Review your Business Performance in the Market – Part 19

This is the final post in our series on the New Product Development process.

Let’s assume you have your new product selling and business is established. It is time to review how well you have done. How is your progress compared to the original business forecast? What are the areas for improvement?

Performance_review_iof_new_product

Why it’s vital to review the progress of your business

To start with, you will be focused on the task in hand from a day to day operational point of view (making sure the business is running smoothly). Once the business is up and running, however, it is prudent to spend a bit more time planning the long-term strategy of the business

This is the ideal time to review and compare the business strategy from when the product was launched against where the business is now. It is important to keep the strategic direction of the business aligned, not only with the core of the business, but also the current market trends.

Areas that should be considered when reviewing the progress of your business:

  • Is the business moving in the same or different direction to what you expected?
  • What do you need to do within the business to ensure you can get to where you want to be in the next three to five years?
  • Understanding of market trends and being able to adjust accordingly to maximize the business benefits (commercial exploitation).
  • Are there enough or the correct resources in place in order for the business to meet the targets set within the strategic plan?
  • What methods are being used to measure success, ensure the correct metrics are in place to allow you to monitor the performance of the business and make real time adjustments?

Review your financial status

You can be making a million dollars in revenue and still be losing money. Businesses all too often fail because of poor financial management and lack of planning.

The key elements to review with respect to your company’s financial well being are:

  • Cash flow – This represents all the cash coming in and all the cash going out. It is paramount that cash flow records are maintained and that you understand exactly where you are at any given moment in time.
  • Working capital – Monitor the amount of inventory you have. Having too much inventory ties up cash whereas having too little inventory and you are in danger of running out of stock. Both these scenarios have an impact on the business and need to be managed carefully.
  • Loans or credit – Make sure you have the most appropriate level of credit for your business. You should seek advice from a business accountant who would be able to advise you on what is best for your individual circumstances.

Competitor Analysis

Keeping an eye on your competitors is good practice from a business perspective. Understanding your competitors allows you to make smart decisions for the business, potentially allowing for new product development of a next generation product or to develop a brand new concept to be moved through the New Product Development (NPD) process.

  • Who are your main competitors?
  • Are they differentiating themselves in order to obtain great market percentage?
  • How do you rank from a pricing point of view amongst your competitors?
  • What are their sales distribution channels and how are they different to yours?
  • Is their customer profile different to yours and can you win some of the market share?

These days it is easy to find out what a competitor’s reputation is and how customers have found their experience in dealing with a company, especially with social media sites. That being said, it works just as well for the competition to check up on you and how your customers are rating their experience dealing with you…

Your Business Structure

You need to review the current business structure and understand if what you have now can support the growth of the business, once your new products are on the market. If the business growth is in line with forecasts set out in the strategic plan, is the current business structure flexible enough to support that growth?

Areas to consider when evaluating the business structure are:

1. Premises

  • Are you tied into any long term rent agreements or do you own the land?
  • Do you have the capability of expanding physical if needed?
  • What would the impact be if you had to move location?

2. Facilities

  • From a manufacturing point of view, is all the necessary equipment in place to handle a capacity increase?
  • Do you have a plan in place to cater for over-demand?
  • Is manufacturing optimized from a lean point of view?

3. Information Technology

  • Is the current IT system capable of the flexible demands it may encounter?
  • Is the current system up-to-date enough or does it require upgrades? If upgrades are required, what plans do you have in place for alternative system reviews and training?
  • Can all staff (those that require it) access the business information they require from anywhere in the world?

4. People and Skills

  • Is the staffing level adequate to fulfil the demands within the forecast?
  • Do employees have the correct skills to complete the desired outcome?
  • Make sure the HR plan is kept up-to-date yet flexible enough to adapt to demands.

(The source for most of the checkpoints listed above is “Review your business performance” on gov.uk/business).

Next Step

So now you have reviewed your business. You understand what you are doing and how you are achieving it, and what your plans are for growth over the coming years. You should be in a good situation to consider additional New Product Development projects in order to have new life injected into the business.

Commercialization of your New Product – Part 18

The commercialization stage of any New Product Development process is where the ‘rubber meets the road’ and the product you are manufacturing in China gets introduced into the market. This stage is actually the final stage of the development process.

Commercialization

Commercialization requires proper planning

Commercialization is broken into phases, from the initial introduction of the product through its mass production and adoption. Considerations should be made for production methods and volumes, what distributions channels will be used, what marketing techniques will be implemented, as well as reviewing the sales and customer support requirements.

It is not a case of just launching a product and hoping for the best. There has to be a structured plan — a strategy that has been clearly thought out and can be implemented in a controlled environment.

Commercialization strategy

1. What’s the offering? (What are you trying to provide or create?)

Provide a holistic overview statement which clearly states what your product is and what it does and the benefits of using the product from a consumer / customer point of view. You should also state what the pricing strategy is going to be for both distribution channels and the end-user.

2. How does the product align with your core business?

Understanding how closely the product being launched aligns to the business core can determine some of the strategic directions required for the commercialization plan. The closer to the core, the fewer new strategies are required as a lot of the infrastructure would be re-usable. The more diverse from your core the more work is involved in setting up the new infrastructure.

Chris Zook in ‘Beyond the Core’ addresses several things when looking at a product opportunity with respect to the commercialization plan:

A. Core – Known business strengths and competencies

B. Adjacency – Relationship to the Core ranked from 0 (identical to the core) to Diversification (a completely new area).

C. Shared Economics – There are five dimensions that when evaluated and measure the distance from the core and can be used to determine the degree of relationship to the core:

  1. Customers – Are they the same as, or different from, customers currently served?
  2. Competitors – Are they the same as, or different from, competitors currently encountered?
  3. Cost Structure – Is the cost structure (infrastructure) the same or different?
  4. Channels of distribution –Are these the same or different?
  5. Singular capability/technology – If there is a singular capability (brand, asset, technology) that gives the core business its uniqueness, then is this relevant in the new opportunity?

3. Identifying the target market / customers

From the test marketing carried out in the previous phase, you should have an initial target market and customer profile already identified within the strategic plan. Now it is time to scale up operations and start to capitalize on all the hard work and dedication that has been got the new product this far.

4. Business plan and forecast

Part of the business and commercialization plan is forecasting — generally looking ahead three years. The forecast generally includes most of the following elements:

  • Sales quantities
  • Gross Margin and Gross Margin as a percent of Sales
  • Operating Income and Operating Income as a percent of Sales
  • CAPEX – CApital EXpenditure
  • RONA – Return On Net Assets

5. Commercialization risks & issues

As with any risk analysis, you need to identify all the risks and potential issues that could affect the commercialization of your product. Once the risks have been written down, rate then from high to low and ensure you have risk mitigation actions in place to overcome the risks.

One method of generating a risk analysis plan is to follow the steps below (this is pretty close to a FMEA):

  • Risk Description:- Detailed description of the risk
  • Rank the Likelihood of the risk occurring: – How likely is the risk to occur?
  • Rank the impact of the risk occurring: – What will the impact be if the risk did occur??
  • Calculate risk value:- multiply the two values to get a risk value
  • Assess risk values:- Assess the risk values, good way of doing this is with a Pareto chart
  • Generate action plan for all critical risks:- Actions need to be generated that mitigate the risks as best can be
  • Re-evaluate risks after actions are in-place:- Re-evaluation will allow you to review and assess how successful the actions will be when implemented.

Here is an example (click on the image to see a larger version.)

Risk_Matrix

6. Don’t use a “Ready, Fire, Aim” commercialization strategy

To maximize your chances for success, you need to be thoughtful in developing the strategies behind your new products.  Innovations can happen in the commercialization of a product as easily as in the product itself.  Think about all the ways you can build upon and leverage your commercialization strategy and you might find your sales teams more engaged in the product launch, your customers understanding what’s in it for them, and ultimately your new product goals being achieved. (Source: Lowell Dye.)

What is the Real Total Cost of the Products you Buy in China?

For most importers, reducing the cost of the products they purchase in China means negotiating with suppliers and pushing them to accept lower margins.

Does it make sense? In many cases it certainly does. Some suppliers send quotations based on a very high margin — for molds or LEDs the markup is sometimes over 100%, even for high volumes!

In these cases, it makes sense to keep the supplier’s margin down to a reasonable percentage. The best to achieve this objective is to know your product’s normal price by getting a number of quotations from different suppliers (generally quotations from 10 different suppliers are sufficient to get a good idea of the “market price”), and by understanding the raw material costs.

However, cost reductions can also come from changes in your logistical setup, or from less expensive components/materials.

Optimizing logistics is not easy in China unless you have a foot in the country. But working on the components is often a source of great savings. Below is an interesting example about LED spotlight products.

LEDMost manufacturers of this type of product only do the assembly (simple operations; limited investment). Regular spotlights are mostly composed of drivers, PCB with leds, heat sinks, and a lens. Smart importers also want to source the components on behalf of the assembly factory when the final price (of the whole product) is not low enough. One brand (Cree) is often at half the price of other suppliers. Labels and CE-compliant drivers can also be sourced directly by the importer at competitive prices.

Altogether, in a project we recently worked on, the final price was reduced by over 30%, for the same quality and while complying with CE. That’s the power of applying the “total cost of ownership” approach!

In fact, factories often do a poor job of sourcing their components. In many cases they use traders/wholesalers and their relatives’ contacts to buy subassemblies and parts.

However, many Chinese suppliers are not ready to let you influence the Bill of Materials (BOM) or give you any type of transparency. They don’t feel comfortable with openbook contracts, since they are afraid the buyer will squeeze their margin. Once you agree with your supplier to work this way, though, you start to own your supply chain — you gain strong control over it.

I should mention that the supplier also benefits from the buyer’s sourcing efforts, since they can re-use the same component suppliers for their other orders (for other customers). Good suppliers will be appreciative and supportive.

To sum up, the “total cost of ownership” approach, combined value engineering, is usually where the highest cost-down potential resides. Make sure you get your supplier support for it.

For further reading: Where are Cost Reduction Opportunities?

What do you think?

Test Marketing before Producing a Large Batch in China – part 17

Let’s say you have iterated successfully until you got a good prototype, and you have ensured production can run smoothly. Before making a large batch and “pushing it onto the market”, it is highly advised to spend a little time on test marketing.

Test_Marketing

What is Test Marketing?

Test marketing is a process for testing a product within a specific geographic area. It allows you introduce your product to the market place through different sales channels and for you to test the different strategies you have identified and then monitor the outcome with the aim of fine tuning and optimizing those strategies before a national launch.

This process can also be used as an opportunity to generate initial interest in the product as well as being the ideal platform to gather feedback about the actual product. It is also the perfect time to start building a marketing list. It is important to get as much information from potential customers at this stage so that plans can be changed and adjusted to be more aligned to customer acceptance. The higher the acceptance, the greater the probability of higher sales figures after product launch.

Marketing Strategy

When generating a marketing strategy, you need to set goals, have an understanding of your pricing strategy, and work out all the distribution networks and sales channel options. One of the attributes within the marketing strategy should be to set your price range, getting feedback on what is perceived as too high or even too low is critical in finalizing the pre-launch data.

Part of this strategy includes how you are going to communicate with consumers. Packaging, as we already know, plays a big part in how a product sells, your product almost needs to jump off the shelf as a potential buyer walks past. Sales copy is another critical element of any marketing and the test marketing platform is the ideal place to run your initial split tests and to evaluate your different sales funnels for the e-commerce side of the business.

When to run a Test Market?

The ideal time to go into the test marketing phase is when you, as a company, believe you have a successful product and a product that is ready for market.

The main objective of entering into the test marketing phase is make sure all your planning, all your individual strategies and infrastructure all work and function as one coherent operation. So do not push the product out for a test market phase unless every element of ‘selling in mass production conditions’ is in place.

Crowdfunding as a Test Market

Over the past five years or so, a number of crowdfunding sites emerged whose initial objective was to provide a platform for the start-up entrepreneurs to get enough funding to enable them to launch their product. Things have come a long way since the early days of crowdfunding. In today’s market place you will find the start-ups as well as the large corporate companies using these platforms for test marketing where they can get instant feedback on design, features, pricing and even how well the product will potentially sell through e-commerce.

There have been some great successes with this strategy — Examples from one the more popular sites are shown below.

Kickstarter_websites

Source: Kickstarter.com

One reason to test market is to decide how much of the product is likely to sell. The other reason to test market is to determine how to market the product. Crowdfunding sites provide the answer to both of these questions, however they are just one tool that can be utilized for this phase of the NPD.

How to avoid disaster

Murphy’s Law is familiar to most businessmen: “If anything can go wrong, it will.” This law is especially true for the new product development process. Disasters are common in the development and introduction of new products, and test markets are one of the ways to avoid as many disasters as possible.

The following is a partial list of the variety of things that have gone wrong in the development of a new product:

  • Because packages would not stack, the scouring pads fell off the shelf.
  • A dog food discolored on the store shelves.
  • In cold weather, baby food separated into a clear liquid and sludge.
  • In hot weather, cigarettes in a new package dried out.
  • A pet food gave the test animals’ diarrhea.
  • Because of insufficient glue, over half of the packages came apart during transit.
  • Excessive settling in a box of paper tissues caused the box to be one-third empty at purchase.

(List Sourced from Harvard Business Review: Test Marketing in New product Development.)

From Risk Management to Product Safety

This is a sequel on an article entitled Quality, Fact of Fiction? that was written by Jo Van Landeghem, Quality and Safety manager for global retailer C&A, a few months ago.

Product Safety 101: 0% risk does NOT exist. Life as we know it is full of surprises and endless possibilities. “100% Risk Management” is a wonderful challenge.

Risk and Quality go hand in hand. When you reduce the risk, the product quality will rise. And higher quality triggers stronger brand, lower total costs, and increase in demand. Therefore, proper Quality Management always includes Risk Management. It starts with the suppliers making components and the factory workers assembling the final product, all the way to the end consumers. (Note that the end consumer is not necessarily the person who purchased the product — maybe you bought a product but a child or your grandmother ends up using it).

In order to always ensure Product Safety, Risk Management has a major role to play. Risk Management is part of your Quality Management System whether you purchase food, consumables, durable goods, financial services, or any other commodity.

Classic Risk Management focuses on the severity and the frequency of risk. This information is then translated into a risk matrix that is similar to the EU RAG tool being based upon the RAPEX Guidelines 2010/15/EC.

Now for the challenges. Is your company capable of taking the following steps?

  1. Identify the risk
  2. Understand the risk
  3. Reduce/mitigate the risk
  4. Implement the Key Learnings in its Quality Management System

These steps are to be followed BEFORE the product is on the market.

That’s why design is the critical starting point of Risk Assessment. The weaknesses (aka “failure modes”) of the product (both each component, and the combination of all components) need to be examined carefully. However, if you make the design of the product hard to reproduce, then inconsistency in production might lead to major risks — or even a product recall.

Once the product hits the market all Customer Complaints need to be categorized according to the risk matrix. This way, the organization can work on a Corrective and Preventive Action plan when necessary. This information should then be stored in the product’s Technical File so it can be used for future reference and guidance.

As market and brand competition has increased, product development has had to speed up. Some retailers have done so successfully. But the downside of going faster is a tendency to make more mistakes. Therefore a preventive, rather then reactive, approach to risk is crucial.

Product Safety is expected by any consumer (including myself) both chemically and mechanically, let it be via design, workmanship or other ways. Remember the brake pedal programming problem that prevented some drivers from stopping while driving on the highway… Nobody wants to be in that position.

Ensuring Chemical Product Safety is pretty straightforward and known in the industry via REACH EC 1907/2007. When it comes to Mechanical Product Safety, tough, strange things start happening.

I hear people say “we all survived in our childhood without these new regulations”, or “a small part is not really dangerous since it can be swallowed”. But what these self acclaimed “experts” do not realize is that one day a small child might be found with an object lodged in the throat. The object cannot be removed by hand. The child is chocking. And the nearest hospital is 10 minutes away…

Statistically these incidents will occur. And so do many other mechanical safety-related problems when you look deeper into available incident data.

Often these incidents are caused by:

  • A poor understanding of design related risk
  • Poor component quality usage/selection
  • Poor quality workmanship when the products are being manufactured
  • A poor combination of quality components combined with inappropriate workmanship

Here is an example. A zipper from a reputable brand is sewn into a baby sleeping bag. The zipper train and puller is of the “non end zipper stop” kind, so it can easily be removed when required. These zippers are not suitable for a baby product, since the baby could remove the zipper part by himself when unsupervised in his “safe” cot bed. Then the baby can put it in his mouth and a disaster might happen.

Many people base their decisions on experience. It means scenarios with a low probability are not taken into account. That reliance on “experience” could one day lead to a fatal incident.

A certain airline is THE most unfortunate recent example of the consequences of this approach. “Yes we can take a low risk and fly over a war zone, since nothing ever happened before. They got unlucky and consequences were enormous for EVERYBODY!

Now the precautionary principle of “Safety First” is sound, but Keeping it Simple ( or KIS ) is also needed.

Another example: the “cot bed set” for babies. It has a cot duvet, sometimes with a pillow or a baby sleep bag, in combination with a cot “bumper”. It looks all nice and safe. However, these bumpers designed to “protect” the baby from hitting the head against the cot bed are actually causing CO2 buildup that can cause death.

As nature intended, a baby can bump his head against objects, like the cot bed. That is part of learning and discovering the world around him/her. As harsh as that might seem, the baby will not suffer lasting physical injuries from hitting the cot a couple of times. But he/she will have learned an important lesson in life.

A proper cot bed is designed to achieve a good airflow, to follow measurement standards so the head or any other limb does not get stuck in between pillars, to avoid sharp edges, and so on. Over time babies become more agile, so they might use the cot bumper to stand on and climb out of the “safe” cot bet…

Are some “safety” requirements overdone? In my opinion, some certainly are.  They actually increase the risk!

Let’s take a recent example: the tragic airplane crash in France where the cockpit “safety doors” locked the captain out while the plane was going down.

However there is no need to despair. Common sense does go a long way when you need to decide on design and safety requirements in your own company. Even as a consumer, you can do a risk assessment and avoid using nicely decorated cot bumpers if you think it is unsafe.

Here is another recent example. In the UK, a small child stuck his head in the cot bed. Fortunately one parent was keeping an eye on the child on a video monitor and came to the rescue. The lesson is, even parents have some responsibility to watch over their kids!

There is much more to be said and learned on the topic of Product Safety & Risk Management. My aim here is simply to raise awareness on the matter. I do not know everything nor do I pretend to — every day I learn new things. I hope that sharing this knowledge will help prevent further safety indents.