5 Challenges for Procurement in New Product DevelopmentBusiness | June 18, 2022 | By
Recently Land Rover took the wraps off their brand new Range Rover Sport in a grand fashion. The car is the third generation of the sporty Rover and comes with a host of new changes, from design to features. Looking at the way Land Rover launched the car, one might think it’s a simple process. Finish the design, manufacture a prototype, test it and voila, you have a car ready for launch! But this is far from the truth. Launching a new product, be it the Range Rover or the Mars Rover, is not an easy job and procurement plays a crucial role.
Product manufacturing companies work towards a tight deadline and face multiple challenges en route. They have to find the right suppliers and go through several iterations until they achieve the intended version of their product. They also have to achieve proper certifications and test the product for safety before launch. And while doing all of this, they also need to track the cost and complete the project on time. If any of these steps are missed or not executed properly, it will derail the whole project, putting a dent in the company’s bottom line and brand value.
It is known that in an NPD process, procurement plays a crucial role. But, they face with multiple challenges. Here are the top 5 challenges that procurement faces when launching a new product.
Not involving Procurement in the Early Stages of NPD
One of the biggest challenges for procurement when working in new product development is their little to no involvement early in the NPD process. Most of the times, product engineers, design engineers, and other stakeholders discuss many aspects of the project without the procurement team. Discussions pertaining to multiple iterations of the product, replaced components, etc. don’t have Procurement’s say in it. The product and design engineers also talk with the supplier(s) based on their rapport and trust without involving the procurement teams.
The impact of designing a product keeping in mind a single supplier could be disastrous. This is the case for multiple reasons. For example, the chosen supplier may not be fit for the component/part in consideration, or may not be financially strong. Also, procurement teams factor in the manufacturability of the component/part when working with suppliers, which the product and design teams might not consider. And, when the product comes into mass production, the companies face problems. Imagine a situation where there are 1000s of parts, and the product and design teams finalize the suppliers without involving procurement. Procurement loses complete leverage pertaining to financial due diligence, supplier negotiation, and evaluation of supplier reliability. So every time the procurement function is left out, the entire company is at a disadvantage.
No Adequate Time for Tool & Process Development
Coming up with a prototype and mass-producing the same product are different. There is a massive difference in the tooling, costing, and the production process.
Now, let’s say that the design is ready and the company goes with the suppliers chosen by the product and design teams. Only at this stage the procurement team is involved in the NPD process. And this means there is no time for procurement to work with the suppliers to develop the required tools and processes for mass-production. The suppliers may not have the required production capacity and may need additional development time. But, since procurement is involved only at the last moment, time is a luxury. The result is that suppliers come up with makeshift solutions and may still face issues during mass production. And this puts the company in danger of delaying the product launch.
No Proper Channels of Communication
In any NPD process, multiple design changes are common. These design changes need to be communicated to the procurement team and the other stakeholders immediately. And this allows them time to inform the suppliers and take necessary action. If there are no proper channels of communication, the latest designs are not communicated to the procurement team on time. So the suppliers go with the previous version and manufacture the parts. On the day of production or assembly the previous version of the part arrives at the plant.
The result is that significant cost and effort attributed to procurement goes to waste or is now irrelevant to the project. And there is also no progress in the NPD process. And sometimes, there cannot be any rework done in the older version to convert it to the latest version. The teams now scramble and come up with a solution, but the damage is already done. Because only when the correct version part arrives, the whole product can be assembled.
No Visibility on Product Cost
Before the start of a new project, companies plan and decide on a budget for the project based on the proto version. And an initial cost estimate would have been made for that version. But as the project progresses, there will be revisions to the product and the costs will change accordingly as the product matures into a launch-ready version. But, without a tool to track the product cost against the budget real time, it is difficult for procurement teams to meet the target cost for the project.
No Real-time Program Tracking
Before launching a new product, a lot of time and effort is required. There are many milestones to be met before the actual launch. For example, in the Range Rover Sport model, the product requires some certifications like an emission certificate, safety rating, etc. to be obtained. The car needs to be ready before obtaining all these certifications. Or sometimes, the cars need to be showcased in an automotive show marketing, or a customer event.
To reach all the milestones on time, proper planning is needed. And for proper planning, visibility of all the items related to the project is a must. For example, the status of the components/parts for which RFP is yet to be raised. Or the status of the components pending with the suppliers beyond the required delivery date. All of these and much more need to be tracked by the procurement teams. If not, there will be last-minute hurdles, and the teams will have to scramble to ensure the product is ready before launch.
As we have seen above, it is clear that without involving procurement early in the NPD process it is difficult for them to play a successful role and contribute meaningfully. And also, they need to be provided with the tools built for direct material procurement. Zumen’s source-to-contract takes care of every step of the direct material procurement in the NPD process. Read more about our solutions or contact us today for a demo. We would love to hear from you and help make your next product launch a success!