On September 14, I introduced 7 reasons to jump start your innovation, R&D, or product development efforts. What I am focusing on is new product development, that is getting unmet customer or market needs into new products, commercializing the new products and capturing new revenues with improved profitability. Another important element of a robust product development approach is the ability to replace products that become obsolete or competitive price pressure reduces your margins. A hard thing for many companies is the thought of having to cannibalize sales of existing products with a new product. Get over it. If you don’t replace your existing products, your competitors will. So get going.
When is the right time to start working on developing a replacement product? Sooner rather than later. Once your competitors start taking share or price pressure erodes your margins, it’s too late. If you wait until the product becomes obsolete, it’s too late. Take a look at your products with the highest sales. What are the competitive threats? Are competitors copying your product? Are customer asking for price reductions? Then it’s time to get moving on a replacement product.
In the last post we talked about product line enhancements as a way to add incremental new product sales with improved margins. This is usually a good strategy for replacing your existing products. Think about the Apple iPhone. We are now on the iPhone 6. Each new model replaced an existing iPhone with better performance and more features. The sales of the new phones will obsolete the older versions, but in order to keep ahead of the relentless drive for more performance, new versions are constantly being introduced. There is already speculation on the internet about the release date for the iPhone 7.
How does that work with your polymer products? Pretty much the same way, but probably not at the same break-neck speed of the consumer electronics industry. Not unless you are a material supplier to the electronic packaging value chain, then you have to have your game on high speed. The hard question is how do you know when to replace an existing product? In some industries, like electronics, there is a widely published technology roadmap you can follow to see how your products fit. Other industries such as automotive and aerospace have fairly long qualification cycles, so you can have a pretty good view of the future product requirements. In any case, having good customer relationships and following your industry trends will help you spot opportunities to replace your existing products.
On the other hand, some of your really good products might not need to be replaced. In many companies, successful products have been on the market for many years and command significant market share. If your products are still selling well and you have good margins, then you might not need to “rock the boat” here, but always be vigilant for market or customer shifts. Another way to improve the financial returns on existing products is to use an operational excellence approach like Lean or Six Sigma to reduce manufacturing costs to improve margins. There is a secondary benefit to new product development. With the learning from the process optimization work, you can use the improvement to increase the margins of the replacement products.
A topic for a future post is the use of Design for Six Sigma (DFSS) or Design for Manufacturability. Developing high quality, high yield new products is the key to sustaining profitability. If you use Six Sigma or Lean to improve throughput, increase yields, and lower cost on existing products, but introduce new products with inferior process capabilities it is like “walking up a down escalator!” Many companies gave up on Six Sigma because they couldn’t hold the gains over time. Smart companies who used Lean and Six Sigma effectively all had Lean Product Development or Design for Six Sigma programs integrated into the product development process. AlliedSignal (now Honeywell) was a pioneer in DFSS in the mid 1990’s.
What products are you going to replace? Contact InnoCentrix and we can work with you to get your product development process turning “polymers into profits.”
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