Use BPM to Assist in New Product Development
By Nikhil Daxini
In addition to a focus on removing costs and improving back-end operations, the food and beverage industry is trying to figure out the right formula for developing new products to meet rapidly shifting consumer trends. The introduction of business process management (BPM) can help streamline new product development and introduction in addition to the following:
- Gain productivity improvements in distribution centers.
- Achieve supply chain efficiencies.
- Optimize direct store delivery (DSD) processes.
- Optimize inventory management.
- Integrate regulatory compliance with operational excellence.
Food and Beverage Industry Background
The food and beverage industry encompasses the full range of companies that produce, process, manufacture, sell and serve foods, beverages and dietary supplements. It is an economic powerhouse, accounting for about $1.3 trillion in gross output worldwide. It employs millions in the manufacturing, distribution, service and retail sectors. Accordingly, changes in the practices of food and beverage operations ripple throughout the industry and have an impact on the global economy. This industry is characterized by short lead times, low margins and high volume products. Companies now offer more products to meet the changing demands of consumers. As their business becomes more complex, the companies need business processes that are flexible enough to keep up with the rapid pace of change.
Product lines must be constantly adjusted to meet consumer demand. Business models now integrate roles from all points in the value chain. Integration, collaboration and access to timely, accurate information – from the field to the store – are all important challenges for today’s food and beverage companies.
Key Industry Trends
The following are the key trends in the food and beverage industry:
- There is a renewed focus on product development and innovation.
- Profit margins often fall below 5 percent.
- Global sourcing and private-label items squeeze margins for existing products.
- “Good-for-you” and ethnic foods are hotter than ever. Consumers are continuing a gradual evolution toward a more balanced and healthy diet.
- Trade promotions spending increases and analytics solutions to measure effectiveness become important.
- Large retailers are driving food and beverage manufacturers to become more efficient and organized in inventory control, supply chain and pricing.
- Food traceability requirements have heated up across the United States.
- Efforts focus on improving operations amid escalating energy, labor and material costs, to gain a sliver of competitive advantage.
- There is an increase in on-the-go and impulse purchasing of beverage. This segment is valued at $170 billion.
- Consumers have tightened budgets and bypassed premium foodstuffs for generic brands.
- Consumers tune out traditional advertising. Integrated marketing communication improves the shopping experience.
Industry Challenges and the BPM Solutions
Working with perishable products with razor-thin margins, the information that companies use must be accurate, timely and complete. Mix in stringent regulations, health-conscious consumers, ease of preparation, a multitude of ethnic-oriented products, and operating profitably in the food and beverage industry becomes highly complex. Manufacturers of food and beverage products are confronted with a myriad of competitive pressures that require rapid response.
Table 1: Competitive Pressures in the Food and Beverage Industry
|Competitive Pressures||Business Impact||Initiatives|
|Fresher, healthier, more convenient food||
• Speed to shelf time
|Food safety||Ability to trace and recall discrete SKUs at all pack levels||
• Internal – electronic trade
|Macro-economic drivers: persistent low growth, zero inflation, globalization of commerce and culture||
• Limited ability to raise retail prices
• Cost takeout opportunity
|Consumer spending patterns/trends||
• Expanding sales location
• New product development
|All of the above|
|Industry structural changes||
• Transportation costs
• All of the above
|Growing retail power: consolidation of buying power, private label and private brand growth, increased service demands on suppliers||
Downward pressure margin:
• Cost takeout opportunities
|Food and beverage consolidation||
• Mergers and acquisitions
• Post-merger integration
BPM can address the challenges of the food and beverage industry in a number of ways:
- Productivity in the distribution centers
- Substantial cost reduction in outbound logistics
- Supply chain efficiencies
- Direct store delivery
- Global process standardization
- Inventory management
- Product quality and consistency
- Integrating regulatory compliance with operational excellence
And last, but not least,
- New product development and introduction
New Product Development and Introduction
New product development and introduction (NPDI) is probably the most important process for many food and beverage companies, but also one of the least understood (and perhaps worst executed). NPDI is responsible for the revenues and margins that a company can achieve and its ultimate value. It is the least well understood process because few companies assign a single individual to be responsible for the whole process. Instead, it is usually driven through a series of functional “silos,” causing delays to build up and, often, the original market requirements to get lost.
In most markets – and especially those relating to consumer products – the number of new product introductions per annum has increased dramatically. For example, a study into the consumer packaged goods market showed that new product introductions had increased 10-fold over an 18-year period.
|Table 2: Number of Product Launches|
|Ice cream, frozen yogurt||57||556|
|Spices, extracts, seasonings||61||403|
|Deodorizers, air fresheners||53||372|
|Paper towels, napkins||11||126|
|Milk, yogurt drinks||26||255|
|Source: University of Nottingham|
Yet, for all its importance, the NPDI process is in trouble. For example, according to AMR Research:
- Food retailers spend $957,000 per store on new products that fail.
- 95 percentof new consumer products (1996-2001) lost money or just broke even.
For a successful NPDI, three critical capabilities are required:
- A better portfolio strategy
- Better product management
- Better functional execution
Although many of the benefits of improved NPDI will result from improved portfolio strategy and the implementation of improved methods for product management, the ability to execute effectively and avoid costly errors is the final essential step.
Today, most business functions rely on one or more enterprise systems to manage business processes. For example, the engineering function will use a product lifecycle management (PLM) system to manage product information and processes; the manufacturing function will use an enterprise resource planning (ERP) system to manage processes, such as scheduling and purchasing. In order for different functions to be able to work together through the NPDI processes, these systems need to be integrated.
The new way of doing business requires a fundamental shift, making business process owners accountable for cross-functional and inter-enterprise business processes that focus on the ultimate “user” – the customer. Doing this is hard work, not only from a change management perspective but also from a systems approach, because most IT applications follow a functional focus. That is where BPM software comes in – providing a layer of software that orchestrates business processes by integrating different (and often stovepiped) applications, databases and human interactions that deliver customer value.
Integration-centric BPM systems can provide an NPDI dashboard, presenting management with all of the critical information needed to provide proper strategic control. Management no longer has to rely on painstakingly-crafted presentations or spreadsheets (which may be biased toward a certain point of view) but, instead, can see the world as it is. With an NPDI dashboard, management has the essential information required to provide good management of the NPDI process.
The author thanks Vijayalakshmi P.S., Practice Head for the BPM Consulting Group, Wipro Technologies, for giving me the encouragement and support in writing this article.
About the Author:
Nikhil Daxini is a senior consultant in the BPM Consulting Practice of Wipro Technologies, Bangalore, India. He holds a Masters degree from IIT Mumbai and has been in the industry for more than 14 years. Contact Nikhil Daxini at nikhil.daxini (at) wipro.com.