1. Supply Chain Management: From Vision to Implementation Chapter 4: New Product Development Process: Managing the Idea Infrastructure

2. 2 New Product Development New product development is risky and expensive. More than 9 out of 10 products fail. New product development is cross-functional: Marketing identifies unfilled customer needs R&D conceptualizes and develops the product Finance verifies that it is economically viable SC leaders rely on teaming which includes suppliers and customers.

3. 3 Customer Satisfaction Cycle

4. 4 Mitigating Risk Companies are faced with increasing levels of risk in today’s market. Time Compression – product life cycles are being reduced, this increases risk because: New products must continually be in development Less time to capture development costs Cost – new product development is expensive with costs regularly exceeding $100 million 40% of all quality problems stem from poor design 60-80% of a product's cost is determined during design

5. 5 Intel’s Plan to Mitigate Risk Intel regularly faces product life cycles that are less than 6 months. Integrated circuit development cost can exceed $30 million, requires $1 billion market to justify expense. To mitigate risk, Intel analyzes 8 risk factors: Design Manufacturability Cost Quality Legal Issues Supply Base Supply Availability Environmental, Health, and Safety Impacts

6. 6 Intel’s Plan to Mitigate Risk Intel uses a “scorecard” to add visibility to risk in new product development. Additional actions taken: Clear “owner” for each risk reduction plan Cross-functional teams Specific timetables are established for risk reduction progress Progress is regularly reported to top management High risk aspects are highlighted not glossed over Results: Nearly eliminated surprises during development

7. 7 Intel’s Risk Scorecard

8. 8 Early Supplier Involvement (ESI) ESI is a key element of innovation strategies. ESI accounts for one-third of the reduction in labor-hours and 4-5 months of the shorter development cycle in the auto industry. Products introduced on-time but 50% over budget, realized only a 4% reduction in profit. Products introduced on budget but six months late experience a 33% decrease in profits.

9. 9 Early Supplier Involvement (ESI) ESI reduces risk when used in conjunction with New Product Development Teams Reduces costly misunderstandings Uses supplier competencies during design Suppliers may have access to pertinent customer feedback Suppliers may be aware of trends in technology or demand

10. 10 “Design for” Considerations New Product Development could consider: Design for Manufacturability – ease of production Design for Purchasing – support the product from the existing supply base Design for Logistics – ease of distribution Design for Environment – minimize environment impact Design for Disassembly – disassemble, recycle, and reuse Design for Reuse – new design using existing parts

11. 11 Modular Design Modular products can be manufacturer in “pieces and parts” from a variety of manufacturers. Modularity is facilitated by standardization Reduces the risk of supplier dependency Increases customer choice in terms of options Creates opportunity for niche competitors

12. 12 Marketing and the Customer Marketing’s job is to “get into the head” of the customer. Customer information is used in planning: Product - design of goods and services including both tangible and intangible elements Price - determine the value of the need which is satisfied by the product Place - having the product where it is needed, when it is needed, and in the correct quantities Promotion - effective advertisement and sales techniques Product Positioning relies on promotion and design to create niche appeal in a market segment

13. 13 The Marketing Process Strengths and Weaknesses Core Competencies Cash Flow Position Research and Development Customer Relationships Opportunities and Threats Competitors New Markets Technology Trends Government Regulations The marketing process begins with understanding the company’s goals, strategy, image, and completive position. Entails SWOT analysis

14. 14 New Product Development (NPD) New product development begins with the recognition of some unmet customer need and a potential market large enough to justify exploration. NPD can proceed either in a sequential or concurrent fashion. Sequential is the traditional “over the wall” approach to NPD. Sequential is time consuming and inefficient Sequential results in lost opportunities to leverage supplier competencies in the design process.

15. 15 Concurrent NPD Advocated by most supply chain leaders Uses cross-functional teams to develop new products with targeted cost and features. Typical teams will include managers from marketing, R&D, engineering, production, purchasing. Many companies include customers, suppliers and service providers in NPD teams. Use of target pricing and target costing

16. 16 Pricing to Meet Customer Demand Cost of Development Cost of Materials Labor Logistics Packaging Equipment Utilities Sales and Marketing Expense Customers determine the value of the need that is satisfied, this is the “Target Price” for new products. Target Cost is the Target Price minus profit margin Target Cost must include:

17. 17 Sequential Product Development

18. 18 Determinants of Target Price

19. 19 Target Costing and Target Pricing

20. 20 Competitive Target Costing - Example

21. 21 Target Cost Breakdown Once the target cost has been determined, component level costs may be calculated. Cross-functional teams again are employed: Operations - knowledge of processes employed Purchasing - supplier and parts knowledge NPD Team - new design knowledge Finance - knowledge of cost accounting Also may include members from Packaging, Engineering, Logistics, Suppliers, and Customers

22. 22 Importance of Design on Total Cost While the total cost of design might only be 5% of the total product cost, 70% of total product costs are committed to during the design phase. It is therefore important to “get it right the first time”