Cut Product Cost, Not Corners

| Product Lifecycle Management
Posted By: Hollie Farrahi

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Cost management dos and don’ts

The first step to ensuring success of your New Product Development and Introduction (NPDI) efforts is to clearly define your goals; however, do not limit yourself to goals specific to the product’s attributes or market performance.

New product launches fail 85 percent [1] of the time, yet cost millions to launch, so it’s crucial to discuss and consider cost management well before a product’s inception. While a smartly constructed financial model will serve its purpose, there are several other factors to evaluate when developing an effective cost management plan.

A solid plan will leverage cost savings for resources, time, ingredients and above all, your bottom line.

1. Maintain visibility into cost types

Take into account the various types of costs associated with each NPDI initiative, and be sure to integrate DevEx with your current ERP solution for accurate costs. 

Ingredient costs

Are you fully aware of all costs associated with each unique ingredient? How will specific ingredients you select affect other product attributes such as formulation and labeling?

Be sure to evaluate not only the bird’s-eye view of all ingredient costs, but also the ramifications associated with each ingredient selection. 

Supply chain costs

Supply chain costs and vendor management play a major role in defining a product’s total cost. Ability to deliver materials on time and on budget will impact everything from scalability to your bottom line.

Read more about Vendor Management:

DevEx’s structured vendor onboarding supports universal data requirements to allow for easier comparison across multiple vendors. This will not only provide you with the information needed to arrive at the best pricing, but it will also protect you from future costs.

Resource costs

First, take inventory of your resources before assigning them. After allocating resources as you typically may, reassess the assignments to identify opportunities where resources may be cross-referenced, under-assigned or re-assigned altogether.

Manufacturing costs

Just how granular can you get when defining manufacturing costs? The answer is, “molecular.” Map out the journey your product undergoes from the beginning stages of manufacturing all the way through to its arrival on store shelves.

2. Optimize resources and strive for accurate projections

Review all P/L Statements and identify better go/no go opportunities

A Profit/Loss statement (P/L) will detail the specifics of a new project and often provide a guide to its success or failure.

Pro tip: make sure that your P/L statement follows best practices to allow for easy updates and verification.

Confirm accuracy of cost projections

Project, assess for accuracy and then, project again. The extra time you put into this stage of your cost management planning can save you major dollars farther down the road.

Formula comparison

When introducing a product at the global scale, it’s important to maintain consistency in ingredients used. Global harmonization of ingredients is key to avoiding unforeseen costs across the various unique markets in which you introduce your product.

Smart resource management

  • Manage resources in order to avoid overtime and allow for proper allocation
  • Consider the need for reassigning resources in order to reach maximum profitability
  • Remember to not max out resources

 

DevEx allows you to maintain better control over resource planning and allocation by breaking down planned vs target time and assigning percentages of time to specific segments of the product portfolio. Users can generate customizable reports to track and monitor all resource allocations.

3. Check, double-check and verify thrice more

Claim your R&D Tax Credit

Companies can save potentially millions in taxes with a R&D Tax Credit. Be sure to separate and track your R&D time in a project management software in order to generate a list to submit for a credit against qualified R&D expenditures.  

Read more about the R&D tax credit:

Apply your financial model to future uses

Look to previous budgets and P/L statements to adjust for future costs and refine your idea management scoring model. Take lessons learned from the previous year to account for changes in the coming year and take the guesswork out cost management planning.

 

With attention to detail and an eye for accuracy, you can avoid dependency on alternate predictive models such as machine-learning APIs.

[1] Source:  http://www.nielsen.com/us/en/insights/news/2014/how-to-flip-85-misses-to85-hits-lessons-from-the-nielsen-breakthrough-innovation-project.html