Consumers' seemingly endless demand for variety and for the very latest in technology and fashion has dramatically shortened the life span of most products and led to an explosion of new product introductions.
While corporate resources are understandably weighted toward R&D, engineering and sourcing on the front end of new product development, the back end of the supply chain can be equally critical to success. Even the most innovative new product will lose crucial sales and competitive advantage if it doesn't make it to the shelf in time for a launch promotion or if it has to get there via expensive, expedited transport.
"The trick is to embrace the logistics of new product introductions (NPI) as a core component of the launch itself and as a big piece of the process," says Chris Holt, a consultant with UPS Supply Chain Solutions, Atlanta. Companies are taking this approach "more often and in more complex ways" than they once did, he says. But NPI logistics in many cases still fails to get the attention it deserves.
"The whole NPI process is driven by sales and marketing and by engineering, and there is a big communications gap between these groups and the people on the distribution side who have to handle the products," says Jim McNerney, a principal at consulting firm ESYNC in Toledo, Ohio. "We have seen instances where distribution has been told certain things about a product, but when the product actually gets to them, it is not as described. For example, it might have very different measurements, which creates re-packing issues, at least until changes can be made upstream."
This gap was borne out in a recent survey conducted by Infosys, an IT services company based in Fremont, Calif., and the Electronics Supply Chain Association. Responses from 170 supply chain executives at 89 leading high-tech companies revealed that participation in new product development is primarily limited to sales/marketing and engineering. "The survey showed that there is a great need and desire for collaboration between different functional areas within a company as well as across companies," says Miguel Zuniga, solutions manager for high-tech and discrete manufacturing at Infosys. Current new product collaborative processes, however, typically "are sub-optimal and require a lot of effort," he says. Infosys offers software that enables integrated product management by driving collaboration of functions throughout the product lifecycle, not just at the initial stages, says Zuniga.
Hewlett-Packard, Palo Alto, Calif., is one company that recognized early the need to integrate logistics with new product development. "At HP, the supply chain and logistics are core parts of the NPI process," says Tim Spofford, supply chain director for HP's Image and Printing Group-Americas. Spofford and Leo Bischoff, vice president of logistics-Americas, work closely together and with HP's overall new products team to coordinate all aspects of new product launches.
"HP has made significant investments in supply chain management and NPI is obviously a big portion of that, with much of our product line turning every year and, in some cases, multiple times in a year," says Spofford.
In addition to new products based on existing platforms, HP also has annual Big Bang launches that typically represent a new technology. Its 2005 Big Bang, announced in July, features "a breakthrough ink-based printing platform" that the company has had in development for five years.
With both types of launch, HP relies heavily on its well-developed postponement strategy to make the supply chain work. Spofford explains that contract manufacturers in places like China, Malaysia, Singapore and Thailand produce base components or "product engines" under close HP supervision. These are moved via ocean freight in bulk, "which allows us to achieve a much higher freight density," to a product completion center in the destination region. "At that center we do everything from just boxing out the product to adding specific software and in-box material," says Spofford. If a product upgrade is being introduced, the completion center may also refresh the firmware.
With new products, "we start shipping early to build inventory up in the region prior to the launch to our resellers," Spofford says. This means that often shipments begin before a final version of the new product software is complete. "This is where the real value of the product completion center comes in," he says. "It allows us to use the time that product is on the ocean to finalize the firmware and software that will be added later. The product completion center basically adds time to the design cycle." Since time to market is the single most critical factor in new product success, this added time is crucial, he says.
Spofford also notes that logistics planning begins in the very early stages of design. "To give you an idea, we have all of our '06 Big Bang products already mapped to a specific supply chain and we have our '07 products pretty well defined," he says.
HP doesn't have a specific logistics process for NPI, however, says Bischoff. "We have various service level agreements in place with air and ocean carriers, even domestic carriers, and we work through these to achieve the services we need," he says. "For example, if Tim needs to expedite a shipment, we have a solution on hand, ready to go." Bischoff's team operates at the corporate level, serving all of HP's business units, not only printing. "Our challenge as an organization is to have logistics solutions available that meet all of the requirements of these different businesses," he says.
IBM, Armonk, N.Y., also has a rapid churn of new products, with major platforms renewing every 12 to 18 months and smaller upgrades occurring in between. "We clearly introduce new products more frequently than ever before and because of that we need a very robust process that is repeatable," says John McAlpin, director of worldwide engineering for IBM's Integrated Supply Chain.
IBM's NPI process is designed to increase speed to market. "We have a process that allows us to do many different activities in parallel," McAlpin says. "So planning for service and maintenance, sourcing, manufacturing, distribution-all of these are going on while the product is being developed." There is a lot of research and development prior to a formal commit stage, he adds, but once a commitment is made to go forward with a product, all systems start to move. "What makes this process hum is the fact that all the team members work together in parallel through the whole process," McAlpin says. "This allows us to bring product to market as early as possible while ensuring that we have the highest quality and best cost point possible."
The entire integrated supply chain, which encompasses global logistics, is represented in this process. "Integrated is the key word," says McAlpin. "We might decide on a manufacturing strategy, for example, that calls for all initial production of a new product to come out of one of our global factories. The global logistics team has to look at air capacity and other transportation coming out of that region to ensure there is enough cargo capability to bring in parts and to ship product around the world. They also have to make sure we have all the import/export licenses we need and all the other customs documentation." IBM's distribution team based in Boulder, Colo., "interfaces with us through the whole design process, making sure that all of the logistics are being worked out at the same time that the product is being developed," says McAlpin.
How IBM packages new product is another very critical part of development cycle, McAlpin says, adding that the packaging engineers report directly to him. "As we are developing product, the packaging engineers work closely on development of the surrounding box to make sure the box not only meets customers' needs but can be used in the supply chain efficiently," he says. Boxes may be reworked to achieve better loading efficiency or to make the packaging more protective. "We do fragility testing to make sure the package will protect the product and maintain our high quality standards," he says.
Help From 3PLs
Many companies turn to their logistics provider to help with new product introductions. Sunny Delight Beverage Co., Cincinnati, maker of SunnyD drinks, already was using Transplace for distribution of its original, refrigerated drink when it launched a shelf-stable bottled drink in July. "The dilemma for us was that we had no dry van carriers," says Jim Glendon, supply chain manager at Sunny Delight. Contracting for new carriers was difficult because demand for the new product was uncertain overall and especially by individual lanes. "So we challenged Transplace to go out and develop a new carrier base for us based on pretty rough estimates," Glendon says. The fact that Transplace already was familiar with Sunny's business was clearly an advantage. "Having them understand the layout of our facilities as well as our expectations around service was certainly a help," Glendon says.
Sunny Delight had planned an extensive marketing campaign to coincide with the start of shipping the new product, so it built up inventory prior to launch. "For at least the introduction, we are only making the new product at two of our four plants, so we had to ship product to the other two sites so they would be ready for customer shipments on day one," says Glendon. The company also had plans in place to ramp up production at the plants if early demand outpaced expectations.
In August, Sunny Delight began testing the use of shipments that combine both chilled and shelf-stable product in the same vehicle. "We elected not to do that on the first day of shipment because we had enough else going on at that point and we really wanted to make sure we were ready to handle it," says Glendon. A number of customers had requested combined shipments, but there were issues to resolve, such as developing a process for combining two purchase orders, understanding which product should be loaded at the front of the truck and which at the back, and managing deliveries to customers that have both a dry and a refrigerated warehouse, he says.
"From a cost standpoint, it is better to move the product in non-temperature-controlled trailers," says Tom Sanderson, president of Plano, Texas-based Transplace. "But you have two factors that may work against that: one, some customers want to receive all of their product from the vendor at once; two, to run efficiently in a dry-van network, you have to have sufficient volume to make it cost effective."
Sometimes a new product is driven by a major new customer that wants a customized presentation. That was the case for Camouflage, a small company that makes a patented edge treatment for optical lenses. Camouflage's business quadrupled overnight when it recently received a massive order from Wal-Mart. The order, which came after two years of sales efforts, was for customized kits to be delivered to optical shops at Wal-Mart's 2,500 super centers. Each store was to receive kits on the same day, one month from the day Camouflage got the order.
"When we landed the order, I was just so overwhelmed and happy that I said, 'OK, we will find a way,' but I had absolutely no idea how we were going to do it," says Camouflage President Abby Ayoub. Fortunately, Camouflage already was using DHL, Plantation, Fla., to ship product to existing customers and the company's DHL account representative, Brady Berg, happened to drop by on the day the Wal-Mart order came in. DHL quickly took on the task of keying in all the customer shipping information and printing labels for each box. "Because the stores were located nationwide, DHL gave us labels by state, in the right order, so we could ship to those with the longest transit time first and still have all the kits arrive on the same day," Ayoub says. The following week, DHL sent Camouflage a computer with a labeler and a database containing all of the store information. "Now we just press a button and the information comes up. Then we just click and print," Ayoub says. "DHL was really a life saver for us," she adds. "Now, when something challenging comes up, the first thing I do is call Brady to see what resources DHL might have that we can use."
Having a logistics provider handle distribution details takes one worry off the customer's plate when they already have many other details to see to, says Bob Stull, president of Roadway Express, Akron, Ohio. Roadway, a subsidiary of Yellow Roadway Corp., has a dedicated engineering services team that puts together complete packages to help companies with projects like new product launches. "We can go to the customer and tell them how we would package it, what the components would be and what each component would cost, so they can factor all that into their promotional rollout," says Stull.
Providing support for new product launches requires logistics providers that are "extremely flexible and able to handle things that don't go as planned," Stull says. "We have had many situations where information agreed upon in the project plan didn't happen like we thought it would. If you don't have a solutions team that understands its mission and has been empowered to get it done, then you will have failures."
Holt of UPS Supply Chain Services says clients frequently use UPS to augment their own services so they can get the scale needed for new product launches. "For example, say a company has a DC that can only ship one million units a day," he says. "If they know a new product launch is going to require them to ship 10 million units, they might ship 10 days' worth of activity to UPS and we would hold it and accumulate inventory for the next stage of distribution." UPS also can provide clients with peak time staffing through its shared-use facilities, he says. "Our client companies often have spikes in demand at different times. Our ability to staff and share resources across those various customers smoothes out the demand curve."
Endo Pharmaceuticals, a maker of prescription and generic drugs based in Chadds Ford, Pa., relies on UPS Supply Chain Solutions to distribute its new and existing products to market. "We have approximately 11 products in the pipeline and in the past year have launched two on very short notice," says Dan Carbery, vice president for operations. Short-notice launches usually are a result of a license acquisition from another company. "Thirty days later, we not only own the drug, but on the day the deal closes we have to start shipping, even though the product is still in somebody else's warehouse," says Carbery. In one case, he says, Endo moved product to its warehouse, did quality control checks, re-released it and started shipping by 3 p.m. the same day. "It's like buying a house and bringing your moving van to closing," he says.
Dealing with a highly regulated product like prescription drugs adds a layer of complexity, he says. "The Food and Drug Administration has very set and controlled procedures for handling and tracking product that are very different from a consumer product," says Carbery. "It is very intensive from a record-keeping standpoint."
Also, "the whole system has to react very rapidly," he says. "Because we have such a good relationship with UPS and such good integration between our systems, we are able to make it all seem seamless."
Unyson Logistics, Downers Grove, Ill., also has a number of pharmaceutical clients that it helps with new product introductions. "The way a lot of our clients introduce new product is through a network of sales representatives throughout the country who work out of their homes," says Dick Peterson, vice president-special services at Unyson. "We get the product to these reps." This requires a highly customized service, he says, since each rep has to be individually contacted in a specific 50-minute appointment window established for the delivery. "We bring this product from the fulfillment houses or right off the pharmaceutical manufacturing dock to specialized local delivery carriers around the country," says Peterson. "It is a very communications-intensive and service-intensive business." Unyson manages 10,000 to 15,000 of these shipments a month, he says.
A totally different type of new product launch is handled by Menlo Worldwide, Redwood City, Calif., for its client NCR, which makes point-of-sale registers for retailers. New registers, such as the self-checkout registers NCR is now rolling out, typically are ordered for an entire store and installation is part of the service, says Mike Chandler, vice president and general manager for retail operations-Americas. "A store to NCR is not only the front-end check-out station and the returns desk," he says. "It also is the back office that connects that specific site to corporate or franchise headquarters."
Having all the pieces arrive on time is critical as is doing the installation work with the least possible disruption to store operations.
"We look at it as a trilogy, because not only do you have product arriving, you also have NCR technicians and customer technicians as well," says George Beal, senior account manager at Menlo. "Just getting all these people there is a big investment because most of them are flying in. So there are a lot of time-sensitive challenges involved in bringing all of the three parties together and having minimal down time at the store."
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