Ville Hovatta
Ville Hovatta
Now, your company has an amazing new product to be launched for the next Christmas season. It’s said to be a make or break for meeting this year’s business goals. The launch is going to be a big event, and consumers expect to get the product in their hands as soon as possible. Engineers are working hard to get the product tested and ready; marketing is building the story and campaign details. What should you do in Sales and Operations Planning (S&OP) to ensure that there is a best chance of success for the new product? How do you cope with the pressure of not being given a chance to fail?
SOLUTION:
Communicate the upcoming New Products to your customers far in advance.
We should always look at the big picture. Usually a product is not launched to an entirely new consumer or technological space. Most likely, you already have a product that has a similar target group. If this is the case, our first problem is to ensure that the old products are out of the way when the new is supposed to enter the market. In some industries pre-season clearance campaigns are normal practices. This could take care of the problem. But, often there are few behavioral patterns that slow down a product transition. First, people are used to the old product. It’s much less risk for distributors and retailers to keep selling what they know has sold well in history. A new product means more work, which is educating your own people and consumers on the new product. Furthermore, sometimes the laws of demand and supply come into play. When you start reducing the availability of old products, your trade customers actually start asking for more in order to keep the old horse running as long as possible. What to do? You can’t be too opportunistic in trying to get more sales at the same time when killing the old product. My recommendation is to just get aligned with key partners on minimum requirement of supply for end-of-life and execute it with no upsides for anyone.
Keep larger inventory of new products, which may exceed the cost of over-supply.
You don’t know the demand for the new product. The more new technology or design or customer base there is, the higher the uncertainty. With that fact in mind, it just may make sense to plan a lot of supply. The cost of over-planning is still much lower than the benefits from getting more margin and possibly totally new customers! Depending on the case, the supply could be from 20% to 100% on top of unbiased demand for a product. When sales start, you want to quickly get rid of the noise that comes from tight availability. If that lasts for too long, it will consume a lot of energy from everyone, and you can’t see where the real ceiling for demand will be. You may be losing money, and coping with that is an uphill battle with people incentivized primarily for revenue.
Watch the demand signals closely to manage demand.
As you have a lot of supply, it is very likely that sooner or later you will have too much. The chances of inventory overfill and getting to some kind of bullwhip phase in sales are very high. The only thing you can do is react fast to the first demand signals and adjust your plan on weekly or even daily basis. This way you create the best chance for you suppliers to adjust their capacity and avoid inventories bloating in the upstream supply chain. It is a luxury if you have online visibility to actual consumer sales. Match sell-out and sell-in at a detailed level, customer account or even PSO level. Count how much is needed to keep those inventories filled where real sell-out is happening. But it’s very likely that you don’t have sell-out data, it is only partial (especially in a global environment) or it is with big delay. In that case you can use Google trends or marketing studies to estimate the buzz around the new product, and compare it with some earlier references. That way you get a ballpark estimate if the product will do better or worse by some predecessor. Again, your revenue-incentivized colleagues need those facts and numbers to agree if supply needs to be taken down a notch.
I hope the above helps you in successfully launching your new products with S&OP. I welcome your comments and feedback. I’ll also be teaching and sharing more on my S&OP experience with new products at the upcoming IBF & APICS Best of the Best S&OP Europe conference in Amsterdam. Perhaps, we’ll meet in person.
Ville Hovatta
Director Mobile Phones Supply Planning
Nokia