In this sense, “planned obsolescence” is true in that manufacturers have an idea of how long their product should last under continuous use.

But do they deliberately shorten the lifespan of their own products in the name of making a quick buck? This is where the narrative blurs the line between fact and fiction.

The Economics of Planned Obsolescence

The argument for the planned obsolescence narrative currently hovering over Apple hinges on the idea that shorter product lifecycles would result in a greater financial benefit for the manufacturer. While this seems like common sense, it is simply not true.

In a 1973 publication of II Politico, renowned economist George Reisman published an article titled “The Myth of Planned Obsolescence.” “In all cases in which a more durable product can be produced at the same cost of production as a less durable one,” he writes, “the product motive acts as an inducement to produce the more durable product…even when its cost of production is substantially greater, provided that the extra durability is sufficiently great.”

To prove his claim, Reisman presents a simple case study involving two light bulbs – one of which is designed to last ten times longer than the other. He writes:

“[Assume] the manufacturers have sales revenues of $25 million [for the less durable bulb] – 25 cents per bulb times 100 million bulbs. They have a total cost of $20 million – 20 cents per bulb times 100 million bulbs. Their present profit, therefore, is $5 million. Now assume that they introduce the ten times longer lasting bulb. Such a bulb could certainly be sold for five times as much as the present bulb. (If it is, the customer is far better off, for he only pays for half as much per unit of service life of a before…) A price five times as high is $1.25. This price times 10 million bulbs sold, gives sales revenues of $12.5 million. The manufacturers’ total costs are now 20 cents per bulb times 10 million bulbs, or $2 million. Profits, therefore, go to $10.5 million – more than doubling from their present level!”

Despite the age of this example, the logic still holds true when discussing today’s market trends. When two products with the same production costs are entered into the same market – one with an artificially reduced lifecycle, one longer – the manufacturer would be financially incentivized to support the product with the longer lifecycle. Even though the manufacturer might sell less overall product because of the decreased demand for replacements, the increase in profits supporting the extended lifecycle makes this concern negligible. All that is necessary is a slight increase in the product’s market price that still reflects significant value for the customer.

Circling back to Apple, while it’s easy to assume that an equipment manufacturer could increase their profit margins by artificially inflating the demand for replacements, in truth the profits that would be gained pale in comparison to those gained by supporting their product’s lifecycle and providing customers value for their hard-earned dollar.

Don’t Deride Obsolescence – Overcome It

Planned obsolescence may be a flawed concept as some understand it, but that doesn’t diminish the importance of understanding how obsolescence can impact the relationship between manufacturers and their customers.

Obsolescence, for example, can indirectly bring the issue of counterfeit parts into play – especially if an OEM misses a last time buy date for a critical component and moves to unauthorized channels to secure the necessary inventory. In this case, a manufacturer may have every intention to support a product with an extended lifecycle, only to include a faulty component in their supply chain that requires customers to re-enter the market before they expect to. Should this occur, it can potentially play a role in the customers’ decision to remain loyal to that brand – especially if their expectations of value were not met.

To avoid this scenario and guarantee their products function for their entire expected lifecycle, manufacturers must take every measure to ensure that the critical components required in their designs are procured from proper authorized channels. This includes implementing a robust supply chain infrastructure to trace the origins of individual components, as well as a standardized procedure to test for counterfeit components. According to INTERPOL, there are currently $169 billion counterfeit components being sold on the global market, and each one poses a dire threat to whatever supply chain they might find themselves in.

The Bottom Line

It can’t be denied that obsolescence should be discussed, but the planned obsolescence narrative that has captured the public’s attention has driven eyes away from issues that would do far more harm to consumers than an artificially inflated replacement market. Issues such as counterfeit components, storage and fulfillment challenges, and the growing trend of OEMs completing short-notice last time buys should be the true focal point of the obsolescence discussion. The sooner manufacturers optimize their supply chains to overcome these obstacles – both in-house and through the help of supply chain partners such as EDX – the better off they, and their customers, will be.

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