When you try to reverse engineer the secret sauce for a wildly successful new product, you probably don’t start by wondering how the procurement team worked its magic. Engineering and marketing get all the glory when the latest gizmo becomes a customer favorite. As consumer expectations for quality, innovation, ethics, and cost continue to rise, new products are critical to competitive advantage. And procurement is often the critical component to getting that product to market.
There’s nothing easy about taking an idea to fruition — from design to sourcing to manufacturing to marketing, pushing a new product through the value chain if often complex, risky, and too reliant on manual processes and guesswork. New markets, new production capabilities, and new business models push manufacturers and their suppliers to evolve rapidly and relentlessly. In the era of manufacturing management systems, big data, and global supply chains, it’s time to get smart about new product launches. Manufacturers and brands know this, and are striving to digitally transform every stage and process involved in new product development.
In a recent Forrester report on smart procurement, the chief procurement officers (CPOs) surveyed identified their top roadblocks to strategic decision making: tedious manual activities that consume too much time, unreliable or hard-to-access data, and poorly integrated systems. IDC predicts that by the end of 2020, 50% of manufacturers will be extracting business value from the integration of supply chain, plant operations, and product and service life cycle management. For further insight into this value creation, consider IDC’s findings that by 2019, 40% of G2000 manufacturers will use design democratization and collaborative innovation to achieve revenue targets for new products.
That’s where smart procurement, sourcing, and supply chain management can show up as big opportunities to optimize quality, speed, control, and cost. It has always been procurement’s job to identify reliable suppliers and negotiate lower costs. But what if suppliers could be more than reliable? What happens when they become partners, key innovators, and product specialists? Moreover, what happens when the procurement team works closely with designers and engineers, starting early in the new product development cycle? When all the relevant capabilities and expertise extant in the value chain are easily accessed and brought together on a comprehensive platform, it becomes possible to move away from silos of manual processes, capture lessons learned, and make more informed and effective decisions and plans.
The primary challenges of new product introductions (NPI) are cost control, timing, quality, differentiation, and supply chain risk. Procurement technology solutions can address each of these issues.
The cost of new products often comes in above plan. Sometimes components were more expensive than initially estimated, or new suppliers had to be found midway through development. Often the design team didn’t perform due diligence with material requirements or suppliers, or didn’t account for enough rev cycles.
A product launch plan can be delayed due to supplier readiness, quality issues found during testing, or simply poor project management. Often, stakeholders have fallen out of alignment and sign-offs are pushed back. It’s important to have robust supplier selection processes, so that risk, quality, and cost are balanced. It doesn’t pay to go with the lowest cost supplier if they don’t have the financial stability to ramp up to production demand and sustain quality and inventory levels after launch.
Discovering issues with product quality after launch is a huge blow. It damages the emerging product’s desirability, but also tarnishes the brand’s overall reputation. Suppliers have to be able to scale quality along with production numbers as demand rises.
Differentiation & innovation
Often new products are launched to rejuvenate a product line, satisfy changing customer preferences, or differentiate in a crowded market by introducing new features, new look-and-feel, or more advanced materials. More and more, specialists in the supply chain enable these innovations. If you don’t have a good relationship with those suppliers, you won’t get the benefit of their expertise and creativity. To get the best a supplier has to offer — in terms of cost, schedule, or innovation — you have to make sure you’re the preferred client.
Very few companies make every part of their final product. As supply chains trend towards being larger, more complex, and more geographically dispersed, multiple risk vectors are introduced. The dynamic state of global trade tariffs, for instance, has the potential to cause widespread disruption for manufacturers, material industries, and commercial brands. Weather events, disasters, regulations, competition, skills shortages, and mismatched or outdated technology systems are all complicating factors. Most of these factors are outside of the manufacturer’s control. Managing supply chains is all about assessing and mitigating risk, planning for contingencies, and optimizing for efficiency. The more visibility and control you can sustain, the better. End-to-end, integrated systems go a long way towards encouraging two-way exchange of ideas, product specifications, and expertise.
It’s not only the supply chains that have grown more complex over time. Products themselves are expected to do more and increasingly include software components, connectivity, customizable options, and post-purchase services. More consumers (and regulators) demand ethically sourced, eco-friendly materials and production processes.
Procurement technology — when applied across the enterprise using clean, encompassing master data — can enable significant improvements in each of the areas discussed above. For instance, many companies are still managing supplier profiles, bill of materials (BOM), and cost comparisons manually — sometimes even off line! With one central repository for supplier and procurement-related data, decisions can be made more quickly, yet incorporate more variables and provide more transparency to stakeholders. Procurement platforms that center the product do a particularly accurate and efficient job of managing costs at the component level and breaking out NPI-related activities.
With source-to-pay procurement support, you can quickly identify the best supplier based on an analytical comparison of many suppliers’ in-depth profiles (performance history, quality metrics, financial health, compliance, and more). Once this is done, bring the supplier into the process during the design phase to ensure solidly vetted evaluations of feasibility and projected costs.
Smart procurement works in both directions. Automated invoice processing, streamlined workflows, and efficient controls allow brands and manufacturers to pay their suppliers quickly, which means they carry less debt and sustain stable cash flow. Suppliers tend to favor companies that expedite payment, are easy to work with, and seek their input on critical design, sourcing, and engineering decisions. These healthy, collaborative relationships are instrumental in encouraging suppliers to invest in new equipment and processes, because trustworthiness has been established in both directions.
New product introductions have always been challenging. With all the transformations emerging in manufacturing, consumer markets, and global trade, product launches aren’t getting easier just yet, but we do have more powerful tools at our disposal. When you’re cooking up a new secret sauce, don’t forget to mix in smart procurement. That’s how you win the bake-off.