By John Caltabiano, VP of Global Supply Chain, Jabil.
Given a choice, would you launch your product late, or launch it over budget? Choosing to go to market late might present the greater risk to profitability, according to a report published by McKinsey & Company that claims, on average, going to market six months late but within budget can shave 33 percent off profits.
In contrast, McKinsey found that launching on-time but 50 percent over budget put only a 3.5 percent dent in profitability.
The correlation between time-to-market and profitability will only become more pronounced as e-commerce, product customisation and on-demand delivery continue to raise the tempo of business competition. Many companies have already embraced this and made a priority of shortening their new product development cycles.
Fewer have embraced how critical supply chain management is to this goal. It is not simply a logistical matter of minimising supply disruptions or ensuring high-quality components after the product has launched. In today's digital economy, your supply chain manager can offer unexpected tools and insights to achieve greater product innovation and competitiveness. Here are just three.
Optimise the network for reliability and cost
The centralised supply chain model on which most businesses have traditionally relied made sense before the digital economy. By concentrating production in a few locations with affordable labour and access to logistics networks, businesses could launch new products worldwide while keeping risk, complexity and their bill of materials (BOM) costs to a minimum.
This traditional model is giving way, however, to more distributed supply chains that draw from manufacturing centers located closer to key end-markets. This approach not only speeds time-to-market, it offers greater flexibility to quickly scale production based on localised demand. Traditionalists might argue this distributed model results in higher BOM costs. While true on its surface, this argument ignores the added impact of landed costs that add freight, duty, inventory and shipping time to the calculation. When products were manufactured, inventoried and shipped to retailers by the pallet, landed costs could be more easily managed. But these costs can quickly grow out of control when customers expect home delivery of a product within 24 hours.
It's supply chain management's role to navigate the complexity of distributed networks to not only reduce time-to-market but also optimise the supply chain for lowest landed costs.
Design for supply chain
New product development was once largely the realm of industrial engineers – focused on form fit, form function and form factor – and product line managers who prepare the sales strategies. Sourcing, production and distribution of the product were comparative afterthoughts to this process. Unfortunately, this often-ignored potential supply chain issues until after a new product was ready to scale to volume production. A key component might have reached obsolescence, for example, or it might raise unexpected quality issues.
As speed-to-market has become a competitive priority, businesses are wise to enlist supply chain managers earlier in the new product development process and embrace the so-called Design for Supply Chain (DfSC) concept. This practice can mitigate risks and even create value. For example, by offering early insight into which product components pose lead times issues, DfSC allows a business to proactively expand its supply chain network or help source alternative parts with functional equivalents and higher availability. The end result is greater assurance that every part will be available in steady supply when production begins.
DfSC is a valuable practice for any new product intended to compete in a digital economy. But it is especially critical when new products must leverage cutting-edge technologies because the number of suppliers able to deliver key components may be limited or geographically remote from the factory. Upstream suppliers of advanced componentry themselves may also need advance time to ensure availability of raw materials and commodities.
The demand-driven supply chain
Forecasting how many products will sell at specific time intervals has never been a simple or entirely precise practice. For example, even if you accurately predict you will sell 1,000 units over the coming year, the bulk of that product may move in a single month during the first quarter. Either way, the result is the same: Companies tend to over-plan to compensate for this uncertainty and maintain large buffer inventories.
This is changing, however, as brands and their manufacturing partners seek greater flexibility in demand-driven supply chains (DDSC). Powered by the emerging Industrial Internet of Things (IIoT), the DDSC's defining characteristic is that it allows brands to respond directly to consumer demand. This advanced methodology uses advanced analytics, statistics and historical data to define the levels of inventory required to meet a defined service level rather than to a pre-determined forecast. In addition to improving efficiency, leveraging the DDSC is virtually a prerequisite to compete in the digital economy.