Today’s markets have a greater number of new products than ever before. But where do the ideas for all of these new products come from? Usually from Sales, Marketing, and Product Development executives. But do these people know the impact a new product will have on the existing portfolio? Do they know if the new product will actually drive growth? Not always, because the Demand Planners who hold the relevant data are often kept outside of the new product process. Here I reveal how important they are and where exactly they should fit into the Stage Gate process.

Success Or Failure of New Products Depends On The Company’s Growth Stage

But first, we must understand the importance of the particular growth stage the company is in. If a company is the mature stage of its growth cycle, new products that find new customers are crucial to company growth. At this point, it is more crucial than ever that Demand Planners are brought into New Product Development process in order to maximize successful launches. Remember that no new product is launched in isolation and they have inevitable impact on the whole portfolio.

Demand Planners must enter the New Product development process to neutralize bias and reveal which product ideas are viable growth drivers and which are not.

Companies undergo the following phases of growth:

1. Startup: New solutions for new customers
2. Portfolio Expansion: New solutions for existing customers
3. Maturity: Existing solutions for existing customers
4. Market Expansion: Existing solutions for new customers

New Products Must Lift A Company Out Of The Maturity Phase

This is where the organization finds itself at a crossroads. By staying in the upper right quadrant, they continue to introduce new products, but rather than producing true growth, they may instead be cannibalizing existing product sales, whereby a new product eats into the demand for an existing product. In some cases, the older product may be more profitable and easier to manufacture. Not only that, companies run the risk of rapidly increasing the number of SKUs they need to manage, creating complexity whilst not actually acquiring any new customers. In this all too familiar scenario, they are only creating new ways to provide the same service to the same customers. No growth is achieved, instead, the company is wasting time and resources on making everything more complicated.

Organizations that stay in this quadrant run the risk of stagnating, and often fail to appreciate this situation because of two key biases. The individuals most responsible for developing new product strategies tend to overestimate the return on investment for new products and underestimate the sustainment costs of managing increasing numbers of SKUs. Demand Planners must enter the New Product development process to neutralize bias and reveal which product ideas are viable growth drivers and which are not.

Where Demand Planners Fit Into The Stage Gate Process

Advanced organizations that execute New Product best practices use a Stage Gate process that includes Demand Planners at each step. A key component of this process, Demand Planners assess viability from a data driven, statistical standpoint, and if done correctly, will maximize the chances of new product success. Demand Planners fit into Stage Gate Process as follows:

1. Investigation: In this initial phase of investigating potential new products, Demand Planners must help categorize poor performing SKUs or markets, develop strategic plans and identify gaps in these plans.
2. Feasibility: Secondly Demand Planners must create scenario plans to identify opportunities and risks to understand the impact the new product will have on the existing portfolio and wider business. They should also contribute qualitative assumptions underpinning the growth proposition.
3. Plan: They must then integrate these assumptions into the plan and develop the opportunities available
4. Development: In this stage, Demand Planners must fine-tune parameters and planning to ensure launch preparedness.
5. Launch: Once gone to market, Demand Planners should monitor sales and update forecasts accordingly. Here, the Demand Planner must ensure enough supply is available, or in case of poor sales must suggest ways to improve sales or decide to withdraw the product.

The Enthusiasm of Sales and Marketing Must Be Tamed By Demand Planners

Let’s consider the incentives placed on the Sales & Marketing and Product Development teams responsible for these new product decisions. Sales wants to be able to sell as many SKUs as possible, as each one presents an additional opportunity to money. Marketing wants to create the “splash” associated with promoting a new product. Product developers are incentivized for innovating and introducing new features. None of these functions feel the pain of proliferating the number of SKUs that need to be supported to the extent that the Demand Planning function does. What’s more, none of these functions understand the impact on the portfolio like the Demand Planner, and in many cases will be unaware that their innovations are actually holding the business back. Somebody has to tell them.

For these reasons, the best new product strategies break out of the upper right quadrant and refocus the organization’s energy on addressing new solutions for existing customers and finding new customers. These activities represent true growth opportunities. Often, those individuals who had a hand in creating the initial success by providing new solutions to new customers in the early, disruptive stage of growth find it hardest to get out of the box and find these true growth opportunities.

Demand Planners can exert influence to increase the probability that the energy exerted to launch new products is rewarded with growth.

Demand Planners Must Reveal The Hidden costs of SKU Proliferation

If the organization is going to incur the costs and risks associated with supplying new products, it should ensure a good portion of these products provide true opportunities for growth instead of just replacing solutions that already exist. For sure, replacement products are often critical for defending market share, but such efforts cannot consume the entire product strategy. A valuable line of inquiry from the Demand Planning perspective might look like this: “If we develop product A, we can expect to incur startup costs of B, experience cannibalization of C sales, so we’d need to acquire D sales from new customers. Is that possible, or might we better off focusing on a different product?”

New product introductions are a necessity for any organization, but they create challenges for the demand planning, supply chain, and manufacturing functions. By increasing their involvement in choosing the right new products to develop, Demand Planners can exert influence to increase the probability that the energy exerted to launch new products is rewarded with growth instead of stagnation and decline.

My message to Product Developers is this: get Demand Planners involved in your development process if you want new products to truly drive growth. My message to Demand Planners is this: get yourselves involved because nobody in the organization has the bias-free insight your function holds.

Special JBF Issue on New Product Forecasting

New product forecasting is the most challenging activity in demand planning. It is also the most rewarding. It is challenging because new products have no history to go by, and rewarding because a large of portion of sales come from them—one-fifth according to the latest survey by the Institute of Business Forecasting and Planning. Accurate forecasts help to optimize the reward and minimize the

risk. This special issue of IBF’s Journal of Business Forecasting (JBF) on new product forecasting shows not only how to develop better forecasts, but also how to optimize the results.

Download a preview version of this special issue HERE.

Patrick Bower explains the process to be used for new product demand planning and forecasting. It begins by gathering input from Sales and Marketing, then deciding on assumptions about product distribution, velocity, cannibalization, and media/promotion plans. Subsequently, forecasts are prepared and demand plans are developed. Nothing is certain when it comes to new product forecasting. Therefore, the process should enable the Demand Planners to respond quickly to new information that arises prelaunch, during launch, and post-launch.

Michael Gilliland describes some worst practices in new product forecasting, thinking that if businesses realize what they are doing is wrong, they may do something about it. Many new product forecasts reflect nothing more than aspirations because they are generated either to pass the hurdle of approval or to tie forecasts with the management targets. He emphasizes that point forecasts are often developed, but the range forecasts along with them can provide additional information about risk involved.

Larry Lapide discusses demand signals drawn from the information gained from wholesalers, retailers, and consumers. This kind of data can be very helpful in developing new product forecasts. The job of Demand Planners does not end at the launch of a product. To assure its success, they need to follow the market feedback to see how it is doing; if anything needs to be fixed, it should be fixed right away. The author states that in addition to the market feedback from Sales and Marketing, Demand Planners can get valuable information from online ratings and reviews, such as seen on Amazon.com and various social media websites (for example, Facebook).

Jonathon Karelse describes how new product forecasting is done in the tire industry, which is very unique. In this industry, new product launches are few and far between, making branding difficult. As such, a large percentage of decisions are made by retail salesmen, not by consumers. What matters most in this industry is that new product developments and production timelines are consistent with the dealers’ expectations, while creating enough difference among products in the minds of consumers. (READ FULL ARTICLE)

Michael Kelleher shares his experience about new product forecasting and planning, which he regards as partly art and partly science. The art part includes investigating the assumptions made by Marketing in preparing the forecast. Is it a perfect or less-than-perfect forecast? Is this product viewed as revolutionary or evolutionary? And does this forecast take into account the availability of inventory? The science part includes searching for a real and unbiased forecast based on the past experience. He also describes

step-by-step what should be done before and after the launch. Demand planning and forecasting are important, but the success of new products will be further improved if the process of conceiving and developing them is sped up, because what matters is not just a new product and how it is marketed, but also which one is first. The first one gets a premium price and immediately gains a significant share of the market.

We encourage you to DOWNLOAD a preview version of this special issue HERE.