Innovation is the new business imperative. Product innovation, and the impact that product launch success and failure have on the bottom line of organizations, is everywhere around us. Innovation drives growth. Strategies for managing the business process framework around innovation, and the technology elements supporting these processes, have become a critical success factors for small and mid-tier manufacturers.
What smaller manufacturers are finding is that success is increasingly not just about design, or manufacturing, or promotion. Rather, success comes from coordinating and integrating these disparate processes into a single platform to build and deliver products that better meet market demand. Success is also about becoming faster and more efficient than your competitors, ultimately making more money and improving shareholder value. This sounds good on paper, but it is easier said than done.
The innovation environment is becoming increasingly more complex for a variety of reasons: globalization; a more demanding set of customer requirements; the growing and complex set of regulatory and compliance mandates; and pressure to produce more (and better) products, faster. Among small and mid-tier manufacturing organizations, these growing requirements are often complicated by constrained IT budgets and small IT staffs.
Innovation Struggles
Manufacturers' performance in the realm of innovation -- the process of conceiving, designing, and launching new products -- is mediocre. In fact, research has found that product-launch failures are almost commonplace in some industries, with failure rates approaching 40%. Across all manufacturing industries, one in four products failed to meet the original business objectives, according to survey respondents in a recent AMR study. The most significant reasons why products fail are that they don't meet specific customer needs, are late to market or miss demand windows, or aren't properly commercialized and/or promoted (see
Chart 1).
Key reasons for product-launch failures include:
- Over 40% of mid-tier organizations say they have no formal process to move a product from concept through launch. Almost 20% of organizations are just beginning to define these processes. The result is often a lack of ownership, distributed decision making, and distributed and ill-defined ownership of the product development problem.
- There is a huge data integration and coordination challenge, and not just within the engineering function. Regardless of the size of the company, data resides everywhere in the systems and processes that comprise the typical new product development process -- from POS, Excel spreadsheets, and unstructured data like Powerpoint presentations at the "fuzzy front end" of the process, to e-mail, CAD, design and quality tool, ERP, and supply chain systems data at the other end. Consider the impact on these disparate systems when something as simple as a piece of artwork changes, or any type of engineering modification is made. How does this change get approved and communicated throughout the system, and how do organizations ensure that the change is consistently recorded throughout the system? It's clear why managing change in a highly distributed, often poorly integrated environment causes so many headaches, and frequently leads to lengthy delays in the overall product development cycle: process shortcomings (see Chart 2).
Typical Mid-Market Pain Points
There are some common pain points that many small and mid-tier manufacturers experience throughout the new product development and introduction process -- areas that are of critical importance, but where organizational performance is poor. Research conducted by AMR in 2004 and 2005 indicates that problematic process areas include (
Chart 3):
- Design or engineering changes. This area is emerging as a high-priority process problem in the mid-market, just as it has for larger manufacturers. Engineering change management is almost always a commonly cited process issue because organizations often lack a document repository or integration between systems and processes.
- Communicating the latest revision of the BOM to all interested parties. Success is no longer just about a good design. Design is not the problem. Sharing that design information with the rest of the organization is the problem, and the most frequent cause of process delays.
- Cost estimation in product development. In the RFQ process, if you bid too high, you lose the job; bid too low, and you risk losing money. Most organizations struggle to answer questions such as: Have we built a similar product? What was the cost of materials the last time we built this part? How long did it take to set up the manufacturing line?
A Framework for PLM Strategies
There are five essential business roles/processes that need to be considered when evaluating, assessing, and implementing strategies for innovation within a manufacturing environment. These business roles/processes define the key business processes of a PLM strategy, and map to unique supporting technology solutions. These five core areas include:
1. CEO-Facing Role: Spending money wisely and managing the investment portfolio, measuring risk vs. return of different investment alternatives.
2. The Supplier-Facing Role: Supplier-facing functions include managing the relationship with your supply chain -- including parts, components, and ingredients (in process) -- to ensure that quality is maintained and costs are minimal.
3. Customer-Facing Role: This comes down to making sure you know what you are selling -- what will succeed in the marketplace and at what price, and then communicating this to other stakeholders in the process.
4. The Creative Role: This embraces the entire product design process and associated activities. It includes designers, but also artists, formulators, packagers, etc.
5. The Information Repository: All the roles are supported by a foundation of product information. This allows you to get to a single version of the truth, so you can manage changes without communication breakdowns.
Where to start? Here are some places to consider:
- Most organizations begin building a PLM strategy by migrating product development and design information into a single information repository. Typically, this includes a product data management (PDM) system. The initial goal is to establish a single version of the truth from which all stakeholders can work.
- Complementing these data control efforts are project management activities to implement a standard method for managing product development and launch. These efforts often include a process for managing the engineering change order (ECO) process, which complements the revision control activities handled by a PDM system.
- Collaboration, while essential to cutting time to market, is more often considered as a next step only when design and product data are being effectively managed, and an ECO process is in place to manage the changes that collaborative design will inevitably yield.
Strategic Benefits
Improving time to market is the most strategic reason cited in our research for implementing an effective PLM strategy. But success is not about just a better product design; success is attained by more effectively managing the extended product development process. Compressing design is important, but the job is not done when the design is finalized. Success is measured across the entire new product development and launch process, from concept development to peak production volume.
Business Benefits
Technology projects must be justified by operational business benefits. There are three distinct categories of operational business benefits that have been observed by implementing a PLM strategy that embraces the entire product development process. These benefits include (see
Chart 4):
- Internal operational performance, including engineering/design efficiency/quality, time to market, and change management cycle time. Interviews with manufacturers indicate that long-term efficiency improvements of 2%-3% (engineering/R&D expenses are computed as a percentage of sales) are achievable.
- Customer-facing performance improvements, including a faster RFQ response, improved order accuracy, and lower warranty costs.
- Supplier-facing performance enhancements, including reduced direct material costs, improved part re-use, and reduced tooling costs.
Implementing a process-driven PLM strategy will support an organization's key growth initiatives. While it will drive top-line growth and rationalize the need to create a common platform for managing the innovation process, it can also help to reduce operational, customer-support, and supplier-management costs. Remember that 70% to 80% of costs are locked in at design, so companies that are not strategizing about cost reduction throughout the design process are unnecessarily limiting product profitability, as well as sacrificing margins.
Most mid-market manufacturers excel in product design, but are mediocre at innovation. Success, while contingent upon great design, is also dependent on the sharing of design information inside and outside the organization. Success comes when the right people have the right information at the right times to make better, faster, more profitable decisions about products as they move through the value chain.
David O'Brien is Vice President, Quantitative Research at AMR
Research, Inc. in Boston.