Category Archives: Product Management

Demand Management, CPO Agenda Style

I found a recent article in CPO Agenda on how to “engineer fresh opportunities to control spending” quite timely given the extended recession and the limited revenue growth opportunities due to the reduced amounts of disposable income end customers have in their pockets to buy products and services. According to the article, effective demand management is the next logical step to controlling costs and driving down inefficiency and waste, and along with improved inventory management and distribution network design, they’re right.

With a better understanding of the factors at the root of demand for products, services or internal resources, a company can put in place innovative ways to eliminate, reduce or meet demand more efficiently and the result can be considerable savings. And while demand management may be traditionally associated with indirect spend, the greatest savings to be had are usually in direct categories. The key to realizing that is to stop focussing on “savings” and instead focus on “cost avoidance” because, as I said before, “savings” is just money you should not have spent in the first place!

So how do you get started? According to the article, you follow these five steps:

  1. Create a Demand Tree
    This a flowchart that starts with demand origin and documents key drivers. It breaks down the product or service into its constituent parts to aid in a full understanding of the product or service provided.
  2. Calculate Demand
    Based on this flowchart, calculate annual demand for each component.
  3. Calculate Capacity
    Figure out how much you can produce at each production level and the associated costs.
  4. Compare Capacity and Demand
    What capacity level are you at with current and projected demands. Does it make sense?
  5. Create Action Plans
    Once you’ve figured out what level you should be at, you can create a plan to alter demand accordingly. You can ramp up sales and marketing efforts if the product or service has the potential for great profitability at a higher demand level, or shift focus to another product or service if it’s not profitable, or would be more profitable at a lower demand level (because you’ve exceeded optimal capacity and additional units require costly overtime to produce).

In other words, you simply understand where you’re at and figure out where you should be, and then create a plan to get there. Of course, the plan could require a lot of work, but at least you’re taking a step in the right direction.

Share This on Linked In

Front-End Loading

Share This on Linked In

In supply management, front end loading is the coming together of all stakeholders in a multi-disciplinary team to insure that the concept, value, and strategy of a proposed product are worked out well before the design is finalized and production begins. It focusses on front-end planning, and insures that required parts and materials are available and affordable within the target cost.

Front-End Loading is used heavily in Japan where it is seen as a primary contributor to Kaizen (value creation), which refers to the Japanese approach to continual quality enhancement and waste reduction through small, but continual, improvements. It has contributed to a lot of success over the past decade, and the CAPS Research Japan Group recently released a detailed white-paper on “Front-End Loading” (FEL) that chronicled the result of their surveys in 2002, 2004, and 2006 on FEL and ESI (Early Supplier Involvement) and eleven industry case studies.

The surveys, which also revealed a number of trends in the automobile, electronics, food, retail, and engineering industries, found that supply management experienced a significant change in the first half of the decade from where it had little involvement in product planning in 2000 to significantly increased involvement in 2006. Although some companies don’t involve their suppliers in the early stages of NPD, the involvement is on the rise.

Front-End Loading has contributed significantly to each industry it has been adopted in. In electronics, for example, Xerox obtained an annual 10% reduction in net product cost, a 93% reduction in rejected material, a 50% reduction in NPD time and cost and, most importantly a reduction in production lead time from 52 to 15 weeks and in automotive parts, Mitsuba expects to reduce it’s average product life cycle from seven or eight years to four.

When procurement leads the cross-functional team in the screening and evaluation of potential sources of supply, cycle time is reduced, costs go down, and green purchasing, social responsibility, audit/compliance, and risk management are considered up front. By tackling these timely issues, procurement can be sure that the organization reduces, reuses, and recycles; acts in a socially responsible manner; implements effective internal controls; and minimizes supply risks and the opportunity for disruption.

Why Do We Still Have The Seven Timeless Challenges of Supply Chain Management?

Share This on Linked In

A recent article in Supply Chain Digest listed “the seven timeless challenges of supply chain management”, as described by Dr. J. Paul Dittmann, the Director of the Office of Corporate Partnership at the University of Tennessee. While I have to agree that these challenges are “timeless” in that we (needlessly) see them again and again and again, I don’t understand why … since all of them are solveable with today’s technology. More specifically:

  • Too Much Product Complexity
    Most companies have too many SKUs, and, to be precise, too many underperforming SKUs. But a good “spend analysis” with a modern data analysis package, which includes profit and loss data, can easily identify these SKUs which can be phased out and eliminated when contracts end.
  • Too Much Slow-Moving and Obsolete Inventory
    While good forecasting and demand planning can never eliminate obsolete inventory, a regular “profit” analysis that factors in the carrying cost to date and current price point makes it easy to identify when it costs more to hold on to inventory than to get rid of it at a discount, making it an easy decision from a loss-prevention perspective.
  • Supply Chain Considerations Not Part of the Product Design Process
    Simply do a total cost of ownership in the design phase and your critical supply chain considerations come into play right away.
  • No Supply Chain Strategy
    This is an easy fix. Sit down and define one.
  • Ineffective Matching of Supply with Demand
    With a slew of (near) real time supply chain visibility solutions on the market, all you have to do is implement one.
  • Physical Network Problems
    There are a number of strategic sourcing decision optimization platforms on the market that can perform detailed network analysis at very reasonable price points. Get one, and if necessary, get the consulting help to do it right. A few hundred K on a network optimization project can easily save you a few million.
  • Global Issues and Outsourcing Problems
    With a number of expert niche consultancies and deal architects that are very affordable, this problem is easily solved as well.

Product Portfolio Management Mistakes in a Down Economy

Share This on Linked In

A recent article in Industry Week on “portfolio management in a down economy” did a great job of summarizing all the mistakes dumb companies make in a down economy in blind efforts to conserve cash. As I have said before, and as the author clearly notes, companies that cut research-and-development during a downturn “don’t have anything new in their product portfolio that is of interest to their customers” when better times eventually return. This means that if you think times are bad now, they’ll only get worse when the up-swing starts and your competitors, who didn’t cut R&D, are introducing new, in-demand, products while you’re trying to push the same old, same old from two, three, five years ago.

While it’s understandable that R&D funding might have to be (slightly) reduced, there are right ways and wrong ways to go about it. The right way is to key (in) on the projects that exhibit new technology, gain entry into new markets, or are of greater interest to your customers. Similarly, a great technology without a current market should also come under scrutiny. Maybe development should be delayed to when you have more spare dollars to throw at it (as all great technologies will eventually find a market). And avoid these common mistakes outlined in the article:

  • Failure to reconcile the portfolio with resources.Make sure you can support the key portfolio projects to the full extent they need to be supported.
  • Failure to look outside the four walls. There are broad external forces that will ultimately decide which products will sell when the market up-swings and which won’t.
  • Failure to innovate. Some companies get complacent with an existing portfolio and focus only on product extensions rather than disruptive innovations.
  • Failure to understand the customer. If you can’t satisfy your customer, someone else will.
  • Failure to utilize common business sense. Yesterday’s metrics and data don’t tell the whole story about today, and definitely don’t tell the whole story about tomorrow. Don’t overlook the knowledge and experience your sharp people will provide and blindly rely on an unproven tool. Tools optimize scenarios … they don’t create them.

Broaden Your PLM Footprint for Kick-Ass ROI

A recent Industry Week article, that noted that “adoption of product lifecycle management (PLM) technology is reaching record levels” and that the PLM market experienced a stronger-than-expected 13.5% growth rate to reach an estimated 24.3 Billion in 2007, also reported that implementations can quickly develop returns on investment of 100% to 300%. Considering the needs for manufacturers to find every savings opportunity possible with record-high commodity costs and a global economic down-turn on the horizon, this is one opportunity your manufacturing organization should not miss.

As I noted last year in my post on PLM for trends based industries, a PLM systems, which enables the process of managing the entire life-cycle of a product from its conception, through design and manufacture, to service and disposal, will provide:

  • complete process visibility compared to the limited process visibility that is the norm without a PLM solution
  • a centralized, usually web-based, point of control compared to a lack of control point without a solution
  • one version of the product status and truth
  • workflow management
  • unparalleled control over the product life-cycle
  • an integration point for the various systems used in the various stages of product design, development, and merchandising

In addition, as per the Industry Week article, the broader scope of today’s PLM solutions enables manufacturing managers to collaboratively reach upstream into the early stages of portfolio management as well as downstream into the integration with manufacturing. In other words, enhanced productivity of existing resources is the result of PLM’s ability to integrate the various value chains. This is because, with PLM, multiple views of the product can be quickly and easily shared among different people of the organization in real time and the collaboration features allow people to communicate, share ideas and interact dynamically around a particular product.

Furthermore, PLM is not just for manufacturers — it’s for any organization that buys a lot of manufactured parts, especially if a good percentage of those parts are custom. The best results often come from innovation that arises as a result of collaboration between the buying organization that has the expertise in new product design and the custom manufacturer that has the expertise in product manufacturing. So where should you look for these solutions? I’d start with some of the companies I covered here on this blog in the past, which include Akoya, Apriori, Arena, Co-exprise, and MFG.com. Each of their solutions can help you identify and realize cost-savings opportunities when properly applied in your product life-cycle. And a couple of them can even help you manage your product life-cycle – so check them out, move forward, and see if you can’t get yourself some of that 100% to 300% ROI!