Advanced Seminar in Business Innovative Product Development and Supply Chain Management Donald M. Huntington Executive in Residence
Importance of New Product Development 35% - 40% of U.S. firms sales revenues come from products commercialized in last 5 years Intense competition and customer demand make product innovation essential to survival Product development by U.S. firms is vital to competitiveness in global economy
Challenges New product success rate is 59% and stable 41% are failures in the marketplace 46% of NPD budgets go to failed products 6.6 ideas required to generate 1 success Average NPD cycle is 23.8 months (down 1/3 from mid 90 s)
Goals Improve success rates More ideas Better ideas Better screening & testing Reduce time-to-market (NPD cycle) Reduce development costs
Formal Processes Improve Results Best-practice firms get 49.2% of sales revenue from new products Firms without a formal NPD process get only 25% of sales from new products 40% of U.S. firms still use no formal NPD process Education needed!
Stage-Gate Conceptual & operational process to move new products from idea to launch 6 distinct stages, each requiring a management decision to proceed (Gate Keeper) Stage-Gate is the dominant formal process
The Stages and Gates DISCOVERY SCOPING BIZ CASE STAGE 0 GATE 1 STAGE 1 GATE 2 STAGE 2 GATE 3 DEVELOPMENT TESTING/VALIDATION LAUNCH REVIEW STAGE 3 GATE 4 STAGE 4 GATE 5 STAGE 5 $$ Resources and budget increase with each successive stage.
Stage-Gate Stage Team Responsibilities Activities Technical, market, financial, operational Integrated Analysis Thorough, cross-functional interaction Deliverables Presentation of findings and analysis to Gate Keeper All cross-functional activities are conducted in parallel to speed the process.
Stage-Gate Gate Responsibilities Define Deliverables Sets format and expectations of Deliverables from Stage Team Criteria Sets Go/Kill scorecard for project judging Outputs Clearly explained decision Path forward for next Stage
Stage-Gate Benefits Speed to market Improves product success Disciplined, measurable approach Reduces re-work and waste Improves focus and learning at Gates where poor projects are killed Improves allocation of resources Ensures no critical steps are omitted
Current Trends in NPD Development speed through use of computerized design, analysis & collaboration tools Platform flexibility & modular product architecture (mix and match) Complexity management through advanced networks & the Internet Outsourcing & off-shoring Lean principles Customer & employee involvement
Distribution and Supply Chain Management
The Supply Chain Multi-modal & multi-carrier Customer Transportation Order Entry Local & remote Strategically located manufacturing Production Planning Strategically located storage Inventory Purchasing Raw material & component vendors
Supply Chain Management Goal: Maximum customer satisfaction @ lowest cost. Strategic - Size & location of manufacturing facility - Product mix - Target markets - Strategic partnerships/mergers/acquisitions Tactical - Manufacturing best practices - Purchasing strategies/favored suppliers - Logistics - Warehouse strategies Operational - Order entry - Production management & scheduling - Purchase orders to suppliers - Warehousing - Shipping
Trends in Supply Chain Management Time and cost reductions Just-in-time manufacturing/delivery Communication & collaboration throughout supply chain (Real time) EDI established XML emerging-new Increased use of Internet-based collaboration Offshore manufacturing & warehousing (Efficient use of idle facilities) Subcontracting logistics & transportation (Multi-company, multi-product aggregation)
Physical Distribution Goal: Store and transport goods from manufacturer to customer in most efficient ratio of storage cost to transportation cost. Importance Distribution costs = 50% of final product cost Distribution activities = 20% of GDP Efficiency & Innovation = BIG $$$$$
Distribution System Components Precisely defined customer service standards Delivery time, order accuracy, etc. Transportation strategies Warehousing Order processing Inventory control Packaging, unitizing, materials handling
Trends in Distribution Precise customer service standards defined & measured in real time Aggregated transportation (multi-company & multi-product) Intermodal transportation Computerized planning, warehousing, picking, routing, tracking, billing Electronic Data Interchanges (EDI) & XML Unitizing & containerization
Trends in Distribution, cont d. Sophisticated warehouse systems Bar coding Pick-to-light RF voice picking Single-story warehouses Computer-designed storage layouts (for max efficiency) College degrees in Logistics & Distribution