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.

In today’s business climate, it has become so important that businesses focus on three imperatives:

1) Get business planning right the first time, as much as possible
2) Build stronger business teams
3) Start linking current operations to long-term growth strategies

S&OP is a ready-made solution to address these challenges head-on. With its structured processes, organization and procedures, S&OP can bring a strong sense of direction and order to our businesses.

Generically speaking, though, there is variance from business to business as to what S&OP looks like on the surface. Underneath its core, there are basically 5 individual phases. These sequential phases are designed to gather information for building a proposed business plan, perform supply checks, and reconcile Demand / Supply gaps that may surface. Then, finally, the process culminates in two levels of S&OP meetings. The entire process is designed to garnish participation in developing, and alignment on the proposed go-forward Business Plan by key players and executives alike in Sales, Marketing and Operations.

Other aspects of S&OP’s structure are its monthly, very predictable cycle. S&OP also integrates at the Business Planning phase that includes critical business issues such as Innovation Pipeline opportunities (NPI/NPL), promotions planning, information from Category Management (if available), and other Business Intelligence sources. Additionally, the 2 levels of S&OP meetings serve as important open forums for discussion, and decision-making on key business issues. Quite literally, from stem to stern, S&OP serves as a business-centric process, which could almost, after the passage of time, become self-steering.

While the structure and ordered processes may be the strength of S&OP, reliance on these alone as a strategy to drive for success in your business could possibly expose a weak point the “Kryptonite” to S&OP. How can this be? How can a business-centric process that is so vital to the planning of our business activities over a long time horizon (18+ months) be so strong, but at the same time become vulnerable to a possible internal weakness?

Please consider this. S&OP actually has two sides, the first is very recognizable as discussed above– it is the sum total of its strengths as derived from its structure, ordered processes, and its cyclical nature. It is true, that you can’t even get out of the “starting block” unless you have the structure of S&OP. Make no mistake, structure is the foundation. But the other side of S&OP – its Drivers are equally important, perhaps even more so.

The Drivers of S&OP are the culture of the organization, the behavior of its employees, and values…those aspects of the organization which are most important to us as individuals, we value them above all else.

I will interject here with a question. Which organization below, in your opinion, will be more successful on a sustainable basis?

ORGANIZATION #1: An organization in which everyone participates, provides input and analysis, one in which everyone attends the meeting? Things are precise in this organization, but, perhaps, things sound sort of routine here.

ORGANIZATION #2: An organization in which there is extraordinary engagement by all, collaboration and consensus decision-making flourish, teamwork is viewed as the only way to work, and more specifically, there is an undercurrent of passion to win and succeed, coupled with inspirational leadership.

I submit that you better not get in the way of Organization #2 type of Super-charged S&OP. Better yet, you should probably hope and pray that your competitors don’t bottle this either.

So, what about the “kryptonite”, the weakness of S&OP notion? Well, I submit, if you allow your S&OP to just move along, if you rely on its structure alone to control the pace of your business then you may just be tempting exposure of its weakness.

Now, how do you get around and beyond this weak point? Try this on for size…Lead by example, your employees will emulate. If you want engagement, then become the most engaged. If you want teamwork to be the only way of working amongst your employees, then first make sure your executive team operates this way–knock down functional barriers, and before anything else, collaborate and increasingly utilize decision by consensus as a way to bring about wining solutions. And try a little passion, not the red-faced yelling type of passion. But, I mean the type of passion you see when nothing else matters, full speed ahead, the, “I am all in” type of passion – show your employees that you will be passionate at helping them win and succeed.

Your comments are welcome.

Richard P. Kerivan

The central theme of the presentation quickly established that S&OP and New Product Planning activities are inextricably linked. So much so, that you cannot have one without the other.

To ensure that all in attendance were on the same page, defining S&OP was at the top of the Agenda. This was extremely important because while S&OP does have clearly defined steps, it is very often different across many organizations.

The basic definition started with a simple sentence, “S&OP is a process by which a business makes its decisions”. Though simply stated, the definition runs true in that in any well-oiled S&OP process, simplicity can be refreshing. Without any complications, the definition was extended to describe it as a Process that results in a single achievable plan, a collaborative process to align decisions, activities and resources against a defined business strategy. And finally, S&OP must be a data and fact-driven process.

In S&OP, Reality must Rule. Here is an example of how a New Product Introduction (NPI) process can self-derail despite seemingly going thru the correct process and procedures. Can one imagine the bewildered faces on the NPI team members when what was supposed to be a home run product launch, actually proceeded surprisingly to nose-dive into complete failure? Post-launch root cause analysis exposed two key failure points – that the product had not been test-marketed to consumers, and the retailer surprisingly, and despite objections, positioned the product (HDTV Wall mounting bracket) in the Hardware section-not with its offering of HDTV’s. Though there had been a lot of collaborating prior to product intro between Sales, Marketing and Operations, two key pieces of data were inadequate at the very least. The real lesson is that following the steps of S&OP with mechanical regularity, and resorting to using data without a business team analysis (Demand Manager, Marketing Manager and Sales Manager) is an eventual roadmap to failure.

This was one of the supportive themes in the presentation. The NPI process can not merely be rammed into the S&OP with a data dump. The entire data set of any proposed launch must be set against business trends, data supported interpretations of consumer behavior trends, lead-times, verified in-store dates, production capacity review, the predicted effects of possible promotions, and the effects of previous product phase-out. There are other factors to study, but the key point to consider is that collaboration and an informed discussion about the numbers is critically important.

Another key point emphasized was that Market Volatility in today’s consumer products environment can be a moving target with one rarely earning the moniker ‘sharpshooter’. And it is likely to remain this way into the future due to the effects of the quickening pace of innovation, clearly defining the sometimes elusive aspects of consumer behavior, and other factors such as the real and sometimes significant effects that On-line retailers are having on the big boxes. What this really works out to be is that New Product planning and S&OP absolutely need to be integrated into a seamless interface. As compared to the normal gathering of demand data and the following inclusion into the overall Demand Plan/Business Plan, New Product planning, as emphasized by this session’s presenter, raises the bar with respect to collaborative Sales, Marketing and Operations team discussions, consensus-decision making, and robust data analysis. Some additional takeaways, highlighted by the presenter, were the necessity of a Product Review/Life Cycle process and that our best intentions can still miss the target. But that is no surprise, S&OP is both an evolutionary, and a learning process.

A final point… Conference events such as this one, which was sponsored by the IBF, are great learning events as well as a great opportunity to rub elbows with the “Best of the Best”. Check it out in the future.

Richard P. Kerivan
Rpkerivan @ gmail

The guest speakers were all seasoned business professionals from companies such as Kellogg’s, Avnet, DuPont, Milwaukee Tool, Honeywell Aerospace, Ingersoll Rand and many others. Topics presented ranged from key business issues such as NPI/NPL, Change Management in S&OP implementations, Starting or Revitalizing your S&OP program, to Managing and Mitigating Business risks identified in your S&OP processes.

Though this conference was located in a revitalized area of Chicago now offering many eateries and entertainment options, this was not a “have fun gathering of seasoned business professionals”. The Conference Business presentations repeatedly generated many after-hours conversations among participants. A common theme among the presenters and participants was that S&OP is a key business-centric process with clear, distinct linkages to improving business performance.

Additionally, many IT Vendors displayed the latest innovations in linking Business Planning to effective IT Solutions. The challenges of sifting thru Big Data is finally being whittled down into manageable chunks of actionable business intelligence.

As the conference proceeded, it became more than obvious that IBF’s (Institute of Business Forecasting and Planning) strategy of being ‘center-mass’ of issues and latest theory on Forecasting, Business Planning and S&OP is sought after and enthusiastically supported by many. IBF is not merely a façade of names, they are a leader in identifying issues and in providing real-time business solutions.

I will be following up this blog posting with specific issues identified at the conference that you all may enjoy.  So stay tuned!

See pictures of the event on IBF’s facebook page.

This conference will yield many payouts against the amount invested by companies and individuals to attend. Don’t miss out on the next opportunity. If you would like to become a member of IBF, and view the schedule of future conferences, they can be located under “Groups” on Linkedin or by visiting www.ibf.org.

Richard P. Kerivan
S&OP Professional Solutions
Rpkerivan @ gmail