Manufacturers face extraordinary challenges today, such as: managing complex and constantly changing regulations & risks, dealing with rapidly changing markets, high quality and low-cost consumer expectations and innovation driven demand. While juggling each of these challenges, manufacturers are expected to grow market share and profitable revenues. To accomplish these objectives, which is no small task, most manufacturers rely on launching new products.
Launching new products, however, is challenging, and for those involved, it can feel like more can go wrong than right. Procurement plays a critical, and often underappreciated role in New Product Introductions (NPI). Unfortunately, many of the challenges faced by Procurement can lead to failed products (Gartner, 2017). In a new report, “Procurements Role in Successfully Launching New Products,” we discuss the following six common concerns for NPIs as well as recommend best in class processes and technology that can improve the likelihood of NPI success.
Product Costs above plan
NPI teams are often stuck in a continuous, manual cycle of scrambling to collect, update, and calculate new product costs for analysis and preparation for launch. However, this is not a perfect process, and there are times where products are launched that are above the target cost, or worse, without knowing the actual cost of the product. To deal with these issues, procurement teams often look to reevaluate and resource selected suppliers after launch to drive costs down. Although there is nothing wrong with resourcing to select a better supplier option, it is a better idea to focus Procurements efforts on strategic initiatives rather than filling gaps from poor processes.
Late product launches
Late product launches are problems that don’t discriminate between companies. For example, Apple launched the iPhone X in 2017 three months late, and during that time, Samsung (Apples largest competitor) gained a 7.1% market share in the UK (Businesinsider.com, 2018). Now, we know that the iPhone didn’t fail, quite the opposite in fact. But many products aren’t as lucky, and the result of a delay can mean the difference between gaining first mover advantage with leading market share and settling for a non-leading position which is difficult and often costly to change.
Lack of robust supplier assessments
In 1991, Nike made headlines for producing shoes in Indonesian sweatshops with deplorable conditions and pay. This began a seven-year journey where we saw the athletic apparel powerhouse face widespread protests and customer reaction that injured the Nike brand and sales (Businessinsider.com, 2013). Similarly, in 1996, Kathy Lee Gifford’s clothing line was found to use child labor (nytimes.com, 1996). In both the case of Nike and Kathy Lee Gifford, both relied on suppliers (outsourced/sub-contracted) to manufacture goods but may not have had a real understanding of how they conducted business.
Ericcson, formerly a market leading manufacturer of cell phones, provides a great example of how inventory shortages can cripple a business that isn’t prepared. In 2000, Ericcson’s sole supplier of microchips suffered a catastrophic natural disaster that damaged thousands of products beyond repair and required a multi-month shutdown for repairs (economist.com, 2006). Ericcson wasn’t ready and failed to prepare for alternative supply. Manufacturers must be just as prepared to deal with risk as well as with increases in product demand.
Samsung launched the Galaxy Note 7 on August 19, 2016 in 10 markets, and by September 2, 2016, the company issued a global recall for 2.5 million units of its flagship smartphone due to lithium ion battery failures that caused some of the devices to catch on fire and even explode (Fortune.com, 2016). Samsung went on to blame this failed product launch on supplier manufacturing and product design issues (wsj.com, 2017). Believe it or not, Samsung had two battery suppliers, and each produced a different battery that caught fire in the Note 7.
Missing innovation and differentiation
As the Harvard Business Review article, “Why Big Companies Can’t Innovate” (hbr.org, 2012) describes, large companies are focused on operational efficiency to increase profits. Innovation and differentiation may no longer be a strength. To continue to thrive, manufacturers must focus products on the customer experience and find new avenues to interject innovative capabilities into their products.
Technology Can Help
Best in class enterprises often seek out technology, such as Source to Pay (S2) solutions because they can improve efficiency by digitizing processes, help manage all spend categories, and improve transparency and data quality across the enterprise. But buyers should beware, because not all spend is the same. Manufacturers engaged in Direct Materials NPI sourcing should not settle for solutions that do not support your organizations efforts to launch products (1) at a cost that is under control, (2) on schedule, (3) where supplier risk is evaluated, (4) where future product growth can be supported, (5) where best practice quality processes are supported, and (6) innovation is fostered.
Read the Report
To learn more about the challenges Procurement faces throughout the NPI process, as well processes and technology that can improve the likelihood of success, read the new report: Procurements Role in Successfully Launching New Products