Professional Documents
Culture Documents
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Chapter 4: Learning Objectives
3. Describe the marketing process and discuss
its role in the new product process.
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Chapter 4: Learning Objectives
5. Describe the finance process and discuss its
role in the new product process.
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New Product Development
New product development is risky and
expensive.
More than 9 out of 10 products fail.
New product development is cross-functional:
Marketing identifies unfilled customer needs
R&D conceptualizes and develops the product
Finance verifies that it is economically viable
SC leaders rely on teaming which includes
suppliers and customers.
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Customer Satisfaction Cycle
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Mitigating Risk
Companies are faced with increasing levels of risk in
today’s market.
Time Compression – product life cycles are being
reduced, this increases risk because:
New products must continually be in development
Less time to capture development costs
Cost – new product development is expensive with
costs regularly exceeding $100 million
40% of all quality problems stem from poor design
60-80% of a product's cost is determined during design
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Intel’s Plan to Mitigate Risk
Intel regularly faces product life cycles that are less
than 6 months.
Integrated circuit development cost can exceed $30
million, requires $1 billion market to justify expense.
To mitigate risk, Intel analyzes 8 risk factors:
Design Manufacturability
Cost Quality
Legal Issues Supply Base
Supply Availability Environmental, Health, and
Safety Impacts
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Intel’s Plan to Mitigate Risk
Intel uses a “scorecard” to add visibility to risk in
new product development.
Additional actions taken:
Clear “owner” for each risk reduction plan
Cross-functional teams
Specific timetables are established for risk reduction
progress
Progress is regularly reported to top management
High risk aspects are highlighted not glossed over
Results: Nearly eliminated surprises during
development
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Intel’s Risk Scorecard
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Early Supplier Involvement (ESI)
ESI is a key element of innovation strategies.
ESI accounts for one-third of the reduction in
labor-hours and 4-5 months of the shorter
development cycle in the auto industry.
Products introduced on-time but 50% over
budget, realized only a 4% reduction in profit.
Products introduced on budget but six months
late experience a 33% decrease in profits.
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Early Supplier Involvement (ESI)
ESI reduces risk when used in conjunction
with New Product Development Teams
Reduces costly misunderstandings
Uses supplier competencies during design
Suppliers may have access to pertinent customer
feedback
Suppliers may be aware of trends in technology
or demand
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“Design for” Considerations
New Product Development could consider:
Design for Manufacturability – ease of production
Design for Purchasing – support the product from the
existing supply base
Design for Logistics – ease of distribution
Design for Environment – minimize environment impact
Design for Disassembly – disassemble, recycle, and reuse
Design for Reuse – new design using existing parts
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Modular Design
Modular products can be manufacturer in
“pieces and parts” from a variety of
manufacturers.
Modularity is facilitated by standardization
Reduces the risk of supplier dependency
Increases customer choice in terms of options
Creates opportunity for niche competitors
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Marketing and the Customer
Marketing’s job is to “get into the head” of the
customer.
Customer information is used in planning:
Product - design of goods and services including both
tangible and intangible elements
Price - determine the value of the need which is satisfied
by the product
Place - having the product where it is needed, when it is
needed, and in the correct quantities
Promotion - effective advertisement and sales techniques
Product Positioning relies on promotion and design
to create niche appeal in a market segment
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The Marketing Process
The marketing process begins with understanding
the company’s goals, strategy, image, and
completive position.
Entails SWOT analysis
Strengths and Weaknesses Opportunities and Threats
Core Competencies Competitors
Cash Flow Position New Markets
Research and Development Technology Trends
Customer Relationships Government Regulations
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New Product Development (NPD)
New product development begins with the
recognition of some unmet customer need and a
potential market large enough to justify exploration.
NPD can proceed either in a sequential or concurrent
fashion.
Sequential is the traditional “over the wall” approach to
NPD.
Sequential is time consuming and inefficient
Sequential results in lost opportunities to leverage
supplier competencies in the design process.
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Concurrent NPD
Advocated by most supply chain leaders
Uses cross-functional teams to develop new
products with targeted cost and features.
Typical teams will include managers from
marketing, R&D, engineering, production,
purchasing.
Many companies include customers, suppliers
and service providers in NPD teams.
Use of target pricing and target costing
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Pricing to Meet Customer Demand
Customers determine the value of the need that is
satisfied, this is the “Target Price” for new products.
Target Cost is the Target Price minus profit margin
Target Cost must include:
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Sequential Product Development
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Determinants of Target Price
Estimated Cost Structure Historic Cost
of Product/Service Structure
Target
Price
Perceived Value
Versus Competition 21
Target Costing and Target Pricing
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Competitive Target Costing - Example
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