Relation between Supply Chain and New Product Development: Analytical Essay

Abstract

In order to build value for product and to achieve better share, companies rely on strategic partnerships with their customers and suppliers. In today’s rapidly changing markets are the design of products to fit processes and supply chains, processes to fit product platforms and supply chains, and supply chains to match product platforms and processes. If this co-design is done well up front with adequate management of the product development process, the product will cost much less overall and the time to market will dramatically decrease. In view of this issue, the purpose of this report is to provide information on defined management techniques and practises for the involvement of suppliers in the PDP. A model for the supply chain management of product production processes has been discussed.

Case study

In the case study, Matt O’Toole is a procurement manager at Voltz HGV, a manufacturer of electric and hybrid heavy good vehicles. Matt is about to work with the new head of the product development who is future driven but before meeting the Head, Matt wants to understand what the implications for the procurement and other departments for developing a new product considering there is uncertainty about developing new technology.

1. Introduction

This paper is introduced in the context of study on the relation between supply chain and new product development. Many companies consider new product development as a key strategic activity and a short time to market as critical to long term success 1. The importance of beginning of study of supply chain for product development is mainly because it is at the product of lifecycle phase that the decision responsible for 80% of the products final cost (Rozenfeld and Amaral, 2006).

Today’s market place is all about uncertainty and turbulence. However in order for organizations to remain in business they must be competitive by introducing new products to the market in order to meet the ever changing needs of the society, World-class firms excel at a crucial triad of activities, new product development, the design of the required production process, and the design of the optimal supply chain, it explains further the main reason for new product development as the rapid changes in technology, the emergence of global industrial and consumer markets, increasing market fragmentation and product differentiation, and the increasing options for developing products have increased the pressure on all firms to more effectively and efficiently develop new products(Xiao et al., 2019).

Importance of new product development

Company

Society

Sales and revenue increase

Create jobs

Replace fading products

Increase standard of living

Spread Risk

Increase Competition

2. Aim

The aim is to evaluate appropriate procurement and supply chain approaches for new product development in Voltz HGV. Also, it deals with reviewing supply chain concepts and attaining an in-depth understanding and critical argument of SCM (Supply Chain Management) issues.

3. Method

The Methods involve the study of current literature.

4. Procurement in New product development

4.1. The role of procurement in new product development

To keep pace with business demands, the procurement function continues to adopt more strategic tasks that extend its capabilities beyond simply purchasing. Shifting the focus to what the business needs to accomplish its goals allows procurement to consider elements such as supplier quality and reliability and to interact with other areas of the enterprise.

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One way in which the procurement function can deliver additional value is through participation in the development of new products. According to APQC’s Open Standards Benchmarking in product development, 86 percent of responding organizations involve the procurement function in new product or service development. Specifically, 39 percent involve the procurement function extensively, and 47 percent involve the procurement function to some extent (Santos et al., 2007).

In the product development process, the procurement function can evaluate proposed materials for new products and potential sourcing countries based on factors such as:

• The amount of materials needed
• Whether the potential sourcing countries have free trade agreements with the United States, and the respective duty rates of potential sourcing countries(Claro, 2016).

4.2. Procurement approach in new product development

In the recent studies, APQC found that best-practice companies require procurement early in the product creation process in a new analysis of how top-performing companies handle buying across product categories. Procurement will guide the company to choices that bring long-term benefits by providing its unique insight before product creation decisions have been solidified. The procurement role will assess proposed materials for new products and potential sourcing countries in the product development phase on the basis of factors such as the quantity of materials required and the respective duty rates of potential sourcing countries.

In some industries, it may be possible for product development teams to tweak aspects of the design to take advantage of similar materials with an overall lower price or from a more reliable sourcing location.

Some industries have specific product quality criteria, either from regulatory authorities or clients, in addition to global trade considerations. In such situations, getting sourcing teams into the process as early as possible with respect to material modifications is important. Complex products manufactured by these industries which require specialized materials which, in the short term, are not readily available. Any material modifications later in the production phase will lead to increased direct costs as well as product launch delays that can affect product revenues.

5. Supply chain in new product development

5.1. How supply chain can improve new product development

A good-aligned and mobilised cross-functional team is a key to optimising the NPD process. As an example, businesses that include supply chain experts in the NPD phase as early as possible gain competitive advantage in driving new product success by ensuring that the supply chain can support the product functionally and profitably. In exchange, top-performing supply chains engage partners and vendors in the NPD phase early on. The aim is to capture and correct any possible negative or suboptimal supply chain impacts on end-to-end supply performance, cost, service and quality before there is a downstream effect on launch or post-launch activity [6].

Across the stage-gates, there are important supply chain considerations and questions that can affect the success of NPD. For example:

• Plan—how accurate is the new item forecast? What is the supply chain impact of the inaccuracies?
• Procure—do our suppliers have the flexibility to react to changes in demand?
• Make—should we produce the new product within our current internal network? Or should we outsource, either in the short or longer term as product volume ramps up?
• Deliver—what service requirements are expected by our customers and are our current distribution network set up to meet them?
• Overall—what supply chain metrics should be used to measure cost, service, quality and efficiency tied to NPD?

In the NPD phase, supply chain output plays a critical role because it not only drives the capital expenditure into production and distribution capacities, but also defines the critical direction for launch dates in many instances. Along with the supply chain, many roles, including distribution, marketing, research and development (R&D), legal and regulatory, efficiency, program management and executive management, play a vital role in making NPD a success. Companies should be better placed to enhance the market success of launched goods by using a systematic and methodological approach to close NPD performance gaps and execute targeted opportunities for supply chain and other involved functions.

5.2. SCM

Supply Chain Management (SCM) refers to management between companies across their business processes, aiming to optimise possible synergies, minimise duplication, improve productivity and business process productivity, with the goal of delivering value to consumers and stakeholders, making the supply chain more efficient(Lambert, 2008;Handfield and Nichols, 2002). Initially, company processes were seen as a way of incorporating the organisational functions of corporations. Companies are currently trying to structure operations across business processes between the various members of the supply chain in order to make them manageable in the long run(Handfield and Nichols, 2002). The PDP is one of business process of SCM (Lambert, 2008;Handfield and Nichols, 2002). PDP encompasses technological and management dimensions of which a company translates business prospects and technological possibilities into knowledge for commercial product manufacturing. This approach involves the development of a new product in a way that is compatible with the life cycle of the product, which begins with its preparation and ends when it is discontinued or taken off the market(Rozenfeld and Amaral, 2006). A reference model for PDP was proposed to provide a common reference, a holistic view of the process of product creation, levelling information across the various knowledge fields, which is illustrated in Picture 1.

5.3. Supply chain risk in new product development

Supply chain risk buffering practises: Purchasing / supply management is required to mitigate risk and, at the same time, control costs and maintain supply consistency. Previous research findings suggest that there are relationships between risk, strong target pursuit, early involvement of suppliers, and careful growth, assessment and management of suppliers.(Handfield and Nichols, 2002). Traditional techniques that were used to buffer risk, however, suggested that the main function of the buyers was to respond to internal customer needs. Under this theory, another department receives a procurement request and an order is put with a supplier. Buying is generally transaction-oriented and risk-averse. Traditionally, most buying practitioners have implemented strategies that hedged against threats after the incidents had already occurred.

As mentioned above, the buffering approach worked when buying was more tactical, as we transition to more strategic risk management approaches becomes a preferred choice, such buying practises include market consolidations, e-procurement, deliveries just in time, smaller supply bases, and a focus on overall costs. Risk management is an ongoing process involving the long-term commitment of supply chain stakeholders, and ongoing risk assessment includes knowledge collection, communication and evaluation that helps to establish effective risk management strategies(Xiao et al., 2019).

Situational risk management - Risk is present in every supply chain to some degree. Every purchased commodity, product, or service exhibits a different risk profile. With today's unpredictable circumstances and increased knowledge of supply hazards, determining the degree of risk across their buying categories is especially relevant for supply managers. These modern supply chain strategies pose risks.

6. Dealing with uncertainty in supply chain management

Companies need to follow the concepts of these new supply models, in an industrial competitive world marked by the need to recover, along with strong adjustments and rivalry.

These are characterised by globalisation (network dimension), increased outsourcing use, decreased supplier base (single sourcing), leanness (e.g. decreased buffers, lead times, and lot sizes), consumer concentration, increased demand for in-time delivery in shorter windows, lead times, mobility, shorter product life cycles, and a large number of partners. Modern supply chains, with this sophistication, inherently tend to be more fragile. This kind of fragile industry deals with huge risk and this risk management is concerned with very different forms of risk that can be: internal to the business (process, control), external to the business but internal to the supply chain dealing with demand and supply, and external to the network which is environmental(Shipley and Hamburger, 2017).

7. Conclusion and Future work

In the current work, some of the major models of PDP and SCM have been discussed which are a basic conceptual structure was generated which connects the supply chain management and product development processes. These have been discussed at a surface level and have an immense scope for its utilisation in the diagnosis of the supplier involvement in the company in the electric hybrid sector(APQC, 2012).

The next step with the organisation after the diagnosis of the current situation is to establish the strategy for supplier participation in PDP or SCM, using the resulting model as a guide and also to maximise the profitability of activities, and also to consider how the supply chain network can grow over a long-term horizon(APQC, 2012). These models would include the definition of scenarios for the potential development of supply, demand, transport and other essential components of the supply chain network for this purpose.

8. References

1. APQC 2012. Involve the Procurement Function Early in the New Product Development Process. APQC Supply Chain Journal.
2. CLARO, L. O. J. P. D. S. J. 2016. Dealing with uncertainity in modern supply chain: vulnerability and risk management.
3. HANDFIELD, R. B. & NICHOLS, E. L. 2002. Supply chain redesign: Transforming supply chains into integrated value systems, Ft Press.
4. HILLETOFTH, P. & ERIKSSON, D. 2011. Coordinating new product development with supply chain management. Industrial Management & Data Systems.
5. LAMBERT, D. M. 2008. Supply chain management: processes, partnerships, performance, Supply Chain Management Inst.
6. ROZENFELD, H. & AMARAL, D. C. 2006. Gestão de projetos em desenvolvimento de produtos. São Paulo: Saraiva.
7. SANTOS, A., KIECKBUSCH, R. E. & FORCELLINI, F. A. 2007. Product Development Process Managing in Supply Chain.
8. SHIPLEY, J. & HAMBURGER, H. 2017. How the Supply Chain Can Help Improve New Product Development Success. The Hackett Group Inc.
9. XIAO, C., PETKOVA, B., MOLLEMAN, E. & VAART, T. V. D. 2019. Technology uncertainty in supply chains and supplier involvement: the role of resource dependence. Supply Chain Management: An International Journal.
10. UKESSAYS November 2018. Supply Chain Risk of New Product Development Management Essay. [online]. Available from: https://www.ukessays.com/essays/management/supply-chain-risk-of-new-product-development-management-essay.php?vref=1 [Accessed 25 October 2020].