NPD…why are Products Failing to hit their targets..?

December 6, 2013 2:20 pm
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Hitting your targets

With few exceptions, perhaps 57, new products are the life blood of any food company. The challenge is to develop profitable, creative products for some of the most demanding customers in the world; British retailers. The marketplace is on a constant drive for products that are better value, have a reduced environmental impact, provide improved customer experiences, meet ever changing consumer trends and, through extended life, provide reduced waste.

This task of satisfying these requirements falls to the NPD department and its process development colleagues. Businesses vary, but the annual product churn is typically between 5 and 100 products, or to look at it another way, between 12% and 50%.

Food manufacturers typically work in a profit range between 3% and 20%, with the vast majority falling below 10%. As products become commoditised, so margins tend to erode, and understanding why new products so often fail to hit their expected financial recoveries is critical to business success. When we speak to financial and manufacturing managers, they generally say that new products either hit their financial recoveries in one to six weeks or never hit them at all. It is estimated more than 20% of all manufacturers product portfolio’s never hit their costed standard.

So why are products failing to hit their targets?

Understanding your products and processes

The first step in developing an effective process is to establish the real value of existing products. For each product manufactured an accurate financial picture should be defined. Many businesses are unaware which products actually yield the biggest financial returns. As a result the development team, however well managed or furnished with market data, may develop products that sell but make little profit.

Typically products are costed on a percentage basis but in a capacity-constrained businesses it is not the percentage contribution that is critical but the contribution per hour. For example a product that sells for £3 with a 15% margin running at the same speed as a product that sells for £1 with a 25% margin would deliver more cash to the bottom line per running minute.

A business armed with high quality product contribution data should be able to steer its development team in the direction of products that make best overall return. The best businesses also understand the potential impact on overheads – increased energy costs or management time required. Taking proper account of these can dramatically change a product’s margin!

Keeping control of your pipeline to success

With good data for creating new product concepts businesses can get on the front foot, continually developing new products the factory is capable of making and holding a catalogue of de-risked products they can select and present at the tender stage. As they have looked for margin growth, retailers have increased the frequency of tendering business which has resulted in manufacturers needing to develop products at short notice. Rushing costings and trials significantly increases the risk of error, and having a robust process is critical to managing this risk. The last thing a business wants to win is a product it will make at a loss because the costing was wrong.

Getting onto the front foot

For one of our clients the time to get a new product from concept to launch using existing processes is 8 to 12 weeks. Achieving nutritional data, packaging designs, ensuring shelf life expectancy and running factory trials was seen as “tight” and due to the rush the businesses did not fully evaluate the capital payback and the cost of development to launch. If armed with all the facts some of its products would never have left the test kitchen.

However, there are elements of the process that could be shortened or removed altogether allowing time for the important initial decisions to be made.

Labour requirements for new products can be modelled using existing processes. It is good practice to have a standards data base covering every shop floor activity, both direct and indirect including areas such as de-boxing and goods inward, often missed in labour cost modelling. Once the standards have been established for all factory activities a labour cost model can be developed for any new product while it is still in the test kitchen, including realistic line diagrams and run speeds.

In manufacturing processes that are static from one year to the next, mass balance studies should be carried out on products that represent the overall portfolio, keeping template information fresh and allowing a full costing model of any product before the day of launch.

Learning the variables

In a survey we carried out, both operations and financial managers reported that data established during factory trials was unreliable. It is not romantic or exciting, but NPD time is often better spent developing robust trials for the few products with real prospects of success than working on the next new concept.

Nothing happens until someone sells something

All business spoken to reported poor new product sales forecasts as being the biggest challenge to the delivery of standard costings. Sales people are almost inevitably optimistic about prospects. Be conservative and remember that every product has a life cycle. If you can’t make profit out of it well into the product decline, you probably shouldn’t start, and if it is to be a short lived or seasonal product, plan for the packaging write-off.

Don’t make the same mistake twice

Post launch reviews were reported as being “sporadic” or “an opportunity to assign blame for what went wrong”. Many reviews focus on documenting the mistakes and responsibilities, but the only value of these meetings is in identifying the root causes and eliminating or mitigating them. It is not a sin to make a mistake, but it is one to repeat it perfectly.

What do I do now?

The cost of getting NPD wrong is potentially enormous, as is the opportunity for profit. Any business with a significant need for new products should regularly and critically review its NPD process. If you can’t see a way of improving it, you’re probably not looking.

 

Written by Paul Eastwood, Operations Director at Coriolis

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Risk Management within the Food Industry: How risk proof is your supply chain?

December 6, 2013 2:17 pm
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Many businesses in the food industry assume that, because they have plans to deal with some known risks, they have a robust risk management process. This is an oversimplification and one that could, and at some point probably will, prove very expensive. In our experience few businesses manage risk with the rigour, energy and focus required; few businesses can truly say, “Yes, we have a robust risk management process.”

What is risk? Risk is the possibility that an event will occur which leads to an undesirable outcome.

Risk management is the identification, assessment and prioritisation of risks followed by the coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events.

There are numerous examples of businesses which believed they managed risk, but could not mitigate the effects of predictable events.

Recently, as a result of logistical issues, a major chilled food client ran out of a key ingredient. The result was not just a reduction in profit, but more importantly the loss of credibility with a strategically important customer. Not untypically they put in place actions to ensure that, should the same problem recur, they would be ready. This is reactive management but it is not risk management. Risk management is defined by the ability to deal with events that have not previously occurred.

Typical Risks

Figure 1.0 |Typical Risks

Figure 1.0 (above) shows categories of risk that every business should address. Few would argue with these, yet few seriously address them. What, for example, does the FT tell us on the 31st July?

“US corn crops have been weakened by relentless heat and the worst drought in half a century. Analysts have torn up predictions of a record US harvest. Now they are focusing on which consumers, from pig farmers to ethanol refiners, will capitulate first and use less grain.”

How many businesses are ready for this? Is this a one-off? Perhaps you remember that two years ago Russia imposed an export ban on wheat which sent prices soaring. It may not be the same risk, but it is the same type.

Supply chain risk goes far beyond environmental risk; it also includes areas such as:

  • Logistics: strikes, fuel price fluctuations, availability or failure of cold storage, shipping piracy…
  • Planning: incorrect master data (routings, BOM, output rates…), extreme demand fluctuations, material availability issues…
  • Procurement: Security of supply, commodity price fluctuations, inbound material quality issues…

Ultimately, ignoring supply chain risks increases cost.

Managing Risks

Figure 2.0 | Managing Risks

This summer, R&R Ice Cream recalled three of its Tesco products. The costs associated with the problem, fines, reverse logistics, disposals and lost margin, are just the start. They have risked their reputation and their brand. They have risked their future.

The right way.

As was said earlier, risk management is about identification, mitigation and contingency planning. Done properly, the cost of doing it is less that the cost of avoiding it.

To finish on a positive note: Carr’s Flour Mills have announced a £17m factory build in Kirkcaldy. This will both secure wheat supplies and enable them to place orders when prices are favourable. Their customers value the security and cost stability. The business can operate with confidence, focusing on their strategic goals.

 

Written by Sam Rabi, Supply Chain Principle at Coriolis

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Bringing business growth in from the cold

December 6, 2013 2:02 pm
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Coriolis-led expansion project enables Dairy Crest to deliver great service.

The chilly commercial climate is no barrier to future focussed growth investment for Dairy Crest. The company recently selected Nottingham based global management consultancy Coriolis as the perfect partners to manage a pivotal £3.1 million capital investment project for their Foston dairy facility. The project was finished on time and 10% under budget, making it yet another sparkling success for Coriolis and adding to their proven track record of providing solutions in operational excellence, supply chain and capital project management for the food industry.

Dairy Crest delivers nearly 2 billion litres of fresh milk annually and is known for much loved consumer brands such as Cathedral City and Country Life. The company challenged Coriolis to help them expand the Foston cold store facility at Dove Valley Park by 8,622 sq ft to a future proofed 22,600 sq ft, all in a time frame that enabled Dairy Crest to serve the Christmas volumes demanded by customers that include grocery giant Tesco. Dairy Crest Chief Executive Mark Allen was confident in his choice of consultancy having worked with Coriolis on previous successful projects. Mark says, “The cold storage capacity had to be completed within a tight timeframe to meet our Tesco commitments. We knew we were in safe hands and we’ve been delighted with the outcome.”

Coriolis Project Director Mike Roberts says “We had to deliver the extension within 24 weeks in a live factory environment – a real challenge. We completed on time and 10% under budget, giving Dairy Crest the time to fulfil their commitment to major retailers.” The detailed technical specifications of the expansion demanded careful planning and accurate delivery.

 

Dairy Crest Foston Facility Expansion: Technical details

Investment: £3.1 million

Project commissioned: April 2011

Works begun: July 2011

Works completed: December 2nd 2011

Size of expansion: 8,622 sq ft bringing facility size to 22,600 sq ft

Work carried out: Addition of 5 internal loading bays, two external loading bays, access road, 8,700 sq ft trolley yard, overhead trolley system, provision for two further external loading bays.

Technical installations: State-of-the art cooling system to keep temperature sensitive products between 3 and 5 degrees centigrade. Energy conserving lighting and motion sensors. Advanced fire detection system.

Capacity provision: Took on-site pick volumes to 250 million litres per annum. Met Tesco operating specifications and peak Christmas requirements.

Site sensitivity: Project completed on a ‘live’ site without disruption to functionality and impact on existing business.

 

Dairy Crest undertook the project as part of a phased expansion plan that will see the plant reaching pick volumes of up to 440 million litres per annum. Coriolis’ delivery and vision has ensured capacity for medium term growth and an exceptional return on capital investment.

For more information, images, interviews or quotes from Coriolis please contact Maria Ferrara, Marketing Coordinator on +44 (0)8452 263 364, email maria.ferrara@coriolis.co.uk, or visit www.coriolis.co.uk.