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All companies, manufacturers and service providers. bring new products to market at one time or another. But only a minority have actually perfected the process of new-product introduction. This article looks at what it means to excel at new-product introduction and provides guidelines for improving its performance.

Many companies are good at generating innovative ideas for products. However, very few companies consistently commercialize those ideas by bringing new products to market on time and within budget. In fact, the ability to effectively introduce new products and services in a timely, repeatable manner is relatively rare.

Of course, taking an idea from drawing board to market at speed and with minimal cost is exceptionally difficult. But it also is essential. Consider that revenue generated by an average product in its first two years is now thought to account for between 35 and 50 percent of that product's lifelong income potential. In some industries, such as electronics, high tech, and pharmaceuticals, that percentage is even higher. Whatever the industry, a week of launch-slippage usually means that major market opportunities — often equating to millions of dollars — have been squandered. And very little of that amount is recoverable.

If new-product introduction (NPI) is such an important activity, why do few companies excel at it? At a macro level, the answer is change: During the introduction phase in a product's lifecycle, bills of materials, drawings, and forecasts are distributed and coordinated across a supply base that often consists of hundreds or even thousands of suppliers. But all through that cycle, new-product information is subject to a high degree of change. It's a bit like conducting an orchestra while the score is still being written.

This article explains in greater detail why new-product introduction is such a formidable task. It also examines the characteristics of a prime candidate for NPI improvement, looks at the impact of good and bad execution, and discusses several of the most important ways to enhance NPI performance.

What Exactly Is New- Product Introduction?

Think of new-product introduction as a process that begins when the initial design for a product is relatively complete (say, in the pre-release phase) and concludes when that product is satisfying market demand at volume production. In this context, NPI is literally the center section of most products' complete lifecycle (see Figure 1) and encompasses activities such as:

• Finalizing design of the product to meet specifications at lowest cost.
• Confirming consistent, reliable, and cost-effective sources of supply.
• Securing and verifying customer-facing channels, advertising, promotions, and pricing.
• Communicating product content and supply/demand information across the supply chain, including suppliers, customers, contract manufacturers, and third-party design houses.
• Building, testing, and optimizing associated facilities, equipment, and processes across the supply chain.
• Collaborating with multiple divisions, business partners, and third parties on product and process improvements.
• Priming the supply chain with sufficient inventory to meet forecasted sales at lowest cost.

Figure 1: In many respects, new-product introduction is the centerpiece of product lifecycle management.

Nearly all manufacturers could benefit from better new-product introduction processes. However, companies with the most to gain from an NPI-improvement initiative are those with a high proportion of future profits tied to the successful launch of new products. This means companies that introduce new products or upgrades on a frequent basis; companies with ever-shortening product lifecycles; and those with large advertising and promotion budgets associated with new-product launches, such as the fashion and automotive industries. Companies with numerous suppliers or complex supply networks (outsourced contract manufacturers, design houses, distributors, and logistics providers, for example) also are likely NPI-improvement candidates.

What's at Stake?

As shown in Figure 2, new-product introductions directly affect a company's top and bottom lines. At the top end, delays in getting products to market undermine sales volume; and in markets where price erosion exists due to competitive pressures, late entrants also experience significant margin damage. In fact, late-to-market products have a much greater impact on margin realization than design cost overruns and product cost overruns.

Figure 2: Ineffective new-product introductions can harm a company’s top and bottom lines.

In addition, fixed product lifecycles and the finite size of most markets mean that lost volumes and revenues generally stay lost. That is, lost ground is seldom regained when a late product is finally released. The impact of late-to-market products on revenue and margin is shown in Figure 3.

Figure 3: Impact of late-to-market products on revenues and margins.

From an operations standpoint, new-product introductions often are companies' last chance to finalize decisions that positively impact future costs. This is because more than three-quarters of a new product's total lifecycle costs generally are set in the design and new-product-introduction stages. A perfect scenario, therefore, would be product and supply-chain designs that are optimized during the design phase. Unfortunately, this is rarely practical or even feasible, which is why it is critical to understand the impact that various NPI decisions have on the purchase of big-ticket items such as tooling, or the extent to which the early involvement (or non-involvement) of suppliers and customers affects material costs, production costs, quality costs, tooling costs, and the costs of service and support (see Figure 4).

Figure 4: How the ability to influence total lifecycle costs changes over time (upper graphic) and the relative cost impact of such changes (lower graphic).

Frequent product and program changes also are common at the NPI stage, as product designs are introduced to the supply chain and issues and improvement opportunities are identified. In bottom-line terms, poor or late communication of changes in project status, program plans, or product content inevitably result in cost overruns, high levels of design rework, and excess or obsolete inventory. Figure 3 shows how NPI decisions influence total lifecycle costs and how the relative cost impact changes as time passes.

The Cornerstones of NPI Improvement

The multilateral nature of new-product introduction is precisely what makes NPI performance so difficult to improve. Every stakeholder — designer, supplier, manufacturer, logistician, and customer — should be involved. For this reason, cross-functional and cross-organizational teams with clear ownership, responsibilities, and visible performance metrics (such as profitability and deliverables) across the product lifecycle are needed to ensure ownership, continuity, and accountability. At a macro level, this means:

• Identifying key dependencies and leverage points (material or process expertise, for instance) with suppliers and customers, and making certain that sufficient representation from each is provided at every project stage.
• Ensuring that the composition of the team evolves so as to reflect each appropriate emphasis point in the product's lifecycle. For example, a heavy content focus should exist during the design stage. During ramp-up, the accent should be on readiness.
• Establishing a clear owner, with the requisite authority, for each NPI program.
• Ensuring that a core team remains in place from design through volume production. Additional team members will ramp up and transition out as required, but the core team should maintain continuity throughout the NPI program.
• Marginalizing suppliers and customers that do not have material input into the process. Involvement from non-key players on NPI teams can only slow the process down.

Program management is another vital component of new-product introduction initiatives. Like the orchestra conductor, the mission here is to keep all parties coordinated and working in harmony, while ensuring that the plan is followed and deliverables are produced on time. Program management also implies:

• Highly visible, critical-path oversight by senior executives.
• Integration with internal organizations, suppliers, and customers using a single, common plan developed and adhered to by all process owners.
• Carefully planned milestones and stage-gate entry and exit criteria with clear deliverables.
• The use of checklists, review cycles, and documents that are managed through workflows and monitored via alerts.
• Program dashboards that provide quick, clear visibility of program status and performance information.
• Resource allocation and management.
• Risk assessments that include contingency or recovery plans.
• An issue-resolution process, with clearly defined criteria and escalation paths.

One of the most unexplored, under-deployed ways to supercharge the NPI process is enhanced collaboration and the use of Internet portal technologies. Developed with relative ease, portals can provide process owners, manufacturers, suppliers, customers, and business partners with customized views of data, such as product information, program status, deliverables, and milestones. These customized views are powerful because they allow all parties to access the same data at the same time, thus ensuring consistency.

With capabilities such as program management, portfolio management, and collaboration, companies may find product lifecycle management (PLM) tools to be another NPI asset. The two technologies often fit together well, since PLM's principal mission is to provide an "enterprise view" of a product's complete life and content: similar to how ERP governs resources and CRM manages customer information. With PLM, as well as all technology initiatives, the key proviso is to be sure that a real value proposition exists. And value often is more achievable when investments in technology focus first on the coordination of content — prior to the heavy lifting of design collaboration.

New-product introductions usually benefit from tighter integration with suppliers, although integration levels must be based on the nature and value-potential of the relationship. Cross-functional teams are best suited to assessing these relationships and aligning and integrating NPI processes with suppliers and third-party service providers. The idea is to fully leverage each supplier's knowledge and ensure that all products and processes align with the supplier's capabilities.

In some cases, it may not be necessary to build supplier relationships that are more formal or technologically advanced. However, it always is important to:

• Involve suppliers (particularly key suppliers) as early as possible in the NPI process, as well as in program meetings and reviews.
• Limit the number of new supplier relationships on the critical path of NPI. Qualifying new suppliers can be time-consuming, costly, and uncertain.
• Obtain supplier feedback on specifications, product content, project plans, production, and ramp plans.
• Communicate regularly with suppliers regarding product, program, and production issues.
• Measure suppliers on performance against agreed-upon program goals.
• Align supplier-reward and compensation programs with formalized, performance-driven risk/reward-sharing agreements.

A critical yet often overlooked piece of the NPI puzzle is ensuring that the process is tightly integrated with the customer. For example, it is likely that product feature and performance requirements will change during the NPI process. And volume and mix forecasts (driven by pricing and promotion activities, launch dates, etc.) are equally dynamic. Changes must be communicated immediately so they can be incorporated into the NPI and launch plans. Failure to do so will result in a schism between NPI performance and customer expectations, as well as over- or under-supply of product and inventory.

While the need for customer involvement varies according to the nature of the product or industry, it still is important to:

• Consider installing key customers on executive review boards, steering committees, and cross-functional teams.
• Communicate status updates and program/project plans on a regular basis.
• Solicit customer input early in the design process and continue leveraging it through new-product introduction and launch.
• Increase the frequency of updates to forecasts and demand plans as the launch date draws nearer, and maintain that frequency through the initial ramp-up.

Lastly, although enormous potential exists to improve the NPI process, it is important to note that such improvements should not be positioned as a bandage for bad design (which they often are). Moreover, NPI challenges and design challenges are frequently similar, which means that companies should examine design processes and issues in conjunction with NPI programs.

Fundamental Change Is Required

Improvements in new-product introduction can take many forms and encompass many different strategies and support mechanisms. In fact, the only immutable ingredients are a clear sense of urgency to improve NPI performance, the flexibility to seek out solutions in multiple areas, and an organization-wide commitment to greater collaboration with business partners across the supply chain. Most of this sounds relatively easy to come by, but a willingness to change how business is done may also be needed. And that can require a fundamental shift in corporate culture, which is never simple.

About the Author

Title: 

senior manager, Supply Chain Practice

Accenture

Chris Cookson is a senior manager in Accenture’s Supply Chain Management Service Line. He has 15 years of operations management and supply chain management experience in the electronics and high tech, industrial equipment, and aerospace and defense industries.