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