Product innovation is demand-driven

There is no doubt that product innovation is a key factor in competition strategies. Even though price and service are important in determining the purchase of goods, today, the playing field to defeat competition is the level of the product itself and its quality, usability and capacity to meet consumers varying demands.

In the short term, discount policies and promotions are winning sales strategies. But, in the long term, the companys degree of competitiveness depends on its capacity to develop products in line with the customers changing needs and tastes. Today, customer demand is an even more important factor in product innovation content than in the past. It seems that after the race for differentiation in recent years, the need to make the process of innovation more perceptible to the markettoo often confused with an excess of innovation not always in line with the customers real demandsis now consolidating. While obviously, not losing sight of originality and creativity, it is essential to remember that demand creates offer and not vice-versa. New products are created fundamentally because of the existence of a demand that is not satisfied.

The traditional push view, which saw product innovation in the lead and market-push in second place, is an obsolete perspective. Today, the current model is pull, or rather consumer-driven, where customer demand determines direction. In this logic, product innovation is no longer separated from demand management, production and distribution issues: the thrust comes from the market and immediately impacts creative, planning and supply processes. (Figure 1)

Figure 1: From the "push" model to the "customer pull" model. The client produces information and drives the whole supply chain.

Innovator markets
This new approach began in the fashion industry where strategic planning revolves around pull logic. Here the connection among customer preference, assortment planning, content of the new collections, involvement of the
suppliers in viability/cost issues and the careful selection of the best ideas to be transformed into actual products, is tight and evident.

The model is vertical and integrated. Trends originate not only from the stylists flair, but also from the interpretation of ideas and behaviours coming from the market, from the taste and creativity of people wearing the clothes. And to better meet peoples evolving tastes, many fashion companies no longer have two collections per year (summer and winter) but rather renew their product lines continuously. The presentation of the collection every six months, plus seasonal replenishments, seems no longer to be enough. Companies constantly observe customer desires, and transform these desires into a product idea that moves from conception to the items availability on the shelves in only a few weeks.

To make this possible it is necessary for stylists to catch emerging trends and for companies to gather information on customers varying tastes as described in point of sale data. Information from the market is rapidly transmitted upstream to the creative, purchase and production functions. Innovative processes are demand-driven, like the entire supply chain, which has to be fast and flexible.

But does this trend regard the fashion sector exclusively? Not at all. Manufacturing companies, too, are taking a pull approach and are passing from a build-to-stock model to a build-to-order model, which adapts the processes of product development and production to the customers specific needs. And, consumer products companies are doing the same. Producers are focusing on the processes of product development and they are beginning to look at the production of goods in a new way that puts customer demand on centre stage.

If once the strategy of many producers could be summarized in produce and sell; nowadays companies have to listen to the market, differentiate, and offer personalized solutions. In other words, the old paradigm of mass production is being surpassed by the new paradigm of mass customization, through which the clients can select, receive and configure a special product that suits their specific needs perfectly.

Lets consider the example of the automotive sector. From the original mass-production logic of Fords early assembly line, the sector has since embraced total quality (which recognizes the central role of the client and aims at maximum satisfaction), just-in-time manufacturing (with the car assembled only after its purchase) and in a very short time, the order is now made directly by the customer, who can personalize their car by choosing among a multitude of variants. The same happens in furniture, in hi-tech, in industrial components; we even have examples of toy producers letting kids configure their favourite dolls hair colour, dress and accessories on-line.

The idea is that the client is the beginning, not the end, of the supply chain, contributes to production and participates in the definition of what he will buy. Demand impacts production and distribution processes, which adapt rapidly to variations to enable fast deliveries, as well as the strategic planning of the product portfolio, with the creative functions driven by market vogues. Innovation, whether external (packaging, colour, materials, etc.), technological or functional, will take into account demand, which is real and can be investigated.

Helping the change
At the same time, consumer goods companies are also focusing on the processes of product development and they are beginning to look at the production of goods in a new way, which puts customer demand on centre stage. The old paradigm of mass production is being surpassed by the new paradigm of mass customization. Manufacturing companies, too, therefore, are taking a pull approach and are passing from a model of build-to-stock to a build-to-order model, which adapts the processes of product development and production to the customers specific needs.

But how are demand-driven innovation processes to be supported? It is essential to overcome an approach which sees a separation between product engineering and supply chain. Assistance, in this direction, is to be found in the management approach called product lifecycle management (PLM), which is supported by product data management (PDM) technologies, and by demand and supply chain management systems, which permit the integration of all the processes involved in a products life cycle.

These systems favour the real-time exchange of information, increase visibility and allow the integration of activities beyond functional and company boundaries in order to create a flexible and consumer-driven network where market information is transmitted promptly upstream to act on the processes of innovation, production and distribution. (Figure 2)

Figure 2: The enabling role of technology. Demand is rapidly transmitted upstream to product innovation, planning and distribution processes, which influence each other with constant feedback during different phases.

This means involving and integrating whole teams of people who work in different fields. The relationship with suppliers in co-design is increasingly closer and collaboration processes spread throughout the chain. Here, the closed-compartment view, up to now a characteristic of many organizations, is surpassed by collective planning, creating a bridge to connect the customer, supply chain and product engineering. In this logic, company processes gradually overlap so they reciprocally influence each other and the streamlining that results significantly reduces time-to-market.

The advantages of integrating distribution and production processes with innovation processes obviously have high capacity to point creative processes in the most profitable direction, which adds value for the client. Moreover, reactivity in managing information coming from the point of sale, plus their accurate analysis and planning, allows for a better synchronization of all internal processes, enhancing global supply chain efficiency (productivity, lower inventories, reduction of unsold goods at the point of sale).

Last but not least, besides assuring quicker response times, the integration of the retail and production phases with product engineering, aids in connecting tighter product development with management aspects and the optimal use of company resources. Visibility, integration, and collaboration, in other words, result in a more balanced evaluation of the relationship between innovation and operational processes. If research takes greater care of the market, marketing functions take greater care of operational constraints and technology. All the parties involved can act in perfect synergy to reconcile customer satisfaction with productivity and with the limits posed by the manufacturing system.

Francesco Maderna is Executive Vice President, Supply Chain & Customer Management, TXT e-solutions. He graduated in Nuclear Engineering from Polytechnic Institute of Milan. He first designed advanced software control systems at CISE, a research centre belonging to the Italian electricity council (ENEL). At TXT e-solutions, he has been involved for over 15 years in the design of solutions and software products to improve industrial operations and has been managing the growth of the division (now 200 professionals) and the related offering (including a consulting practice). TXT e-solutions provides products, services and software solutions for content management, and for supply chain and customer management.