In today’s economy, being on top of what is on the consumer’s mind is key, and having a successful stream of new products remains of paramount importance. New product introductions often count for more than 30% of a company’s revenue, and “getting it right” can make or break the year’s bottom line.
What does “getting it right” mean? …Providing the right product, to the right channel, at the right time, and in the right quantity. Integrating new product introduction (NPI) planning in the S&OP process will help drive forecast accuracy and order fulfillment by enabling collaboration, communication, and accountability.
To achieve a flawless execution, NPI teams need to collaborate closely with the demand planning and S&OP functions (e.g., assumptions have to be validated against trends, in-store dates vs. lead times, demand forecast vs. production capacity). In reality, this can be challenging. The timeline of the process is different from the timeline of the audience. New product launches may require demand estimates two or more years ahead, and the recommended audience will be a broader cross-functional team (including go-to-market, marketing, sales, product, demand planning, supply chain, and manufacturing).
A successful practice would be to set up a process dedicated to NPI demand planning, and that process should mirror the overarching S&OP process. A good way to start is to determine where the demand gates (Liquid Zone, Slushy Zone, and Frozen Zone) are, define clear “Launch” KPIs, apply an iterative process to forecasting, and schedule regular reviews.
The NPI Liquid Zone often starts two years prior the planned release date and ends with the first strategic commitment (e.g., capacity allocation). The focus is on early volume estimates. The demand planning and S&OP teams collaborate with the product and marketing functions to validate the range of the projections against economic indicators, market trends, and prior product releases. Estimates at this stage have a high degree of uncertainty, and should be used for strategic decisions; for instance, go / no go of product launch, capacity allocations, and CapEx needs.
Once the initial projections are agreed upon (around 18 months prior to release), the Slushy Zone begins. During this phase the cross-functional team needs to monitor the NPI plan regularly, and adjust estimates and production plans if necessary. Volume estimates can still fluctuate, but they are restricted by the agreed-upon constraints (e.g., max capacity available). The demand planning and S&OP team will be responsible to provide updated volume projections, highlight any gaps to original plan, and ensure alignment with key stakeholders.
The Frozen Zone is the last gate prior to planning / production commitments. At this point, volume forecasts should be considered fixed and not adjusted going forward. This will be the “frozen forecast” used to measure the launch KPIs (e.g., forecast accuracy and fulfillment rates). Establishing a demand consensus process ahead of the frozen zone deadline is a best practice to drive accuracy and accountability. This should be differentiated from the standard demand consensus, and should seek both quantitative and qualitative input from a multi-functional team (marketing, merchandising, sales, product experts, and regional and key accounts leads). To avoid “forecast fatigue,” the level of detail has to be customized to each product launch. For example, product updates and soft launches might focus more on qualitative inputs, while key marketing campaigns will need hard numbers at a more granular level (e.g., region/channel adoption of the campaign, how many doors per account are being targeted, etc.).
Once the frozen forecast has been defined, setting up regular NPI monitoring will support performance measurement. An easy approach is to track demand (e.g., weekly) vs. the frozen forecast for the target period. Paired with data analytics (e.g., expected order fill rate) and qualitative sales feedback, such dashboards will help spot the early risk indicators (on both a product and SKU level) and spark corrective actions.
Collaboration and communication are key to ensure that all who are involved are aware of the inputs and decisions needed at each stage. In order to achieve this there are three common approaches:
1. Adding an NPI section to the monthly demand review meeting,
2. Creating dedicated cross-functional NPI meetings, and
3. Gathering input with dedicated functional meetings and sharing results within the S&OP process.
My preferred option is to use the S&OP meetings as the avenue for distributing regular NPI updates. Demand review meetings are centered on the regular S&OP demand horizon (12-18 months), and rely mainly on sales input. Adding NPI to this session might take focus away from the mid-term and miss the input of functions outside sales. A specific NPI cross-functional meeting is a great tool to divulge information, but they are—by design—disconnected from the key planning processes. Therefore they won’t produce actionable results without lengthy follow up. Additionally, following the “out of sight out of mind” principle, team engagement tends to peak around launch windows and dwindles during “down time.”
The S&OP process already comes with a “step” meeting structure, making it the most effective option. All key functional players will be in the room to reach alignment on projections and actions needed in the pre-alignment meetings. If a consensus cannot be achieved, the topic will be raised to the executive team in the monthly S&OP. As an additional benefit, executive S&OP meetings are the right forum to discuss risk management options. For example when faced with demand above forecast and unexpected production delays, leveraging the S&OP enables a quick alignment on correct customer priorities, inventory reserves for strategic channels, production plan changes, and acceptable backorder risks.
I am looking forward to expanding on this topic, at IBF Europe: Business Planning Forecasting & S&OP Conference in Amsterdam, Nov 16-18. Your comments and questions are welcome.