The whole process of product design and NPI (New Product Introduction) can be extremely busy. There are so many individuals involved in the Design Team, Finance have quite a role to play and then there are the endless market surveys, customer liaison meetings and focus groups. So it can be tempting to simply get things moving, get the product ready to market, get it sold and then worry about getting procurement involved; then any costs reduced later on in the process when the dust has settled.
However, in fact procurement has to be established before production starts; it cannot be a retrospective ‘fit’ it has to meet the needs of the product.
Procurement Means Money
It is estimated that between 70 and 80% of a product’s cost can be attributed to the design process and the raw materials used. This is an extremely high figure. If an item costs $1, it can cost up to 80c to make it, so if the raw materials can be sourced at a lower price, then substantial savings can be made and more savings obviously mean more profit!
It is estimated that the early involvement of procurement within the design and launch of any new product can reduce the costs involved by up to 20%, which is a significant saving and one that should not be lost. So procurement is vital to the process.
Reliable Supply Chain For Production
The early involvement of the procurement division will result in the product having a secure and reliable supply chain, which would otherwise be precarious. Obviously the more secure the supply chain is, the more stable the production process will be.
This means that the product will be more likely to succeed, because if there is no established supply chain to support it, the product in effect cannot be guaranteed so it will be more likely to fail.
Procurement and Defects
The role of procurement is effectively to not only establish the supply chain, but to establish an appropriate supply chain. This will ensure that the raw materials or components supplied will be fit for purpose and that there will be fewer defects from early on within the production cycle.
This is due to the fact that the procurement representative will establish a relationship with the supplier and ensure that they understand what is needed for the new product to succeed. This understanding of what the customer actually requires is fundamental to the success of the new product.
Yet if the supply issue is left to someone inexperienced with procurement issues, there is an increased risk of supplies being inadequate or not fit for purpose; in other words, defective.
A secondary role for the procurement team is to negotiate with the supplier. This is a skill that is often misunderstood, but if anyone is well placed to ensure that a cost effective contract is established, it will be someone from procurement.
This does not mean that the contract will be negotiated on an aggressive basis, but simply that anyone experienced in procurement will be able to be aware of all the market forces and any constraints or obstacles that face the supplier. They can also work with the supplier to try to reduce these constraints or obstacles.
Procurement Minimises Risk
The design and launch of any new product is a risky business. Will the product sell? Is it launched at the right price? The risks are integral and cannot be completely eliminated, but with early involvement of procurement these risks can be managed and reduced.