Retail and Consumer Brands InsightsConsumer-DrivenProduct
Consumer-Driven ProductDevelopmentToday’s fast changing and less predictable fashion market environment makesit increasing...
Industry leaders do not only plan their margin tar-      the product design and development process. Thesegets upfront but...
Figure 2: Differentiated product development                                  T                                           ...
and considered a distinctive competitive advantage.  Kurt Salmon Success Story:                            Development tea...
Figure 4: Functionalities of PLM Systems                                                                                  ...
Figure 6: Sample evaluation of individual benchmarking results                     Development Cycle                      ...
©2012 Kurt Salmon                                                                                                         ...
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kurt salmon white paper consumer driven product development

  1. 1. Retail and Consumer Brands InsightsConsumer-DrivenProduct
  2. 2. Consumer-Driven ProductDevelopmentToday’s fast changing and less predictable fashion market environment makesit increasingly challenging for retailers and brands to develop the right pro-ducts in time. Product life cycles become ever shorter and consumers changetheir preferences from one day to another without prior notice. Industryleaders have turned their product development processes, organisation andsystems into a distinctive competitive advantage. They succeed in developingthe right products in a time- and cost-efficient way – at an increasingly improvedspeed-to-market.A competitive product development translatesright back into higher margins. According to a re- approach with structured input from countries,cent Kurt Salmon study, each week of lead time key accounts and own stores on future assort-reduction results in a 0.25 percentage points in- ment needs.crease of maintained margin. Kurt Salmon regular-ly benchmarks fashion retailers and brands across assortment down to product attribute level,the globe on five key performance areas in product based on sell-through data from key accountsdevelopment: and own retail. Effectiveness: Is a closed-loop planning and controlling process in place to develop the right and future competitors’ activities, trend research, products? Are consumer insights incorporated in customer and consumer feedback on ideas, con- the most effective way? cepts and line previews, thereby also leveraging Efficiency: Is the product development time- and new media (e.g. social networks). cost-efficient? Are the right processes and KPIs in place to measure development efficiency? consumer needs as well as optimising product Calendar Management: Is the calendar properly price/ value. managed to achieve competitive go-to-market - calendar lead times? In total and by individual velopment process to ensure full integrity with process step? financial and assortment plans. Organisation: Is the organisational structure (team set-up, location and reporting lines) ap- Kurt Salmon has helped many retailers and brands propriate to support effective and efficient de- improving their effectiveness in product develop- velopment? ment, leading to a better financial and operational System Support: Do current systems solely man- performance (cf. figure 1). age product data (PDM) or do they support the complete product life cycle including workflow, Figure 1: Performance improvement through effective product development internal and external collaboration (PLM)? Financial OperationalEffectiveness – Are you developing the right Performance Performanceproducts? Improvements ImprovementsAn effective product development uses planningdata, trend information and market feedback in a sales of 2 style adop-structured, proactive way to create consumer-rele- - 5% through greater tion rate by 25 - 40% customer relevance through structuredvant products that lead to increased adoption and market data inputhit rates and an improved sales and margin perfor- marginmance. of 1 - 3 percentage style hit points through rate by 15 - 20% better sell-through through shorter cal- line/ buy plans, resulting in a clear and strategy- endar lead times conform framework to design and develop into.2 PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? KURT SALMON GERMANY
  3. 3. Industry leaders do not only plan their margin tar- the product design and development process. Thesegets upfront but also keep track of them through- best practices are all based on the following fiveout the development process if products are basic principles:changed. They are able to translate the require- Parallelising activities, e.g. by blocking materialsments of their consumers in terms of quality, inno- upfront before PO placementvation, fashionability and price into detailed techni- Speeding up activities, e.g. by shifting techni-cal and cost implications for product components cal developments to Asia reducing coordinationand production processes. As sourcing costs have time with suppliers, or by differentiating costingseen a steep increase due to higher cost for mate- according to product typerials and labour, engineering skills have become a Synchronising activities, e.g. by avoiding waitingcompetitive advantage again. Understanding fab- time between design and technical developmentric and component prices as well as workmanship through better workload balancing and stag-allows a more accurate product costing based on gered designdesign, Bill of Material and technical documenta- Differentiating activities, e.g. by differentiatingtion. It also sets a proper basis for a systematic costing and technical specification level of detailvalue engineering by according to level of fashionability of product optimising costly, but non-value adding product Eliminating redundant activities, e.g. by reduc- attributes or components, ing prototype/ sample iterations replacing materials (e.g. fabrics, trims, acces- sories) through lower cost alternatives of same A prominent example of where those principles value from a consumer point of view, fall into place is material management. As fabric differentiating quality requirements for work- is a core element of the critical path, earlier fabric manship in products (e.g. number of stitches per availability is a key driver for lead time reduction. centimetre) instead of seeking same high quality Upfront blocking reduces waiting times during the standards for all products. development process and bulk production by 4 - 6 optimising engineered production together with weeks. Early and evolving material commitments suppliers to reduce production minutes. to suppliers also reduce cost and improve quality, especially if they go along with the consolidation of different materials. Kurt Salmon Success Story: Product Development Revamp at European Industry leaders increasingly leverage overseas of- Sportswear Brand fices for additional activities at the source to sup- port faster decision making and reduce coordination Background: The brand had made substan- times. They shift, for example, product development, tial progress in their move from a manu- approvals of material, lab dips and samples at dif- facturing-driven wholesale organisation to ferent stages to overseas counterparts. Kurt Salmon a consumer-driven brand organisation with has supported many retail and brand clients in de- a growing retail business; at the same time, fining roles and responsibilities of their overseas of- product development processes and the fices and interfaces with headquarters. related organisational structures remained Staggered design and development has proven to centered around a manufacturing-driven be a key driver for higher efficiency. It comprises mindset. three basic principles: Approach: Kurt Salmon supported the client Start your product development with long lead in benchmarking and developing the future time products. Long lead time can be due to calendar vision and in defining the to-be pro- complexity of design, technical specifications, cess and organisation including FTE require- materials and/ or workmanship. ments, interfaces with product management Postpone developments with high demand risks and sourcing, split of roles and responsibilities to a later point of time. High demand risks go between headquarters and overseas sourcing along with high fashionability and can refer to offices. the full style or single attributes such as material, Result: 12% reduction of total lead time and colour and shape. EBIT increase by 3.5 percentage points. Stagger handover of completed work packages to the next function (e.g. from design to techni- cal product development) instead of waiting un-Efficiency – Are you developing the products right? til 100% completion of the full collection.Leading companies have put various best prac-tices in place to optimise their process efficiency, Differentiating multi-step costing, technical speci-i.e. to avoid any unnecessary time and cost during fications and prototype sampling is another PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? 3
  4. 4. Figure 2: Differentiated product development T Tof-the-art approach to reduce time and cost during gic trade-off between cost, quality and time, butthe definition of product requirements. Fashion- rather optimise all of them at the same time. Bestable items with short lead times do not require the practice companies have defined key financial andsame level of costing, initial sketch and technical operational metrics to continuously improve theirspecification details compared to standard prod- development efficiency (cf. figure 3).ucts with longer life times and bigger quantitieswhere a detailed engineering can save substantial Calendar Management – Do you manage yourcost in production. Similarly, the number of proto- calendar properly?types needed for approval and the number of cri- To optimally leverage an effective and efficientteria to be checked at samples should be lower for product development it needs to be combinedexisting or less complex products (cf. figure 2). with an integrated calendar management across functions and company boundaries. Kurt SalmonEfficiency improvements in product development has identified four distinctive management princi-pay off quickly as they do not require a strate- ples in numerous projects around the globe which distinguish best practice companies from others: set targets, make them transparent, trackFigure 3: Performance improvement through efficient product and adhere to them.development enforce early collaboration, internally and with external partners. Financial Operational clear roles and responsibilities for Performance Performance each function in place. Improvements Improvements take decisions at predefined milestones sales- prototype and stick to them. men sample cost of iteration rate of 50 >40% in wholesale - 65% through stag- These principles need to be incorporated into cal- through earlier in- gered design, devel- endar management. Best practice companies have volvement of coun- opment and costing defined clear meeting milestones and handover tries and key ac- process points including timing, duration, input, output, counts fit and lab participants, roles and responsibilities, as well as airfreight dip iteration rates key decisions to be taken. Such a disciplined ap- express cost by up of 20 - 30% through proach to decision-making and timing is vital for to 70% through clear clear communication shorter lead times. Project experiences have prov- roles and predefined and enforcement of milestones for deci- technical standards en that often up to 30 - 40% reduction in overall sion making lead time from concept development to in-store date can be achieved.4 PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? KURT SALMON GERMANY
  5. 5. and considered a distinctive competitive advantage. Kurt Salmon Success Story: Development team sizes should be reviewed from Supply Chain Performance Improvement Pro- time to time or when changes in the organisation gramme at Leading Eastern European Retailer have been made (e.g. outsourcing or shift of prod- uct development activities to Asia). Kurt Salmon Background: The company was performing knows the productivity benchmarks in creative and well financially, but lagging behind operatio- technical development and the key impacting fac- nally in terms of development efficiency and tors on developers’ workload. calendar lead time. Approach: Kurt Salmon was engaged to ulti- Do you have the right PDM/ PLM system support? mately improve profitability by reducing time- A rising number of European retailers and whole- to-market through improved process efficien- salers have started to critically review their current cy, clear meeting milestones and a competitive system support for product development. Some of sourcing and supply chain model. The project them have already begun to select and implement a ranged from strategic concept development new Product Lifecycle Management (PLM) system. to the facilitation of cross-functional commu- nication and the monitoring of calendar ad- Product Development Management Systems (PDM) herence, using Kurt Salmon’s tracking tool. focus on improving product data management. Result: Decrease of calendar lead time by 15% They prevent designers and developers from re- in the short-term and 25% in the long term inventing the wheel during the process. They fea- with phased guidance of the client from new ture sketch, colour and material libraries which calendar development through specification can be leveraged every time a new style is created. of key levers for improvement up to imple- They also support technical specification genera- mentation. tion, updates and administration. Advanced cost- ing tools allow for a bottom-up costing approach which enables the designer to better design ac- cording to margin and cost targets. PLM systemsIndustry leaders work on differentiated go-to- enhance these functionalities, also covering work-market calendars by supply mode, e.g. for NOS, flow management, as well as internal and externalSeasonal Replenishment, Seasonal Fashion and collaboration. By providing transparency on de-Quick Response. Such an approach allows to bet- sign and product development planning and sta-ter exploit key competitive priorities (e.g. time vs. tus data, they enable a real-time interaction withcost) for different types of products. At corporate overseas offices and vendors and allow for theirlevel, overlapping calendars – both between dif- collaborative participation throughout the entireferent seasons/ collections and between different process. On the demand side, PLM systems aresupply modes – need to be carefully considered in able to create line plans with product briefs andterms of resource availability and workload. Latest key metrics which can be planned and trackedat this point it becomes evident that an increase in throughout the entire season. On the supply side,the number of collections does not work with long PLM functionalities include vendor management,calendars: overlaps between seasons become sig- production and capacity planning, and vendornificant and can no longer be managed anymore. compliance/ quality assurance (cf. figure 4).Organisational Structure – Do you have the right Kurt Salmon has identified three stages of PLMteam structure in place? adoption a retailer or brand would typically goA proper team structure is a strong enabler for ef- through (cf. figure 5). In the first stage PLM is notfective and efficient development processes. In used beyond the walls of design and product devel-product-driven companies cross-functional teams opment. Working in different systems for productswith product/ merchandising, design and techni- and sourcing does not allow making significant re-cal development simplify the communication and ductions in cycle times or costs – product designalignment on the demand side between product and development is just one piece of a larger pro-planning and development. In rather supply chain- cess that needs to be managed. By moving to theand efficiency-driven companies technical product second stage of PLM adoption, retailers and brandsdevelopment will be pooled into shared services link product development and sourcing. Sourcingand be part of sourcing or manufacturing in order activities such as raw material management andto ease the communication on the supply side. Ded- costing are managed through the PLM system.icated teams for material and/ or colour research Furtheremore, information on supplier capabilitiesand development become the more important, the and capacities will be stored to improve collabora-more product development tasks are kept inhouse tion between product and sourcing. Working PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? 5
  6. 6. Figure 4: Functionalities of PLM Systems jects – from the definition of business requirements to user trainings and go-live – with all major soft- ware vendors, thereby keeping a neutral position. Project experiences have proven that the following Libraries considerations are crucial for successful PLM sys- tem selections and implementations: Planning ries Lib Pro rcing & 1. Define a vision for the future: Identify which tion ra ra Des ries Lib d uc Develop- new capabilities are critical to the organisation ig Sou n ment in the next two to four years to understand fu- Ma Mg teri st in g ture requirements. m al Co Li t. 2. Focus on critical functionality: Focus on func- br ies ar ar tionality which supports what is critical or ies br Li unique to the business today and tomorrow and Calendar Management, do not become hijacked by non-critical func- Supplier Management tionality. Different requirements of headquarters Collaboration and overseas offices need to be connected. 3. Plan for configuration and customisation: Set expectations of time and budget for configura-a central calendar allows focusing on the critical tion and customisation and be sure to includetasks for all involved parties. While there are great the effort for internal staff in the evaluationbenefits associated with the link of product devel- process.opment and sourcing in a PLM system, there are 4. Assess vendor itself along with other selectioneven greater benefits to those retailers and brands criteria: It is not only about buying PLM soft-who take a more expansive approach to PLM adop- ware, but also about gaining a strategic partner.tion. The last of what Kurt Salmon considers the Evaluate the vendor itself, review who the ven-three stages in PLM adoption takes PLM systems dor’s other customers are, how the roadmap isoutside a retailer’s or brand’s “own wall” and con- created and which opportunities there are fornects suppliers to the system. Bringing suppliers your involvement, such as committees, user con-into the upfront discussions about product design ferences, and meetings with the product staff.and development shaves off greater amounts of 5. Use demo scripts rather than requirement lists:time, cost and quality issues in the process. Demo scripts which articulate process flows pro- vide greater clarity on how well a PLM systemKurt Salmon regularly supports retailers and will meet your particular needs and help you tobrands in PLM selection and implementation pro- better differentiate the vendors.Figure 5: Sample evaluation of individual benchmarking results Stage 1 Stage 2 Stage 3 Product Product Product Design & Sourcing Design & Sourcing Design & Sourcing Development Development Development PLM Component Final Product PLM PLM Suppliers Suppliers Product Development Product Development and Collaborative Supply Web Automation Sourcing Synchronisation What Automation of product design and Improved coordination between PD&D and PD&D, sourcing and suppliers combine to development function sourcing optimise entire supply chain Why Need to cut new product introduction cycle Need to cut cycle times and reduce costs Substantial need to improve quality, time to time through buying clout market and product costs How Create central library of reusable designs Reuse of product components enables Visibility across entire chain enables players and components quantity discounts to create the optimal work flow What Impact 10 - 20% reduction in cycle times 20 - 40% reduction in cycle times; 40 - 80% reduction in cycle times, 2 - 3 % reduction in product costs 3 - 5 % reduction in product costs; 20 - 40% decrease in product quality issues6 PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? KURT SALMON GERMANY
  7. 7. Figure 6: Sample evaluation of individual benchmarking results Development Cycle Technical Development Cycle Development specs to line close/ market week Fit approval to in-store 42 weeks 33 24 7 40 weeks 31 23 4 Key: As compared to industry averages – Example retail apparel = Below average = Average = Best-in-class6. Drive the implementation plan and phases: Kurt Salmon Product Development Survey With PLM systems customers should be driving – Are you competitive? the implementation planning. Splitting the im- Kurt Salmon has benchmarked more than 400 Eu- plementation into phases with manageable ropean, US and Asian retailers and brands in the packages is key. Business value, process change, apparel and footwear industry to date. The results and organisational readiness should determine have created a globally unique database that al- which functionality is piloted/ rolled out when lows fast and deep insights into the competitive and to which brands/ categories. positioning of a retailer or brand when it comes to7. Start change management early with package product development. Take part in the survey and selection: Getting an organisation ready for a get exclusive access to this extensive database! business transformation project takes a long Participants will receive an individual presentation time and it starts with the package selection. of their benchmarking results in comparison with the top competitors in their industry and segment (cf. figure 6). If you would like to take part in our Kurt Salmon Success Story: survey or should you have any questions regard- PLM System Selection Support, Blue Print ing our service offers please contact Dorothea Definition and Implementation at Leading Ern-Stockum or Dr. Sven Kromer at dorothea.ern@ American Outdoor Brand or Background: Globally operating US footwear company comprised of six brands was looking to reduce the dependency on manual Excel spreadsheets and disparate systems that con- nected merchandising, planning, and product development functions. Approach: Kurt Salmon and the client jointly reviewed the business processes, defined the functional requirements in an RFP and in use cases, and managed the software vendor eva- luation and selection. In the following phases Kurt Salmon supported the detailed process design and the training of the team in the new processes and system. Result: The PLM implementation has been part of a set of initiatives for a targeted 20% reduction in go-to-market calendar lead PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? 7
  8. 8. ©2012 Kurt Salmon Copyright Note:Kurt Salmon Germany GmbHKönigsallee 1140212 DüsseldorfT: +49 (0)211 7595 0 F: +49 (0)211 7595 111info@kurtsalmon.comwww.kurtsalmon.comThe authors:Dr. Sven KromerPartner, Kurt Salmon Germanysven.kromer@kurtsalmon.comSenta TrorlichtSenior Consultant, Kurt Salmon Germanysenta.trorlicht@kurtsalmon.comResponsible:Dorothea Ern-StockumManaging Director, Kurt Salmon Germanydorothea.ern@kurtsalmon.comOUR SERVICESStrategy and transaction Operations Brand Equity and Consumer Insights Merchandising and Planning Competitor, Channel and Category Analysis Product Development and Sourcing New Market Entry and Internationalization Store Operations Commercial Due Diligence and Supply Chain and Logistics Post Acquisition Integration Information Technology Turnaround and Restructuring Formed by the merger of Kurt Salmon Associates and Ineum Consulting, Kurt Salmon is a global manage- ment consultancy of more than 1,600 consultants in 15 countries across five continents. Kurt Salmon is an industry specialist and in Germany focused on retail, consumer goods and financial services. Today‘s increasingly complex environment demands more than just a consultant — as a trusted advisor, Kurt Salmon works with industry leaders to design and then drive strategies and solutions that make a lasting and meaningful impact. Kurt Salmon is committed to delivering measurable results for its clients through executional excellence.