We all know the statistic that 80% of the cost is defined the first 20% of product design, and that engaging Procurement early can significantly attack and reduce these costs considerably. But leading organizations are learning that engaging Procurement during New Product Design (NPD) is not early enough. Real success comes from engaging procurement during the Market Needs Analysis and New Product Definition phase.
Engaging Procurement after the product specs and initial design has been more or less determined limits Procurement’s capability to add value and extract cost. Once you’ve decided on a 9.7″ tablet with 64 GB of memory and a 5.1 MP camera limits Procurement to going to market for 9.7″ casing, 64 GB of memory. and 5.1 MP cameras and boards that support processors that can stay cool in a 9.7″ tablet. You’ve already limited the universe of potential. Moreover, you haven’t really defined what the real value is from a customer point of view (specs, reliability, brand value, sizzle), why, and how Procurement could add to
Procurement really needs to be involved from the inception of a new product introduction project. It needs to be both a sounding board and the voice of reason to help the organization zero in on the right mix of what will sell and keep the costs in line with market expectations (or at least market acceptance). Value to the organization is maximized when profit is maximized — which is maximized when profit per unit times number of units is maximized. This requires balancing cost with consumer values, not just optimizing cost, which is all that can be done if Procurement is not engaged until the final design / pre-manufacturing stage of the product lifecycle.
So, for real results and greater success, engage Procurement early and engage Procurement often. Sometimes the perceived market requirement isn’t worth the cost, and other times it is.
For more information on the product lifecycle, as well as some of the results Procurement can deliver not only early, but at each phase, you can check out Source One’s latest paper on Strategic Sourcing Throughout the Product Lifecycle. It’s a quick read, and if you want to go deeper, they have hundreds of projects they can draw on if you reach out to them.