|Product Development in a Tough Economy - By James Dempsey
|We are experiencing one of the most difficult global recessions in recent history. Companies are in full cost-cutting mode eliminating jobs, growth plans, capital investments and product development programs. However, it can be the wrong move for a company to hold onto cash and not invest in product development. Independent research by the Design Council shows that "companies that don't invest in growth, research and development during a recession are 2.5 times more likely to fail than those that do." This is a sobering statistic. Companies which enter hibernation to wait out the recession can awake to find their competitors made leapfrog gains in market-share and product technologies thus crippling their ability to conduct business competitively. "If you're not moving forward in business, you're moving backward - innovate or die" exclaims Jack McNulty, Senior Manager of Small Devices Engineering for Moen Incorporated.
Recognizing the importance of funding product development in a tough economy, maintaining a keen focus is paramount to ensure the highest return on investment while managing downside risk. Now is NOT the time to fire out risky new products in an untested market! If your Innovation Team has identified a potentially breakthrough product that could disrupt the market, it's vitally important to test the market before diving in headfirst so as to avoid costly flops. This can be done by talking to your customers - Internet polling, focus groups and even directed brainstorming sessions -lead your customers to the idea and collaborate. If it's a hit move product development forward, if it tests poorly scrap it before spending any capital.
Another way to proceed with product development in tough times is Productivity Improvement Engineering (PIE). The PIE methodology targets existing product lines for re-engineering to drive productivity improvements from lower direct costs of manufacturing: materials, process and labor costs. Benefits are very tangible and quantifiable - you know the history of the products, you know the annual volumes and you can calculate the annual savings which goes directly to the bottom line. PIE provides fuel for growth. It's also an opportunity to correct nagging quality problems that may exist. The PIE process uses engineering methodology and tools to reduce product material usage, material substitutions (i.e. metal to plastic) and process/labor improvement from reducing manufacturing steps. This is a proven process which I have successfully used for years. Over a 3 year period I was able to generate nearly $100 million in direct bottom line savings for a major consumer goods manufacturer using just 3 engineers and 2 designers - talk about bang for buck!
Leveraging suppliers is an excellent way to fund product development, especially in a harsh economy. They are all experiencing markedly lower sales and thus hungry for business. These partners are willing to take extraordinary steps to land new business and are willing to take on frontend and longer-term expenses. Expenses that may be covered by them are as follows:
Don't forget to engage your supplier's supply base - the material manufacturers and tooling shops. Material manufacturers are willing and able to formulate materials and conduct lifecycle, chemical resistance and certification testing in order to get their material specified for the project. Tooling shops can conduct mold-flow and structural analyses to secure tooling business.
- Industrial design and rapid prototyping
- Certification costs - FDA, UL, CSA, NSF
- Tooling expenses - both prototype and production
- Packaging development and expenses
If you are a supplier, you need to realize product development can be considered "customer service." Now is the time to devote extra attention to your customers' product development needs and provide faster services such as rapid mold completion and first parts delivery. Better customer service means "no hassles - with benefits". Throw in sampling or product design to entice customers to work with you. Invest in simple technologies such as real-time web collaboration or advanced material selection software for your customer's projects.
By leveraging the entire supply chain you can develop new products inexpensively and efficiently. You can strengthen your company by creating the best products on the market so when the economy begins recovery you grab dramatic market share with superior profitability.
James Dempsey is a professional consultant with extensive global strategic planning, innovation and product development experience. James completed his Executive MBA from The Ohio State University in addition to bachelor and master degrees in Mechanical Engineering from Ohio University.