Requirements for an efficient NPI process

The phases of the NPI process

The New Product Introduction process consists of the all the work involved in developing, prototyping and manufacturing a product to be introduced as an organisation’s new product for a market-place. There are generally four phases: Concept design; Physical design; Prototype manufacture; Pre-production and volume ramp. After this, the product will be handed over to full production, and the organisation may also have some involvement in after-sales.

Phase 1 – Concept design

A concept is a description of the features, form and function of a product and is usually accompanied by a set of specifications, analysis of competitive products and economic justification of the project.

Determination of customer requirements. This will be interlaced with the marketing functions that will establish whether the market exists, collect customer needs and identify lead users.

Product Design Specification. The development team will identify and benchmark competitive products and provide functional requirements and technical specifications. Plans for product options and extended product families will be developed.

Design analysis. Initially, concept development and technology assessment will take place considering product platform and architecture. Alternative concepts will be investigated and experimental prototypes built and tested. Selection of the best will take place.

Phase 2 – Physical design

Design realisation. Schematics and product layout drawings will be generated and simulations of the design will be carried out for product function, environment and any qualification to recommended regional or global safety or design standards.

Component procurement and supplier negotiations. Unit quantities would be known for bargaining power with component suppliers and designs would have to be assessed with contractors’ process capabilities.

Test strategy and process development. Manufacturing simulations would ensure the process compatibility of the manufacturing functions, both in-house and contract. Test engineers would ensure testability of the design during production.

Phase 3 – Prototype

Verification of design and process information. Prototypes should be built as close as possible to the full-scale assembly using the intended components and processes. Tooling and specialised process equipment would be designed and tested.

Conformance test and customer acceptance/demonstration products. Beta prototypes would be tested internally and used for demonstration purposes or for customer conformance and approval.

Phase 4 – Pre-production and volume ramp

Volume manufacturing qualification. Increasing product maturity levels is important for product quality and process refinement. Any final engineering changes should be actioned before large-scale manufacture. Also, the work force can be trained to use any new production processes, machines or tooling.

Evolution of manufacturing efficiencies and yields. The first process results are gathered for yield improvement studies etc.

Market and supply chain development. Market push can continue with products visible at trade fairs, customer visits etc. Regular order quantities can be placed and suppliers tested for delivery times and quantities.

Product use, product demise, disassembly and disposal

Issues to consider are:

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Requirements and benefits of an efficient NPI process

It is particularly useful to consider the electronics industry because it has been under considerable pressure recently. The sales life of electronic products has decreased, prices have fallen and expectations of quality and functionality have risen. Since the 1970s, Western manufacturing in general has seen aggressive competition from traditionally subdued Far Eastern based companies. Communication technology has improved, with email and the internet, to the point that competition that was once local is now global. Here, we will explore these pressures on the electronics industry and the effect on profits. Once we understand the reasons, we can address them.

Most companies realise the importance of an efficient NPI process to develop products and get those products to the customer as quickly as possible. In the electronics industry it can mean the difference between success and failure or in extreme circumstances survival and closure. From a list of NPI efficiencies we can determine a requirements list for an NPI process to maximise profits.

The pressure on the electronics industry

The graph in Figure 1 shows the change in profit making period for various industries during the 1990s and the particular pressure on the electronics industry.

Figure 1: The change in pay-off and product life span over the 1990s

The change in pay-off and product life span over the 1990s

The product life span (PLS) is the upper line and is the length of time the product will remain on the market. The pay-off period is the lower line and is the time for the product profits to pay-off the development costs. The grey area represents clear profit. For the electronics industry the pay-off period has risen by on average 5.5% but the PLS has fallen by 46%. This has the effect of squeezing the time the products have to make profits. Also notice that the electronics industries represent the narrowest part of the graph. This means that, although other industries’ profits are being squeezed as well, there is particular pressure on the electronics industry.

Increasing profits during the NPI process

A reduction in potential profits gained requires solutions. Figure 2 is a typical product’s sales and profit cycles. The sales cycle shows no sales while the product is being developed, increase in sales on introduction to a market, steady growth of sales to a constant level during product maturity and the drop in sales during decline.

Figure 2: Profit and sales cycles for a typical product’s introduction, maturity and decline

Profit and sales cycles for a typical product’s introduction, maturity and decline

Think about the sales cycle and the rise and fall of the profit cycle. We can divide the diagram into three areas:

Product development: There are no sales therefore the profit is negative

Product introduction to the market and growth: profits increase sharply as sales rise

Maturity and decline: The sales steady and eventually decline and the profits steadily decline throughout

Increasing profits during the NPI process

Can you suggest why the profit curve is this shape and how these profits can be maximised?

Compare your answer with the discussion that follows.


Increasing profits in the electronics industry

There are three issues to consider here:

Issue 1

The first issue is the initial loss during the developmental or NPI stage (including product design, prototype manufacturing and ramp to volume production).

Figure 3: The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the development phase

The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the development phase

As there are no sales of the product then the development costs provide a negative profit. To increase the clear profit made by the product further downstream, we can:

  1. Reduce the costs during the development stage (the depth of the dip). Smaller development costs will mean a faster return on investment (ROI); once the product’s sales pay off the ROI, then the product will make real profit.
  2. Reduce the development time. The shorter the development time, the sooner the product is introduced and the sooner it starts to generate returns.

Figure 4: The benefits of early introduction of a product to market

The benefits of early introduction of a product to market

Figure 4 is a graph showing the effects of introducing a product early, by shortening the development time. These are:

  1. Extension in product sales life. Products introduced earlier seldom become obsolete later. Consequently each month saved from the development cycle implies an extension to the sales period.
  2. Increased market share. The first product to the market has a 100% market share until competition catches up and releases its own. In some markets such as software and machine tools, once a system is purchased the buyer is virtually locked into the product type due to the high premium required to change.
  3. Higher profit margins. With no other competitor, a company can enjoy pricing freedom and higher margins. The price may decrease later as competitor’s products enter the market.

In contrast, Figure 4 also shows the effect of a late product introduction. The lower line shows the reduction in sales due to competition already selling similar products, and a reduction in sales life because irrespective of when a product was introduced it is likely to start to decline in sales at the same point.

Development time and cost reduction can be achieved by using tools like concurrent engineering, DfM, Value Analysis during the design phases, and Lean Manufacture and TQM during prototype manufacturing.

Issue 2

The second issue is the huge swing to a high profit on introduction of the product. The company would like to make this as high as possible and as steep as possible.

Figure 5: The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the introduction and growth phases

The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the introduction and growth phases

A higher graph suggests larger profits and a steeper graph will increase the length of time the product stays at a premium market price before decline in profits occur. There are two ways to do this:

  1. Early or, if possible, first entry into the market. Again a fast development process is required – this aspect is described above.
  2. Good promotional activity of the right product. An awareness of the market and its customers is required to highlight potential market sectors for product launching. This information would be provided by marketing functions, but the development team is responsible for:
    • Ensuring the product only satisfies the requirements of the customer. Development time and cost can easily be wasted on adding unnecessary functions to a product.
    • Ensuring the developed product is of the best quality. This is a powerful product differentiator that improves a company’s reputation, sales margins, price potential and product sales life. A poor quality product can have a disastrous effect.

These both add up to ‘total customer satisfaction’. Tools such as QFD would be useful here – this is described in the next part.

Issue 3

The third is the slow decline in profit as the product matures and declines.

Figure 6: The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the maturity and decline phases

Figure 6: The profit and sales cycles for a typical product’s introduction, maturity and decline, highlighting the maturity and decline phases

This is inevitable, as the price will reduce to sustain sales when the competition increases and undercuts your own prices. Reducing the manufacturing costs would maximise the profits at this stage and allow sales functions flexibility when promoting the product. Tools such as Lean Manufacturing would be helpful here.

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A requirements list for the NPI process

We can now derive a list of requirements for an organisation’s NPI process.

Develop the right product. We must first make sure we understand the market we are introducing our products to. The marketing functions must make sure it is the right market and provide added value if we are competing with other similar products. The development team must provide correct functional specifications with any options offered to ensure the development energy is focused on the right product. They must benchmark against competitor’s products if available.

Fast development process. Once we know what the product is supposed to do we must develop that product as quickly and cheaply as possible.

A cost effective manufacturing process. If the product is cheaper to manufacture than the competitors’ products, there will be greater profit margins, a faster ROI and more scope for sales functions to undercut competitors.

Provide quality products on time, every time. The aim is to provide ‘Total Customer Satisfaction’.

For NPI to work cost-effectively, we need to use appropriate tools to increase the efficiency. What some of these tools are, and the areas where can be applied in relation to the flow chart given in Figure 7, is the subject of New Product Introduction tools.

Figure 7: Flow chart of a typical product development process

A typical product development process

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