Home' MHD Supply Chain Solutions : MHD July-Aug 2017 Contents more explosive growth and higher margins.
Indeed, in certain high-tech industries such
as semiconductors, consumer electronics and
biotech, a company’s very survival may depend
on innovation as all of their products may be
obsolete within a relatively short period of time.
However, innovation can be the key to survival,
growth and profitability for almost any business
in any industry, no matter how ‘low-tech’ or
commonplace the products in that space may
seem. There is always room for innovation.
The impact of such innovation to long-term
growth, margins and manufacturing strategies
are essential, and it is the duty of the demand
management process to reflect those impacts,
however ambiguous they may seem, within the
24 month planning horizon.
In order to do this, we need to understand
and track strategic goals, a new product master
project list, a long-term resource plan (generally
36 months or greater) reflecting the projected
demand on R&D, equipment, and other gating
or bottlenecked new product development
resources. We also need to ensure that
resources with the right mix of capability are
available to meet projected requirements and
drive decision making from gaps that ongoing
monthly tracking reveal. See Figure 4.
Consequences and upside to new
product development decisions
When implementing an IBP process, one of the
most frequently struggled-with concepts is the
connecting points or outputs from the product
management review (PMR) to the demand
review; yet it represents one of the most critical
success factors when launching product and
portfolio management as part of IBP. Because
the PMR is critical to achieving our strategic
business objectives, its very success is a critical
milestone toward achieving a successful IBP
process. When placed in this context, one
begins to appreciate just how critical connecting
the output from PMR to demand is - the very
success of the IBP implementation, indeed the
company, may depend on it.
Leveraging consequences behind decisions
made is where product and portfolio
management helps ensure we are not sacrificing
the long-term strategic plans for short-term gain,
in short, mortgaging the future success of the
company in order to get through the current
quarter. When we make a decision to kill a
project or place one on hold, it is necessary
for there to be a corresponding impact in the
demand plan. Otherwise, it is too easy to cut
product development costs without any impact
recognised on forward-looking revenue and
margin goals. Those cuts can be very tempting
to make, when long-term consequences are
not immediately recognised and driven into
the demand plan. We can have an immediate
positive impact on cost and margin by killing new
products not scheduled to launch for another
12-24 months from now, by recognising the
immediate gain in liberated resources. We can
then cut resources or certainly avoid adding new
resources and/or hiring to meet the plan. And
because the impact on revenue is so far down
the road, we see no adverse impact. Indeed, it
requires discipline to hold ourselves accountable
to recognise this impact. Remarkably, this is
exactly what many companies do.
It is not hard to recognise the importance
and value of new products on a business’s
future, but we tend to look at this need too
simplistically. We often hear of R&D dollars
spent as percentage of income. We may even
hear a projection of R&D or new product
development spend aligned with a strategic
goal. An example of this may be a company
that is spending 5% of it’s gross revenue or
gross profits on R&D, with a plan to increase
that spending to 10% two years from now.
The very fact that we hear those kind of goals
underscores the understanding that new
product development and R&D are critical
success factors. However, the very commonly
found lack of linkage to the demand planning
process along with the lack of visibility in
resource planning, sets the goal up for failure.
As soon as things begin to develop a little bit
differently than planned (as they always do) the
temptation to rob the future for short-term gain
rears its ugly head again.
So how do we avoid this? Find out that
and more when this article continues in the
September-October issue of MHD Supply
Chain Solutions magazine.
Timm Reiher is with Oliver Wight Americas
and Jerry Shanahan is with Oliver Wight
EAME. For more information visit
Figure 4. New product portfolio focus.
Figure 5. Formal hand-off from product to demand.
MHD SUPPLY CHAIN SOLUTIONS — JULY / AUGUST 2017
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