Procurement - a critical role in new product development and introduction (NPDI) process?
NPD and NPI are complex intertwined processes for developing and launching new products. Involving procurement early on in the product innovation can save the organisation a lot of money and even make or break the product. In this article, we talk about the NPDI process and procurement’s critical role in it.
- 70-80% of a product’s cost can be attributed to the design process and the materials. Early involvement of procurement within the design and launch of a new product can reduce the costs by up to 20%.
- Currently, only 12% of manufacturers involve procurement in the design process before the prototype phase.
- Collaboration is the biggest challenge. The NPDI process involves teams from business development and R&D, to quality assurance and engineering.
- Involving suppliers can result in better quality, shorter development time, and smaller development and product cost.
- ProcurementFlow is the only tool on the market which runs through the entire project lifecycle and gives a collaborative workspace for all cross-functional teams.
What are NPD and NPI?
New Product Development (NPD) and New Product Introduction (NPI) is the process of bringing a product or service from inception to market.
The terms of NPD and NPI are often mixed up or used interchangeably. They’re both required to get products to market, but they both focus on different stages and aspects. The umbrella term of the NPDI process is also used.
- NPD (New Product Development) describes the pre-release activities of a new product to finalise the product design - from ideation until the approval for production. It requires a lot of iteration to get the product ready for handoff.
- NPI (New Product Introduction) describes the release of an approved product concept to manufacturing and results in a finished product being launched into the marketplace. It focuses more on getting the operations’ teams and supply chain partners aligned around the final released product design to effectively plan, product, and launch the product.
The NPD and NPI processes are interrelated and complementary, with NPD being a prerequisite of NPI in most manufacturing companies. By contrast, in distribution and retail organisations, NPI is the dominant process for launching new product lines, as NPD is often unnecessary (except for private label products).
Why are the biggest challenges of NPD and NPI processes?
While NPD and NPI vary in focus, they are definitely complementary and require a comprehensive, unified plan to bring products and teams together from concept to volume production.
NPI process involves cross-functional teams (Business Development, Product Owners, R&D, Procurement, Quality Assurance etc). Different phases are controlled by approval gates, to make sure that the project meets specific criteria before moving on to the next phase in the process.
What makes innovation difficult is using the outdated System of Records type of systems, which don’t foster collaboration like modern System of Engagement types of systems do.
That’s why the NPD/NPI practices tend to be slow, inflexible, expensive, and difficult to manage and control.
A System of Record is the primary system or data repository of an organization, e.g. SAP, Oracle, Microsoft Dynamics ERP, etc.
A System of Engagement is the system that is used to collect data. It’s a software that people interface with directly in the form of a task-specific, usable and engaging way, e.g. Asana, Monday, JIRA, Trello, ProcurementFlow, etc.
When should you include procurement in the NPD/NPI process?
The best practice would be to involve procurement in the NPDI process as early as possible. But according to AberdeenGroup, only 12% of manufacturers involve procurement or supply chain functions in the design process prior to the prototype phase.
Often, the final cost of new products comes well above the plan. The components might be more expensive than estimated, the design team wasn’t thorough enough with the material requirements, or new suppliers have to be found halfway through the development process.
About 70-80% of a product’s cost can be attributed to the design process and the materials used. The early involvement of procurement within the design and launch of any new product can reduce the costs involved by up to 20%.
Clearly, involving procurement early can save some serious money on production. Yet, companies seldom use that opportunity.
How to include procurement efficiently?
When including procurement to the NPDI process, collaboration is the key - both internally and externally.
Harvard Business Review used the term “colocation” already in 1985 - that’s 35 years ago! By that they meant: “placing purchasing staff near design engineering people. Purchasing employees with technical backgrounds can advise design engineers on the procurement implications of different components.”
Today, in the era of digital tools, the physical closeness of the teams is no longer critical, but close and tight collaboration still is. As the NPDI process involves teams from business development and R&D, to quality assurance and engineering, this is quite a challenge.
So how to do that collaboration right?
- Set up a digital workspace to keep all parties in an open field of information and communication. You can’t possibly do this in various email inboxes and separate threads. Sooner or later someone will get left out, loose track or miscommunication (and errors) slip in.
- Involve suppliers in a way that supplier engineers can openly discuss the project with your engineers. Yet again, this communication should not happen in some inbox or chat. Also keep it in the digital workspace.
- Keep track of all the changes/iterations/deviations in a way that is traceable and keeps everyone informed. An NPDI project is constantly changing and evolving - there should be one clear reference point of the current state of things, and of how the teams have gotten there.
- Make sure the workspace integrates with enterprise systems. It should create a closed-loop flow of information. It should both be possible to load a BOM and carryover part costs from PLM or ERP systems, and, after calculating the cost for new product design, storing that data back within the existing PLM or ERP systems.
- Focus on speed and simplicity. Systems must not hinder innovation and bring additional complexity. They should support the process and be flexible
Which procurement software is best for NPDI workspace?
Cloud-based procurement software, such as ProcurementFlow helps you set up a collaborative workspace for all cross-functional teams throughout the NPDI process. This way the teams can work more effectively and spend less time going through various email threads and spreadsheets. They have all the relevant information in one place and everyone knows the latest status.
The NPDI process is complex and regular procurement tools don’t support it. ProcurementFlow supports the entire project lifecycle until there are suppliers available and prices set for every line item. Communication with suppliers, as well as internal requesters is kept in threads right next to request. This saves around 50% of procurement time.
Biggest benefits of using procurement software in the NPDI process
1. Cutting time to market
There are 8 types of waste defined in the Lean Manufacturing methodology. Waiting is one of them and non-utilised talents is another affecting NPDI.
Automating day-to-day tasks and minimising waiting times gives a huge advantage to the whole process. Also, keeping process-related communication in sync reduces errors and time wasted on finding and confirming the information.
2. Improved TCO (total cost of ownership)
When making a purchase decision, you should always take a look at the complete picture and not just the purchase price. Total cost of ownership means the purchasing price of a product plus the direct and indirect costs of operation. Companies use the total cost of ownership over the long term as a framework for analysing business deals.
Internal and external collaboration makes sure that the NPDI process covers all aspects of the product life cycle, investments, training, warranty, etc. This makes sure the end product is competitive on the market.
3. Supplier-led innovation
Your suppliers should be a part of the extended value chain. But for that, you need mutual trust - only then they can share their best practices openly. They’re smart and know very well how to do things in the best and cost-efficient way.
Involving the supplier in the product development process early on can result in better quality, shorter development time, and smaller development and product cost. Involving suppliers in the design process can also lead to better access to supplier technology, alignment of future technology strategies, better efficiency and effectiveness of future product development projects and supplier contribution to product differentiation in the long run.
Integrating suppliers in the product development process can be described by the white box, gray box and black box spectrum as described by Rickard Eriksson and Linus Rönnbäck in their Master Thesis "Purchasing Involvement in the Product Development Process" (Göteborg, Sweden, 2011).
- White box integration means that development is made by the buying company but the supplier works as a consultant supporting the development engineers.
- In grey box integration the buying together with the selling firm initiates a joint development effort, sharing technology and making joint decisions regarding design specifications.
- In black box integration the supplier is informed on the design specifications and then takes the full responsibility for the design process.
There are three levels of coordination approaches for supplier integration.
- “Project integration coordination” which means an extensive and continuous exchange of information between supplier and buyer.
- “Disconnected sub project integration” where the supplier takes on a more independent role.
- “Direct ad hoc contact” where the supplier is contacted whenever problems occur.
All in all, involving suppliers seems to only have upsides. What makes it so difficult, is making the day-to-day communication work effectively. To involve suppliers successfully, you should start by picking the right suppliers, develop and adapt the supplier relationship, and make sure that your internal processes and collaboration is in order.
ProcurementFlow is built for managing complex NPDI projects and keeping both the process and communication in sync. Engineers are able to initiate new projects and upload a preliminary BOM to the system. Item level drawings and specifications are kept in the right place and can be swapped with new versions if needed.
From that point on procurement and engineering will jointly collaborate and decide how to perform sourcing activities and include suppliers. The NPDI process is simplified through efficient collaboration.
With ProcurementFlow, terms like “supplier-led-collaboration” or “procurement early involvement” are no longer buzzwords.
Take ProcurementFlow on a test drive. We give you a 14-day free trial with no credit card information needed.
- Boost Procurement’s Role in New Product Development. SCM World (10.09.2019)
- Getting In Early – The Role Of Procurement In Product Design And NPI. Valuestremguru.com
- Procurement: A Game Changer for Modern Product Launches. EBN (27.06.2018)
- Purchasing’s Role in New Product Development. Harvard Business Review (September 1985)
- Procurement in New Product Development: Ensuring Profit from Innovation. Aberdeen Group (March 2006)
- New Product Introductions (NPI) and Target Costs: Meeting and Beating New Product Cost Targets. aPriori (September 2012)
- Product Development & Procurement. McKinsey & Company
- Purchasing Involvement in the Product Development Process. Chalmers University of Technology (2011)
- Why is our NPI and NPD process a mess. Innovit
- Streamline New Product Introduction (NPI). Arena Solutions
- Breaking down the barriers to product innovation. Arena Solutions (2020)
- Leveraging Analytics to Manage Supply Chain Complexity in Highly Innovative Companies: A Consumer Goods Industry Perspective. Tata Consultancy Services (April 2015)
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