Category Archives: Product Management

A Chief Executive’s Advice for Performance Improvement

In “Turnaround Time: Ways to Jump Out of a Slump”, Mark Gottfredson and Steve Schaubert wrote a remarkably perceptive article that outlined a clear and simple process for navigating your way out of a downturn:

  1. Diagnose the “Point of Departure”, or where your business went wrong
  2. Identify the “Point of Arrival”, or where your business needs to be at the end of a period of time to be successful again
  3. Define a small number of key initiatives that will sequentially get you from the “point of departure” to the “point of arrival”

Ok, maybe it’s not so simple as many business have a hard time identifying, at least internally, where they went wrong, have a harder time figuring out what will make them successful, and often have the hardest time of all identifying that sequence of innovative initiatives that will take them from here to there. However, the article does note that when businesses start to fail for performance reasons, the vast majority of the time it is because they violate one of the following four fundamental laws that, despite not being built on an economic theory, do capture, in an almost eery way, some fundamental truths of business:

  • Costs and Prices ALWAYS Decline
    It is a basic law that inflation-adjusted costs and prices in nearly every competitive industry decline over time. Raw material costs going up? Then you have to find an innovative method of production to keep costs done, or a way to make the product from an alternative, cheaper, material, or a way to make a higher quality product that carries more (perceived) intrinsic value. (Successful cell phone manufacturers live and die by the latter.)
  • Competitive Position Determines Your Options
    Leaders are always in a good position to gain more market share through investment or to raise industry standards in quality, service, and innovation. Followers are stuck with doing their best to keep up until they hit upon an aggressive innovation strategy that can move them into a leadership position.
  • Customers and Profit Pools DON’T Stand Still
    The desires of your customers will change over time, as will the amount of disposable income they have. You need to know what your most profitable customer segment is and meet their needs.
  • Simplicity gets Results
    In addition to simplifying your processes, you must also simplify your strategy, organization, breadth of product line, and, most important, usability. Apple understands this well.

The authors also give you a good working definition of “point of arrival”. Specifically, it means a set of defined, numerically specific goals that can be accomplished in just two or three years. In other words, don’t shoot for the moon if you haven’t even successfully launched a rocket into space yet. Although the goals should be bold and compelling, they must be realistic. No amount of motivational speaking will get your employees behind something they know is fundamentally impossible.

Finally, they give you some advice on how to select the right initiatives to get you there. Specifically, select ones with measurable metrics that address the following characteristics of the four laws:

  • Law 1: Costs and Prices Always Decline
    • Cost/Price Experience Curve
    • Relative Cost Position
    • Product-Line Profitability
  • Law 2: Competitive Position Determines Your Options
    • ROA/RMS
    • Market Share Trends
    • Capability Assets and Gaps
  • Law 3: Customers and Profit Pools Don’t Stand Still
    • Customer Segments and Trends
    • Customer Loyalty
    • Profit Pool Migrations
  • Law 4: Simplicity Gets Results
    • Product & Service Complexity
    • Organizational & Decision Making Complexity
    • Process Complexity

Protecting Your Brand From Counterfeiting

A few months ago in Does Trouble-Free Mean Fraud-Free, I pointed you to a recent study by Kroll that found that, in some sectors, fraud in the supply chain has increased five-fold in the last six years. Even though these numbers include fixed asset fraud, inventory fraud, distribution fraud, and return fraud, a lot of this fraud, especially in certain sectors (like pharmaceuticals and CPG) is manufacturing — and counterfeiting — fraud. This is because, as a recent Industry Week article points out, counterfeiting is one of the largest and most profitable businesses in the world.

The article quotes YottaMark, a SaaS-based innovator in security coding, who estimates the direct loss due to counterfeiting of technology products alone at over $100 Billion a year, as 1 out of every 10 technology products sold in the world is counterfeited. For example, even before the iPhone 3G was released on July 11, hundreds of iPhone counterfeits were available overseas, for less than half of Apple’s suggested retail price, as reported in the Irish Times.

So what can you do to protect your brand? The article suggests turning to a trusted partner that specializes in brand protection solutions, like YottaMark or Brady Corporation that offer a combination of overt, covert, and semi-covert technologies that uniquely identify your products.

Overt technologies, like holograms or color-shifting ink, include a clearly visible mark of authenticity on the product; covert technologies, that include hidden bar codes and images, allow the product to be authenticated by a trusted party using a specific tool or knowledge of what to look for; and semi-covert technologies blend overt and covert features into a multi-faceted security solution that can be used to instill trust in the consumer and in trusted supply chain participants.

I think the article is on to something here. Sure you could follow the lead of big corporations and create brand protection teams and do your own research into overt and covert technologies to protect your solutions, but how well are you going to do on your own when there are a number of disreputable organizations out there that dedicate all of their resources to cracking the latest security technology? Not well. In comparison, a partner company that is 100% dedicated to creating the best security and anti-counterfeiting technology possible will be years, if not decades, ahead of you and using their solutions will make your products much more secure than you could make them on their own. It’s sensible outsourcing — do what you do well, and outsource the rest to a partner that can do it better, faster, and, most importantly, more cost-effective.

Choose Your (Project Management) Metrics Appropriately

A recent article over on CIO.com highlighted recent findings from Forrester Research which found that “Common Project Management Metrics Doom IT Departments to Failure”. According to Forrester, the idea that a project must be on time, on budget, and deliver the initial requirements is problematic and sets up an IT project for failure.

According to Forrester, the problem with these metrics is that they perpetuate the idea that a project is only successful when it is completed according to the initial schedule, budget and requirements — and therefore, that anything less is a failure. Project requirements change for a variety of reasons, and schedules and budgets change during the lifetime of the project based on better information as to effort, complexity and interdependencies, and, thus, the initial plan should not be adhered to if additional information leads to a better understanding of how the project different from initial estimates.

The reality is that, as the project requirements are explored, complexity will increase or decrease, and, more importantly, requirements will change. Some features and functions will be determined to be unimportant while new features and functions will be discovered that have more value than the initial requirements. Thus, even if these cost more, if the ROI is greater than the ROI predicted by the original project plan, the plan should change. This holds true regardless of the application area — operations, CRM, or supply chain. When it comes to IT, the reality is that you never know exactly how long it is going to take, how much it is going to cost, or just how much benefit you’re going to find until it’s done. You can estimate, and if you have an expert help you, the estimate will usually be close, but it won’t be perfect — and this is why may projects fail, because those who don’t understand IT expect that perfect plans exist. There is no perfection in IT project planning. Accepting this is the key to success.

The metrics that should be used are the ones that identify fundamental issues that cause projects to fail: like lack of governance, unrealistic plans, and limited understanding on the part of management. Better metrics are how many milestones are hit (as long as the project plan is updated at each milestone based upon knowledge gained and lessons learned), what percentage of people are using the system at the end of each phase of the rollout (w.r.t. what percentage of people should be using the system), and how many executives are using the system (even if only for reporting purposes).

Furthermore, project management personnel must play a more active role in managing project sponsors’ and business stakeholders’ perceptions of success and failure. Forrester recommends that project management personnel take the following four measures:

  1. Keep Project Steering Committees on Task
    Insure that the steering committee makes decisions in a timely matter and addresses problems and issues as soon as they arrive.
  2. Improve Communication with Project Sponsors
    Keep the sponsors up to date with changes in requirements and the impacts these changes have on the budget and timeline to insure that they see progress and success and not failure.
  3. Improve the Reliability of Project Plans
    Establish best practices for developing plans with significant unknowns. This can help with setting sponsor expectations for reasonable project performance.
  4. Better Communicate Estimates of Cost, Schedule, and Resources
    … and how they are based on current business conditions, current requirements, and current assumptions — and that they could change as the project progresses and understanding is improved.

Design Cost Out with Akoya

Last year, I gave you a formal introduction to Akoya (acquired by I-Cubed) in my post Ahoya, Akoya and their unique solution for reducing direct material spend, which was described by their co-founder and president Brett Holland in his posts on “Getting Ahead of the Product Cost Management Curve” and “Taking Control of Cost Management for Engineered Direct Materials” over on Spend Matters. (With additional information to be found in their short paper on why “analytically derived should-cost information is critical for improving product margins”.)

When I was back in the mostly windy city recently, I had a chance to catch up with Akoya and discuss their new product offering, currently in beta with a few select customers, which is designed to complement their existing product offering and help organizations save even more on their manufactured part purchases.

Their current product offering, Category Workbench, allows a company to identify which parts it is likely paying too much for using a technique Akoya calls “competitive banding”. By extracting identifying features and product composition information from part designs, Akoya’s Category Workbench can automatically group parts into categories by common design elements and raw material composition and extrapolate average prices. Using this information and market costs, it can also statistically extrapolate expected prices for each part in a category and identify those parts that are currently being sourced at below market price, at market price, and above market price. This allows the company to identify those parts that present savings opportunities through re-sourcing, re-negotiation, or re-design. With this information in hand, a company not only knows where its sourcing teams should direct their sourcing efforts, but where it’s engineering teams should direct their redesign efforts. Considering that re-design and re-costing of even a simple part through a system like MTI Systems’ Costimator or Apriori’s Virtual Product Environment* can take a design engineer the better part of a day at the low-end, and a few days at the high end, and that their time is very expensive, this is very important as a company that sources thousands of direct parts can only attack a few hundred parts in a given year, and the wrong choice (based simply on a spend analysis by volume, supplier, or cost) can cost a company more money than the redesign effort will save.

Akoya’s next product, Designer Workbench, is going to allow a company to dive into those parts where the Category Workbench indicates a potential savings opportunity in a way that’s going to allow the company to determine the potential extent of the savings opportunity in minutes instead of hours, or even days. In addition to a number of new search, costing, and CAD data support features, which I plan to dive into at a later date after the product is generally available, one of the significant new features that this product is going to include is a new “What If” Analysis Tool. Using market pricing and price data from other products in the competitive band, this tool is going to allow an engineer to quickly create virtual variants with different features, treatments, processes, and raw materials and calculate estimated costs in real-time. In a matter of (less than 15) minutes (on average), a design engineer is able to iterate through a number of options and identify not only a lower cost alternative, but the high level design features that the lower cost alternative needs to have. In beta tests with an existing client, the estimated costs produced by the solution have been found to be accurate within 95% or more (when compared with detailed Costimator analyses which take an average of 6 hours for the customer in question). Needless to say, these are some amazing results, and I suspect that a forward thinking company that properly utilized this solution in conjunction with complementary solutions would see incredible returns. But that’s also a subject for a later post.

* Although re-design and re-costing through Apriori’s Virtual Product Environment can be done in a matter of minutes once the environment is configured and appropriate cost information entered, setting up one of these environments usually takes days, and often requires the assistance of Apriori personnel. 

Packaging – The Total Solution

A recent Spend Matters perspective asked a very important question: “Have You Got the Total Package?” This is important not only because packaging costs money and adds to total product costs, but also costs money by adding to transportation costs – twice, and, even more importantly, can cost sales by limiting how many units of a popular product you can have on the shelf at any one time, especially if poorly designed.

More importantly, as the perspective pointed out, you can save significantly if you attack the packaging category strategically, even when prices are rising across the board. Up to 20% savings are possible through better sourcing and requirements definition, and up to 50% are possible with re-design. The key, as with any other strategic category, is to understand what you’re buying, with whom, in what volume, and what you really need. Not only are there spend leverage opportunities, but there are often significant substitution capabilities simply by changing the specifications from “‘B Flute’ Cardboard box, 12″ by 6″ by 8″, Form Factor 2” to “Box: minimum 11″ by 5″ by 7″; maximum 13″ by 8″ by 12″; minimum weight capacity 15 lbs; maximum weight capacity 25 lbs;” … because this allows the supplier to offer you the product that is the most effective for them to make if multiple boxes will do equally well. No redesign necessary.

It also allows you to bypass the “crawl” phase of the “crawl – walk – run” maturation process for sourcing organizations presented in the perspective, which is important as this will significantly increase your chances of achieving big savings quickly, without requiring any significant involvement from engineering. All you are asking for is a specification of the requirements in a product neutral manner, which engineering would have defined before they selected the current standard packaging.

This allows you to get to the “run” phase faster, which is where significant savings opportunities are to be found, especially if you’re willing to go beyond simple material substitution and engage in a full packaging design process that will minimize package size, minimize raw material requirements and associated costs, maximize the number of units that can fit onto a pallet, and minimize the shipping requirements for the packaging itself. For example, just like a box generally allows for tighter packing than an odd shaped container, a tetrahedron often allows for denser packing than a cube while reducing the amount of packaging material required to achieve the same volume. Thus, just like tetrahedron containers make sense for certain liquids, they might also make sense for odd-shaped products (like pyramid-shaped ornaments) that would leave too much free space in a box (and increase the filling material requirement as well as waste).

And the sooner you’re running off to do package design optimization, which will could also help you get greener faster, the sooner you’re saving money on categories that would otherwise have price increases through the roof. So, Get Packing and save money!