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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
New Product Development
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
New Product Development
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
New Product Development
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
New Product Development
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
New Product Development
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
New Product Development
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?
Gather Information Stage
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?
Gather Information Stage
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