New Product Launches: The Cache to Cash Cycle
Aligning marketing, advertising, and sales initiatives with logistics and fulfillment processes to ensure that new products make their way onto store shelves and into shopping carts demands a collaborative and integrated approach among internal departments and supply chain partners.
Every holiday season consumers are bombarded with advertisements endorsing new products that retailers and manufacturers hope will rake in the green. Product launches are potential gold mines for manufacturers in particular, but without sufficient support from their internal departments, communication among their supply chain partners, and a strategic plan for success they can be equally as risky.
Nine out of 10 new product launches are set to fail from the very start, reports a 2000 study by ACNielsen UK, the British arm of the New York-based market and consumer research company. Among the reasons cited are lack of advertising, misdirected advertising, and flawed marketing strategies.
Often tantamount to or complicit with these marketing miscues are failures in supply chain management, suggests a recent report by AMR Research.
"We've seen product introductions rescheduled for 30 days or more because of a lack of supply chain readiness during the development period," say Vinay Asgekar and Louis Columbus, authors of the AMR report. "In most cases, the cause is poor coordination between the groups."
Aligning marketing, advertising, and sales initiatives with logistics and fulfillment processes to ensure that new products make their way onto store shelves and into shopping carts when they're supposed to—and are not left stranded in warehouses—can be a daunting challenge. Without a collaborative and integrated approach on the part of manufacturers, suppliers, retailers, and, often, third-party logistics providers, product launches are doomed to fail.
Arguing for Seamless Integration
"Rarely is there a coordinated effort to integrate internal and external systems to streamline product launch and management tasks," say Asgekar and Columbus. "Companies rely on daily cross-functional meetings to discuss topics ranging from marketing, production, engineering and quality assurance to support and sales in place of integration. As the launch date approaches, these meetings often turn reactive, rarely taking a proactive stance."
The argument for seamless integration among internal business units is compelling on a number of levels, but especially when delivering new products to market. Businesses rely on sales and marketing efforts to spike interest and demand in their products. But without a pipeline of shared information and moving inventory, it can be difficult to meet customer demand.
Ideally, knowing where product demand is coming from—geographically and demographically, for example—can help marketing and sales better target potential customers as well as forecast future product viability. This knowledge can then be used to enhance supply chain initiatives and better anticipate product trends. Communication among these internal departments, therefore, is critical to success.
"Logistics costs can certainly be reduced by adopting best-in-class supply chain processes and technologies," notes Simon Pollard, author of an AMR report, Count the Money When Sales and Marketing Work With Logistics. "However, one critical cost driver—demand predictability—remains under the influence and control of sales and marketing.
"In a similar vein, gargantuan sales and marketing spending can be tracked and analyzed, but it cannot be truly optimized without considering fulfillment and logistics constraints and opportunities."
The Supply Chain is Always the Last to Know
But these seemingly inherent reciprocities have been largely ignored. In the past, communication among internal departments has typically been one-way, forcing either sales/marketing or logistics departments to react to what the other is doing—or not doing. Without common knowledge between the two functions, it is difficult to build a truly collaborative and efficient network.
"Supply chain managers have always struggled to react to changes made by the sales and marketing department," notes Jim Langabeer, executive vice president, product strategy and delivery for Demantra, a demand management and inventory planning and optimization solutions developer based in Cambridge, Mass. "If sales and marketing introduce something new, the supply chain is always the last to know."
But these communication breaches are gradually crystallizing as cultural walls crumble and resistance to internal collaboration softens.
"In general, departments within larger companies, especially manufacturers, are starting to come together," says Langabeer. "Ten years ago supply chain managers were driven by one type of goal, whether it be reducing variability, gaining tighter control or producing higher yield. Now, they're driven by individual profit margins, market presence, and service levels at the retailer. We're beginning to see a lot of convergence in terms of business goals."
Segway Rolls Out
As is often the case with many high-profile product launches, the hype precedes the reality. Generally, this is a good thing as it helps build a product's marketability before it even reaches retail outlets.
But, with increased visibility and demand, ensuring that internal departments, suppliers, customers, and third-party service providers are prepared for the rollout and cognizant of production timelines is even more important. The last thing a manufacturer or retailer wants is product availability negatively impacting sales and marketing efforts.
When Segway LLC, the Manchester, N.H.-headquartered manufacturer debuted inventor Dean Kamen's self-balancing, electric-powered human transporter on Good Morning America in December, 2001, there was more than enough hype to go around. Speculation about a revolutionary new invention, with the code name "IT" had run rampant months before the product's official release, generating a great deal of curiosity, intrigue, and publicity. Despite the media frenzy, no one really knew exactly what "IT" was. With the project shrouded in secrecy, the real challenge for Segway was capitalizing on the growing curiosity and anticipation of its product by finding an appropriate distribution channel to deliver the HT Transporter to market, while also building a strategy to support short- and long-term consumer demand.
This process, according to AMR's Asgekar and Columbus, is particularly difficult because it requires a great deal of communication and structure during the entire process.
"Organizing the workflow that originates with designing the product, culminating in a product launch, is a major pain point for high-tech manufacturers today. Companies need to extend their product development processes to emphasize the production ramp-up and a successful launch," they report.
Leveraging Supplier Expertise
Because Segway was a new business and had no prior usage history, it decided to leverage the experience and expertise of its suppliers to move product components and parts to its manufacturing facility in Manchester. Enlisting supplier support, and extending its own product development process to them in a timely fashion, was critical in getting the project off the ground.
"When we designed the HT Transporter, we focused on putting the specialized manufacturing processes—injection molding and casting, for example—in the hands of the people who really knew how to do that. Our manufacturing facility is responsible for final assembly, rigorous quality testing, and returns management," notes Doug Field, vice president of product development and operations, Segway LLC.
Segway had a number of suppliers on board up to three years before the launch, which was unique given the secrecy of the project, adds Field.
Having full support from suppliers was similarly important because of the scale and scope of the project. Resigned to grow its business with the demand of the market rather than ratchet up production right away, Segway purposely chose not to ally itself with a third-party logistics provider, instead handling distribution and product fulfillment internally.
"Our decision not to work with a 3PL was volume driven," notes Field, "because having internal control was key. We stayed small as long as we could, so we were careful about how quickly we grew the team. Even though we brought a lot of functions on early—having manufacturing here long before we built our final production facility—we stayed contained."
This strategy proved efficient in maintaining an open channel of communication among its suppliers as well as its internal departments.
"There was a complicated and broad project management aspect to the launch that had to include product development, manufacturing, shipping, and marketing to keep everyone on the same page," reports Curt Cooprider, director, production operations, Segway. "Everyone in the company met three times a week to go through visual charts and keep track of progress. Being collocated in the same facility was a big help."
As part of its rollout strategy, Segway opted to deliver HT Transporters to market in two phases: first, working with private sector companies such as the U.S. Postal Service and General Electric, as well as smaller owner/operator businesses, to test the product in the field and make it available for purchase; and secondly, marketing it to the general public.
Because it decided not to piggyback off the resources of a third-party logistics provider, one of the challenges for Segway was finding a channel to market and sell HT Transporters to consumers. Given the novelty of its product and the newness of its brand, Segway partnered with Amazon.com to help market, sell, and facilitate order purchasing through its web site.
"The goal in working with Amazon.com was to take our strength—which was in our product—and match it with what Amazon.com could bring to a company that didn't yet have maturity in its ability to reach out to a lot of customers and handle large numbers of orders," says Field.
It also gave Segway instant credibility, notes Field, so that consumers could put a deposit down with a company they already trusted.
Amazon.com electronically submits order information to Segway. "From that point on we own the customer," says Cooprider. When orders are delivered to its headquarters, Segway then handles distribution and fulfillment to the end consumer.
"Ultimately we want to develop a set of distribution capabilities that allow us to go in any direction we want," says Field." But this was certainly a nice way to get started in the consumer arena with a larger number of customers that we could not otherwise reach."
Segway will begin delivering HT Transporters to U.S. consumers this spring and start targeting other markets as it continues to move ahead with its sales initiatives. At present, manufacturing and distribution activities are still being performed from its New Hampshire facility, and will continue to do so as demand and volume dictate.
"The advantage of positioning a manufacturing and distribution facility together allows us to react very quickly and make decisions at the last minute," notes Cooprider.
Field similarly acknowledges the flexibility Segway has in collocating both facilities. "It allows us to be very nimble if we want to make a change to the product. By having access to all our inventory we can control whether we want to roll out a new software, for example, in a machine that we are shipping."
Also, given the relatively small size of its operation, Segway made sure to create enough lead time in getting product to market so that it could support volume and carry out necessary activities, such as on-site operator training, a prerequisite course buyers must complete before final delivery.
"Looking forward, the key is to design all our systems to be as flexible and responsive as possible," says Field. "The suppliers we picked are all capable of having a global presence very quickly and the product in the assembly process is designed to be scaled and duplicated rapidly without large capital investment. We have tried to set up a system where we can easily manufacture the product in plants overseas if we need to."
The network Segway has created internally and through its extended suppliers allows it to quickly and efficiently react to the marketplace. This way, it can more easily match supply to demand, anticipate product lifecycle trends, and support future growth.
"The whole chain can respond very quickly," says Field. "The timing and strategy is determined more on how we want to enter these markets than from our capabilities responding to it."