Speaker of Verhaert at the 8th edition of our Innovation Day on October 21st 2011.

1. INNOVATIONDAY 2011
BUILDING SUPPLY CHAINS FOR
INNOVATIVE NEW PRODUCTS
CONFIDENTI
AL
Koen Verschraegen
Production manager
Koen.verschraegen@verhaert.com

2. INNOVATIONDAY 2011
Content
• Scope of problem
• Standard Supply Chain Talk
• Supply Chain Defined
• Where it fails
• What is at risk?
• Expected know-how
• Supply Chain & Business Models
• Aspects to think about
• Product architectures
• Resilient Supply Chains
• Building supply chains for NPI
• Preferred organisation model evolves over time
• A phased approach
• Obsolete products
• Component choices
• Some conclusions

3. INNOVATIONDAY 2011
CONFIDENTIAL
Scope of Problem

4. INNOVATIONDAY 2011
Scope of the problem
Investments in innovation are great but…. Things have to be made / delivered ….
Best practices on supply chain management are usually tailored on mature products
How to built a supply chain for Innovative New Products when certainties on key parameters do
not exist ?
• Volumes / ramp up ?
• Timing (time to market, lifecycle,…) ?
• Market expectations (functionality, quality, ergonomics,…) ?
• Losses (during production, return from the market) ?
Innovation is a learning process! This is thrue for NPD but also for NPI
Typical questions :
• At what stage in development do we want / need to get suppliers involved ?
• Do we want to select suppliers locally or internationally ?
• Is it safe to get involved with suppliers that do not (yet) belong to the “establishment” ?
• Who is taking overall responsability ? Is a split in responsabilities manageable ?

5. INNOVATIONDAY 2011
Scope of problem
Mature productsNew products End of life
How to build a supply chain if there are no certainties?
Unitssold
Time
?

6. INNOVATIONDAY 2011
Experiences – Sales prognoses / ramp-up - Sycron
Problem
How to motivate suppliers when there are no
certainties about sales ?

7. INNOVATIONDAY 2011
Scope of problem
Mature productsNew products End of life
How to build a supply chain if there are no certainties?
Unitssold
Time
?

8. INNOVATIONDAY 2011
Experiences – End Of Life - Niko
Problem
Mass production of telephone sockets needs to be converted into batch-sized production while keeping
sufficient margin and delivery reliability.
Sourcing in China leads to
• new moulds
• new learning curve

9. INNOVATIONDAY 2011
Sales
Time
Introduction
Saturation
Maturity
Growth
Scope of problem / New products and key value
drivers
Maslow for new products
Price
Convenience
Reliability
Functionality

10. INNOVATIONDAY 2011
CONFIDENTIAL
Standard Supply Chain Talk

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Standard supply chain talk
At what stage in development do we want / need to get
suppliers involved?
involvement
Supplier(s)Company
time
Key issues:
•How to motivate suppliers to get and stay involved ?
•How to maintain independancy ?

12. INNOVATIONDAY 2011
Standard Supply Chain Talk
Supply Chain Defined
Where does it begin and where does it end? These definitions may help:
• The Supply Chain Council definition: Plan, Source, Make, Deliver, Return
• The down-and-dirty definition: The sequence of events and processes that extend from your
suppliers' suppliers to your customers' customers
• The Council of Supply Chain Management Professionals definition:
Supply chain management encompasses the planning and management of all activities involved
in sourcing and procurement, conversion and all logistics management activities, including
coordinating and collaborating with channel partners, including suppliers, intermediaries, third
parties and customers.
Our presentation focusses on the delivery side not the demand side.
5 pillars of excellence: (J.Paul Dittmann, University of Tennessee)
• Talent - They have the right people in place.
• Technology - They ‘re focused and employ leading-edge technologies.
• Internal collaboration.
• External collaboration.
• Change management - Supply chain projects have more complexity than others and as a result have
a tendency "to get off track,"
Those aspects seem to be appropriate however……

13. INNOVATIONDAY 2011
Standard supply chain - Where it fails
Why the standard talk fails when it comes to Innovative New Products ?
 New business typically get killed from lack on business not lack on margin !
• Talent – The right people understand NPD and are open and flexible !
• Technology – They ‘re multi-disciplinary !
• Internal collaboration ! Often disturbing thoughput.
• External collaboration ! Managing the win-win
• Change management – Change is the standard !

14. INNOVATIONDAY 2011
Standard supply chain - What is at risk?
“Valley of death in innovation”
After inital market introduction (lead users & early adopters), sales drops due to:
• Quality issues
• Cost issues / perceived value.
• Delivery issues
Time
NPD Initial sales
Euro
Investment

15. INNOVATIONDAY 2011
1967
Killed in death valley
NSU RO 80 with wankel engine

16. INNOVATIONDAY 2011
Expected know-how
 Design capabilities
• Understanding the design baseline
• Design for manufacturing
• Design for assembly
• Design for testing
 Certification
 Testing capabilities
• Design & automation of testing procedures and equipment
 Documentation
 Scale up

17. INNOVATIONDAY 2011
Experiences - Certification - Irex Technologies
 Spin-off from Philips
 E-reader manufacturer
 Bankrupt since June 2010
 Cooperation with American bookstore Barnes
& Nobles
Problem : Unable to get products to the market in
time due to delayed government approvals

18. INNOVATIONDAY 2011
Supply chain & related business models

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Supply chain models
• ODM (Original design manufacturer)
• Customers : Brand & marketing company
• is a company which designs and manufactures a product which is specified and eventually
branded by another firm for sale
• Example : 82,6 % of all notebooks is produced in Taiwan by ODM’s
• Quanta Computer Inc = largest notebook manufacturer for Dell, Compaq, Apple,HP, IBM,
Sony, Fujitsu Siemens, Toshiba, Acer, Sharp, Maxdata
• System Supplier
• Customers : OEM’s (Original Equipment Manufacturers) can focus on their core compentences
• Services :
• Project management
• Process management
• Development & Engineering
• Logistics & Procurement (SCM)
• Production & Assembly
• Testing
• Value engineering
• Life Cycle Management
• Aftersales

20. INNOVATIONDAY 2011
Supply chain models
• Contract manufacturer
• Outsourcing manufacturing, often of a sub-systel e.g. EMS Electronics Manufacturing services.
• Benefits :
• Cost Savings –cost of capital, labor costs (wages, training and benefits), low-cost countries
• Mutual Benefit to Contract Site – contract may last several years
• Advanced Skills –skills that they may not possess
• Quality –own methods of quality control
• Focus– core competences
• Economies of scale –multiple customers ,reduced costs in acquiring raw materials
• Risks
• Lack of Control
• Relationships
• Quality concerns –standards are in line with their own, test methods are of good quality
• Intellectual Property Loss –not give out any of its core competences, integrity of the
employees.
• Outsourcing Risks –language barriers, cultural differences, long lead times
• Capacity Constraints –de-prioritized over other companies during high production periods
• Loss of Flexibility and Responsiveness - disruptions in the supply chain, demand
fluctuations.
• Component Supplier / jobbers

21. INNOVATIONDAY 2011
Experiences – Supply Chain models - Vitalsys
Zenio :
Fall detector for elderly at home sends text message via bluetooth and mobile phone to alarm relatives in
case of emergency
Problem
• Supply chain set-up for minimum 15K units
• Collaboration with system supplier
• Underestimated the need for small series and product adaptations to deliver pilot project and “clinical”
validation.
• Finally role system supplier reduced to electronics contract manufacturing.

22. INNOVATIONDAY 2011
Supply Chain Models- How to select?
Strategy:
• Control the value creation process, now and in the future.
• Bargaining position
• Potential market entrants
• Link to innovation process
• Link to market channel / region, …..
Tactics:
• Manage the win-win relationship
• Competences to manage the subcontracted processes.
• Flexibility
• Focus on core competences
• Management attention available
• Risk management, redundancy,…
Operations:
• Competences available at supplier
• Cost structure
• Capacity available
• Communication, ….
Strategy
Tactics
Operations
Only win-win relationships are sustainable. In each collaboration model parties have their own business
case. Manage the potential conflicts and diverging motivations in these relationships !!!

23. INNOVATIONDAY 2011
Experiences – Controll the value creation process
Case Waegener
 Solutions for Cryotherapy
 Change in business model Waegener througout the NPD process:
• selling devices -> leasing devices / prefinancing (C-server)
-> selling treatments (C-treatment)
-> selling disposables (C-patch)
NPD consequences:
 Integration of RFID-tags in disposables
 Cooling liquid recuperation
 Treatment protocols mgmt (Passwords, upload)
 Altered servicing strategy
NPI consequences:
Value creation on other system elements
1) Set-up certified assembly lines (coming from third party)
 Cost strategy on devices
 Shifts towards MTBF optimisation strategy
 Patches outsourced
2) Set-up internal patch production line, including cleanrooms.
3) Corporate focus on development and validation of treatments
4) Outsourcing production towards system supplier.

24. INNOVATIONDAY 2011
Aspects to think about

25. INNOVATIONDAY 2011
 Inherently linked to partnerships in innovation
 From Porter’s Five (competing) Forces model :
• Strategic partners (Commercialisation)
• Manufacturers
• IP driven
• Contract innovations and development
• Contract resourcing
• Research institutes & universities
Aspects to think about - Link to innovation process

26. INNOVATIONDAY 2011
Aspects to think about– Product architectures
Modularity to improve economy of scale
 Aim for modular products
 Aim to work with COTS components
2 parts x 1 1 part x 8

27. INNOVATIONDAY 2011
Experiences - Product architecture - De Lijn
Problem
How to combine low order quantities with low cost / high volume custom components ?
 Information panel housing : Aluminium sheet metal (100’s)
 Led cluster indicator :
• Polycarbonate injection moulding (1000’s)
• Sourcing in China

28. INNOVATIONDAY 2011
Experiences - Product architecture - Gymna
Problem
How to develop medical products with long product lifecycle
knowing processor lifetime / availablity is short ?
 Modular platform
 Integration of 2 different processors
 Sustainable productarchitecture

29. INNOVATIONDAY 2011
Control the value creation process, now and in the future.
 Preferably outsource development of disruptive innovations (integrated design) integrally or not at all
 Outsourcing modular design sounds attractive but be aware of where the added value revenues are
created
 Future added value goes to the weakest link
 Weakest link in the value chain has the opportunity to create added customer value
Product
performance
Time
Performance that
customers can utilise &
absorb
Vrij naar Christensen
Aspects to think about– Product architectures & outsourcing

30. INNOVATIONDAY 2011
Aspects to think about - Resilient Supply Chains
Building Resilient Supply Chains requires :
• risk management & analytics (potential impact of a disruption, 'maximum revenue exposure' )
• mitigation plans & strategies (tools : crisis dashboard, business continuity dashboard, global
component risk manager)
Measures :
• Redundancy (temporary and expensive measure)
• Flexibility :
• Adopt standardized processes
• Use concurrent instead of sequential processes
• Plan to postpone
• Align procurement strategy with supplier relationships
• Change Corporate culture :
• Continuous communication among informed employees
• Distributed power so that teams and individuals are empowered to take necessary actions
• Passion for work
• Conditioning for disruptions

31. INNOVATIONDAY 2011
Experiences – Resilient supply chains- Reduct
Ductrunner
Gyroscope-based inertial measurement system designed for autonomous recording of positional data of
onshore or offshore pipelines
Problem
Selection of military grade Gyro’s proved to deliver a very accurate system.
Show-stopper : US government regulations prohibited the export of these components

32. INNOVATIONDAY 2011
Building supply chains for NPI
Success is based on linking :
• Cross functional planning
• Agile execution
Agile supply chain :
• Market sensitive (reading and responding to real demand ; demand-driven vs forecast-driven)
• Virtual (information based rather than inventory based)
• Process integration (collaborative working between buyers and suppliers, joint product
development, common systems and shared information)

33. INNOVATIONDAY 2011
Integrated design & manufacturing
Manufacturing
Outsourcing / Modularity
Integration in Distribution
Aspects to think about- Preferred organisation model evolves over time
Time
Product
performance
Performance that
customers can utilise &
absorb
Vrij naar Christensen
Sales
Time
Introduction
Saturation
Maturity
Growth

34. INNOVATIONDAY 2011
Aspects to think about - A phased approach
 Prototype
 Pilot series
 Alpha products
 Beta products
 Final products
Product life cycle
Prototype
Pilot series
Alpha products
Beta products
Final products
time
volume

35. INNOVATIONDAY 2011
Experiences – lack on Phased approach- Vectronix
Swans : 3D-motion capture device (3D-oriëntation)
Key features :
• Miniature
• Wireless
• Single sensor/ sensor network
• Low budget (3,5K)
Application fields :
• Healthcare (revalidation, activity monitor, fall detection,
ergonomics)
• Animation (game controller, virtual reality controller,
motion data capturing)
• Security (pedestrian navigation, asset track & trace)
• Sports (training, technique improvement, activity
monitor)
Inertial sensor combining :
• 2D- MEMS-gyroscope (2x)
• 3D- MEMS-accelerometer (1x)
• 2D- MEMS-magnetometer (2x)
Imec
Critical supplier (antenne + personal hub radio + processor
in stacked pcb)
Problem
How to transform labscale production into upscaling
scenario ?
How to find suitable production partners ?

36. INNOVATIONDAY 2011
Experiences - Obsolete products - Agfa
Problem : Humidity sensor from Siemens becomes obsolete, no second sources available
 Reverse engineering (caracterisation, supplier scouting, alternatives,…)
 Validation of Prototypes
 First production run
 AgPd-wire breaks during coiling
• Process optimisation ?
• Changing Supplier ?
• Alternative alloy ?

37. INNOVATIONDAY 2011
Experiences - Component choices - Chromascope
 Aluminium die casting
• Small quantities
• Look & feel
• Sourcing in China
 Obsolete components :
• PMT Photo Multiplier Tube
• Display – identical footprint
 UV-leds :
• Binning
• Coupling (Intensity + Wavelength)
• Spectrography

38. INNOVATIONDAY 2011
CONFIDENTIAL
Conclusions

39. INNOVATIONDAY 2011
Some conclusions
• Think in scenarios to manage uncertainty
• Set your criteria ifv Maslow
• Scale-up in phases, step by step
• Motivate partners in a sustainable way
• Choose the business model ifo strategic positioning in the value chain and maturity of the product.
• Select partners that can manage / cover the dynamics
• Determine your product architecture also ifo outsourcing models

40. INNOVATIONDAY 2011
Our NPI services
Industrialisation
• DFM Design For
Manufacturing
• Testing & validation
• Documentation
• Qualification
• QA and risk
Testing & Advanced (Test)
Equipment
• Test procedures
• Industrial metrology
• Custom test equipment
• Feasibilities
• Technology selection
• Solutions
Supply chain management
• Process selections
• Supplier evaluation
• Production management
• Trouble shooting
• Quality controll
Prototyping
• Functional prototypes
• Alpha series
Audits
ODM
• ICT-user terminals

41. INNOVATIONDAY 2011
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9150 Kruibeke (B)
tel +32 (0)3 250 19 00
fax +32 (0)3 254 10 08
info@verhaert.com
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