New product development (NPD) teams often focus on the customer. If there is no a customer need for a product, then it will not survive the marketplace and development efforts are wasted. Customer need should be the number one objective for an NPD project.
On the other hand, many firms often neglect the supplier relationships in their project planning. Yet, successful supply chain logistics are equally as important in lean development and to a new product’s success as is customer pull.
Why Does Supply Chain Matter?
Consider a typical NPD effort. In Stage 1, the team identifies markets, technologies, and product category opportunities. Stage 2 involves the whole team and additional subject matter experts to brainstorm concepts. In Stage 3, the team will align the new product ideas with the firm’s strategy in order to advance just one or two prototypes to technical development. Stages 4 and 5, then, proceed with manufacturing and market testing of the new product. At all stages, best practices encourage continuous testing and feedback from customers.
But what happens if the manufacturing team at Stage 4 cannot find a raw material for the new product in sufficient quantities? What happens at commercialization in Stage 5 if the product inventory is inadequate to meet demand due to lack of front-end production materials?
The answer to these questions is that the firm must investigate, identify, and solidify supplier relations throughout the NPD process. A perspective of treating the supplier as a customer will ensure adequate supply, delivery, and inventory of raw materials.
In a typical NPD process, Stage 1 involves opportunity identification. The firm will seek to identify markets, technologies, and product categories to fit the strategic mission. Most firms seek growth opportunities and will include product development as part of that growth strategy.
Therefore, in Stage 1, an NPD team must also identify potential suppliers for raw materials, equipment, and other parts. Of course, since the specific product idea is not described in Stage 1, supplier identification is not rigorous. Instead, the firm will seek to understand whether market opportunities will require in-house technical development or if the manufacturing can be outsourced.
Stage 2 is known as Concept Generation. In this phase of the NPD process, innovation teams will brainstorm ideas to meet the opportunities identified in Stage 1. In some cases, products may be re-positioned into new markets offering revenue growth for the firm. In other situations, the firm will need to undertake technical development work or acquire technology through licensing agreements.
Supply chain management in Stage 2 will include assessments of existing suppliers. Because the work done in Stage 2 involves divergent thinking, supplier evaluations are high-level. However, as the innovation progresses through Stages 2 and 3, the technical development and technology acquisition will become more important. The NPD team must not only identify if the work is to be done in-house or outsourced, but potential technology vendors must be specifically identified.
A typical NPD process identifies Stage 3 as Concept Evaluation. Here, the great number of possible ideas from Stage 2 are narrowed to a select few. These concepts are tested with both existing and potential customers. In addition, remembering the “supplier-as-a-customer” viewpoint, concepts should be tested for supply chain management.
Most firms maintain a preferred vendor list. During Stage 3, as the new product concept is refined, the NPD team should present the product idea to suppliers as well as customers. Vendors will be able to assess the probability of providing materials and parts to manufacture the new product. Skipping this step is perilous to the success of the new product.
For instance, a story goes around that McDonald’s test the idea of shrimp salads. Consumers loved the idea and concept tests were highly favorable. Luckily, McDonald’s also test the concept with suppliers and found that they would consume the entire world’s supply of shrimp just to offer the new product in the United States! Clearly, NPD teams need to test the concepts with suppliers as well as customers.
Gate 33, leading to the work of Stage 4, is often considered the “money gate.” This means that a firm is investing significant capital to proceed with the new product development effort. Stage 4 often includes formal construction plans of factories and distribution channels. Supply chain management in Stage 4 involves contract negotiations to secure long-term arrangements for materials and parts necessary to manufacture the new product.
While customer testing is focused on functionality and utility, supplier relationships are formalized in contract negotiations. These negotiations can set the tone for the supplier relationship long into the future. Suppliers should be treated fairly and negotiations need to focus on the win/win aspect of adding value for both parties.
Supplier negotiations will need to consider relationships between R&D personnel, quality requirements, and delivery terms. The supplier doesn’t want to be stuck with a huge inventory of parts if the new product does not capture market share. On the other hand, a supplier doesn’t want to manufacture expensive, small batches on a long-term basis. Contract negotiations should include terms for adjustment after the new product is commercialized.
In a standard NPD process, Stage 5 involves full commercialization of the product. The new product and marketing collateral are tested together for the first time. Sales are made into appropriate markets and distribution channels are tested.
As production ramps us, hiccups in the supply chain should not be unexpected. After all, raw materials and parts have been ordered based on sales forecasts. Now that the new product is finally commercialized, both the supplier and the producer are learning. This is the point at which strong relationships, developed over the period from Stage 1 identification to Stage 5 commercialization, really pay off. Joint R&D scheduling can address quality issues and coordinated scheduling can eliminate delivery problems.
Supply Chain in NPD
New product development generally focuses on the customer needs and wants. However, as we know, successful NPD goes beyond the customer to also include technical design and supply chain management. Including “supplier-as-a-customer” viewpoint into a typical staged and gated NPD process swill lead to higher success rates.
The most important element of supply chain management is building relationships with suppliers. Strong relationships support the necessary flexibility required in innovation work. This starts with supplier identification in the early stages of NPD work up to negotiations and trouble-shooting as the new product is manufactured and launched.
To learn more, please read Your Supplier as a Customer. You can also learn more in a new product development or engineering management workshop. Note that over the next several months, we will be migrating our training business to www.simple-pdh.com while maintaining the consulting business here at www.globalnpsolutions.com. If you have any questions, please feel free to contact us at 281-280-8717 or firstname.lastname@example.org.
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