pmm npd vave

Procurement and Materials Management NPD & VA / VE

Arvind Tiwari

Guest Faculty

Overview

Role and Importance of Procurement in New Product Development

Role and Importance of Procurement in Value Analysis / Value Engineering

New Product Development

Increasing demand for new products in every industry. E.g.

Mobiles

Consumer Durables

Automobiles

Apparel

Food

Expectation of more frequent introductions


NPIP New Product Introduction Process

Parent company / top management / market need drives it.

NPD is always a cross functional exercise

Companies which introduce new products frequently may have dedicated team for this.

Others put together teams based on requirements

NPD usually follows a Gate Process


Usually coordinated by the Product / Program Manager within the organisation

Concept developed by Marketing based on Market scenario

Engineering

Confirms technical feasibility

Compiles basic specifications

Purchase gets cost information based on specifications


Manufacturing provides inputs on capacity , investments required and time frame

Finance helps is verifying the profitability and other financial parameters

Product Manager puts together the Product Plan based on above

If feasible the plan is presented to the top management of the organisation for approval


The plan may or may not be approved or approved with changes

If not, the above process is repeated till approval obtained or project shelved

If approved a budget and a time plan is specified for the project.

CFT is formed to drive the project. Members are from all the above functions


Engineering works on detailed specifications & drawings. Longer lead time item specifications are first

Manufacturing works on plan for facility enhancement capability and capacity (where necessary)

Trend is to procure more and produce less inhouse

Only final assembly and some critical operations are planned inhouse

New Product Development In more and more cases full products are

outsourced

Procurement works with suppliers on development of parts as specifications are released

Today suppliers work with engineering to work out detailed specifications

This saves a lot of time & iterations

So Procurement gets fully involved in the process from the earliest stage


Procurement negotiates prices with suppliers

Proto parts are received / manufactured without full tooling

A ( or more) proto product is assembled by Engineering for trials and final approval

Periodic review by the CFT to ensure project is on track

At proto stage with actual cost estimation there are usually changes in features and specifications approved by Marketing

A top level review at this stage give the final go ahead to the project and allocates the resources

New Product Development With final go ahead finances are committed internally

& by suppliers on equipment , tooling , manpower etc.

Regular reviews by CFT which works closely together

Periodic high level reviews to monitor progress , resolve issues & take key decisions where required

With fully tooled up parts available there are filed trials for specified periods under controlled conditions to rectify problems if any

Process continues till launch of product

CFT continues till after launch to ensure swift response to field problems if any.

Role Of Procurement in NPD

Full products or most of the parts bought out

To be competitive existing products of MNCs for launch in India need to start with very high level of localisation

For locally developed products suppliers need to get involved at the design stage itself

Opportunity for outsourcing as new product / part may be procured instead of manufacturing inhouse

Role Of Procurement in NPD

Outsourced Full product Most of parts in product

So procurement and suppliers become responsible for Design & features ( details ) Quality Cost Development time Quantity based on their Capacity Modifications or upgrades

Importance Of Procurement in NPD

Procurement plays the pivotal role in NPD today

An aggressive Procurement team with a good Supplier Base can drive the New Product Strategy of the company

This substantially reduces company investment and lead time for new products

It provides immense flexibility to face and lead the market

Value Analysis / Value Engineering

Large part of product cost is material and conversion cost

Most of this is outsourced

The constant quest for increase in profitability has to focus on these costs

Negotiation and Productivity gains have limitations and have reducing returns

Another tool deployed today specially for longer life products is VA

VA / VE

What is Value ?

Value = Function / Cost

VA & VE used together

Generally VA is for existing products while VE is for new products

VA for reducing or eliminating unnecessary cost

VE for enhancing performance without increasing cost

VA / VE

Cost Components

Material

Conversion

Overheads

Packaging

Logistics

VA/VE

Structured Process

CFT follows the process to list out and validate possible VA/VE initiatives

Ideas can be generated from inside or outside the organisation suppliers as most parts outsourced

Change or modification in features requires Marketing approval

VA / VE

Change is design or material requires both Marketing and Engineering approval

Activity usually driven by Procurement as they have the responsibility of product cost

Engineering is made co- owner of the process as their validation and approval is essential

Gather Information Stage Why does customer buy this product?

What does this product do for customer?

Primary vs. secondary functions

Is the function or feature essential ?

Does the customer perceive the same value for the feature as does the organisation ?

Is the customer willing to pay extra for that ?

Can the feature be combined with another without reducing functionality / value ?

Gather Information Stage

Is cost of final product proportionate to its usefulness?

Are there additional uses for this product?

Does product need all its features or internal parts?

Is there anything else available to our customers given intended use of product?

Is the value attached to aesthetics appropriate?


Are product weight reductions possible?

Are there equally effective but lower cost materials available?

Can lower cost standard part replace customized part?

Are we using proper tooling considering quantities required?

Is there better production method to produce item or product?


Are design or quality specification too tight given customer requirements?

Do material, labor, overhead, and profit equal products cost?

If we are making item now, can we buy it for less? Or vice versa?

Are packaging cost reductions possible?

Speculate Stage

Wide-open, creative thinking

Use brainstorming or other idea creating techniques

Develop as many improvement ideas as possible withholding judgment

Analyze Stage

Perform critical evaluation of ideas created in speculate stage

Cost/benefit analyses

Feasibility assessment

Do ideas address original goals and objectives?

General specific

Analyze Stage

Can the same function be carried out by

Simplifying the design

Increasing manufacturability

Reducing weight

Changing material

Standardization

Reducing inherent wastage

Simplifying packaging

Recommend and Execute Stage

Determine priorities

Make proposal to management for approval

Requires:

Motivation and creativity

Good communication skills

Analytical thinking and product knowledge

Commitment and salesmanship

Recommend and Execute Stage

Implement

Timing

Budget requirements

Responsibilities

Develop project plan

Generate support from outside the team

Summarize and Follow Up Stage

Ensure that implementation progress is being made

VA team may follow up

Separate implementation team may have this responsibility

Importance of Procurement in VA/VE

Reduced times for new Product launches

Focus on getting design first time right

So higher factor of safety may be used

Provides scope for value analysis

Responsibility of material cost of existing products with Procurement

So Procurement drives this exercise and the benefits directly accrue to company

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