The challenges of new product introduction in a contract manufacturing environment

Authors: Sameer Kumar and James Wellbrock
University of St. Thomas, Minneapolis, Minnesota

Company background

The study pertains to a company, which was incorporated in 1955 and initially was involved in making machines for the plastic bag industry as well as very involved with early satellite and weather balloon manufacture for NASA. In the 1970's the company became active in the manufacture of flexible laminates, combining various foils such as copper and aluminium with thin film substrates such as polyester and polyimide. The advances in this technology caused the company to look for markets for these new materials.

One of the key markets was an emerging need for flexible electronic materials and circuit boards. New products were using many electronic systems and an economical way to interconnect these systems was needed. Flexible circuitry provided a cost-effective, reliable means of making these interconnects while consuming very little physical space in the system. The first major application of the technology was in automotive dashboards. Flex circuits connected the electronics of the vehicle with instrument panel devices such as gauges and indicator lamps. Later, flex circuitry saw applications in calculators, computers, ink jet printers and telecommunication devices.

New applications include cellular phones and antennas for computer networks. The company consists of two major divisions: Technical Materials - which produces the film-foil laminates - and Flexible Interconnect - which produces the flex circuits. This study focuses primarily at the Flexible Interconnect side of the business. The company's Interconnect business consists primarily of automotive and data communications or consumer electronics applications.

In both of these segments, customers place orders for flex circuits to be built to print. The company generally does not design the circuitry itself, but instead recommends a type of material to meet the performance requirements of the system. There are rare occasions when the company's engineers have some say in the circuit designs, but generally there is little room for change.

This is the challenge, to develop a product introduction procedure with the constraint of a very rigid customer design. While other firms control almost all of the decisions related to a new product, albeit with customer input, contract manufacturing firms such as this company have very little design control. In addition, the automotive manufacturing market has formal systems in place for all products supplied to it to insure that quality parts are produced at every step of the process.

Therefore about 3 years ago, the company decided to develop a formal system for tracking all of the requirements of customers, especially in the automotive segment. The company was required to meet QS 9000 certification in order to supply to automotive customers and much of the Product Introduction Process (PIP) was developed with those requirements in mind. With recent company restructuring, however, this system was not being used effectively due to the amount of time required to complete the process.

The company has decided to re-vamp the system to make it more user-friendly while still meeting customer requirements. In the following sections, a detailed review of the existing product introduction process and what improvements could be made to improve its usefulness are presented. Also, a number of pragmatic ideas from experts are outlined to improve the product introduction process, especially in the context of a contract-manufacturing environment.

Company's product introduction process (PIP)

The Product Introduction Process that the company follows is part of a larger document, Demand Creation (DC 00) (Business System Team 2000) that describes how the company markets and sells its products. The company uses product teams, which include representation from product and application engineering, scheduling, manufacturing, supply chain coordination and customer support. The activities of this team are the responsibility of a product manager. Demand Creation addresses business plans, quotes, contracts and other activities along with product introduction.

Overview of Product Introduction Process

The PIP is a way to monitor and ensure that key activities related to product introduction are completed by the team. Assignment of the team, development of design plans, review of key objectives, communication and documentation are all addressed in the document. It consists of five phases, which are generally similar to the generic development process defined by Ulrich and Eppinger in Product Design and Development (2000, Chapter 2). Each of these phases is reviewed in detail in order to find ways to improve the product introduction process.

The company recently made some changes to the organisation of teams responsible for product introduction. In the past, the company was setup very much like the functional organisation described by Ulrich and Eppinger (2000, pp 25-28). For instance, the engineering department reported to a product manager and was located away from other similarly organised groups representing quality assurance, customer support, manufacturing and others. More recently, the company has gone to a lightweight project matrix organisation, with employees representing some of the functional groups described above being co-located for improved communication.

While this transition is still in process, the early results are encouraging, and there is likely to be a movement towards a heavyweight project matrix organisation. It is believed to be the correct path, since many tasks that once required gathering many people from various parts of the factory and scheduling time-consuming meetings can now be handled simply by standing up and conversing with someone in the next cubicle. The results of the partial change and the need for more co-location are presented as we move through the various phases of product development.

Phase 1: Approval, Plan and Define.

In this first phase, the company is gathering information about an opportunity so it can make a sound decision about whether or not to pursue the business. Plans for resource needs and assignments are also made at this stage. Account managers start this process by identifying and informing the team about an opportunity. Even at this very early stage of the process, a great challenge exists for contract manufacturing firms introducing new products. Most companies have some idea of what a product might look like, and have taken the time to do market research, interviewed lead users or formed focus groups. The contract manufacturer must wait for the potential customer to call with a print or CAD package, often with a timeline already in mind or a great deal of the "fuzzy front end" (Smith & Reinertson 1997, Chapter 3) time already completely used up. So there may be much time spent "waiting" for an opportunity to appear, and then a terrible crunch to get all the work done.

According to the company's procedure, an Opportunity Risk Assessment form is completed by the account manager to look at various attributes of the opportunity such as: volumes, target prices, unique requirements, competing technologies and others. Depending upon the answers to these questions, the opportunity will either be in a targeted segment or non-targeted segment. Product Management then is responsible for deciding if the opportunity will be pursued or not. If it is pursued, they are responsible for the next step, completing the company's capability/risk form to determine what will have to be modified in the factory to run product for the new opportunity.

This is a key decision point. If the decision is made to go ahead with the opportunity, the project moves to its key focus for the remainder of the product introduction process, the Product Engineer. While these individuals perform some engineering tasks, they are primarily project coordinators, making sure everything in the process is completed. According to the current procedure, the product engineer will set design, reliability and quality goals, write preliminary process flows and bills of material and note any special characteristics. In reality, most of these parameters are already determined by the customer and noted in their engineering drawing or documentation. The question really becomes, "can one build it this way", and if so, proceed with the next steps of the process.

Other tasks in this first phase are establishing target costs and something called the Customer Needs, Expectations and Wants (CNEW), which attempts to capture customer needs. It has been successfully used in the company only once, and is often very difficult to execute because of geographic location or time required for the customers. This first phase, while probably the most important, is the one the company has had the most difficulty executing. As mentioned earlier, it is so difficult for a contract manufacturer to be able to dictate the project plan when they are forced to wait for an order, and then basically adopt the customer timeline.

A better way to handle this important step is to acknowledge that the company is a contract manufacturer or "job shop", and write a plan and define document accordingly. This has been a problem at this company in the past, since management did not want to admit to being a job shop, a term some felt was derogatory. Instead, the process should allow for the fact that many design features, prices, timelines and other parameters may be very firm already, and instead the team should be flexible and ready to work with the customer quickly on their schedule.

While this may seem to let much of the design control pass to someone outside the company, this is very much the reality of the situation and perhaps customers will be pleased to see this amount of cooperation early in the process. The forms and documents used in this phase should have room to note that a design feature is already determined by the customer and not open to debate, so that valuable time can be spent on those characteristics that can be modified.

Phase 2: Product Design and Development.

The key goal of this stage is to develop the design features and characteristics into a near final form. Here some of the tasks involved include:

1. Design Failure Mode Effects Analysis (DFMEA)
2. Design for manufacturability
3. Prototyping
4. Write specifications
5. Equipment and tooling requirements
6. Customer document acceptance

Again, there are special challenges here for the job shop or contract manufacturer. In most cases, the design of the circuit the company will build, is already completed and not open to discussion or changes. While some customers are more open to recommendations for changes than others, the rule is still that the design must be built as the customer requests. Thus for these companies the real task, as we noted earlier, becomes process capability - "can it be built this way"? Prototyping is the key activity in this phase. Only after parts are actually started in the factory can the contract manufacturer assess whether or not they have the capability to build the design in question.

At this company, the product development teams are always being pushed for fast turnaround times on prototypes. One of the things the company does well is to run most prototypes down the production lines, to ensure that it will be able to build a part in high-volumes. The alternative is to run all prototypes through prototype-only processes and then miss some key information in making an assessment of the opportunity. This has the downside of adding lead time which is often unacceptable.

Many in the company believe that prototype activity should be split into two parts: one that will have the ability to turn sample parts in one or two days to satisfy customer's form, fit and function needs; and the other which will concentrate on using the company's production processes to assure the part will flow through the factory with high quality and a minimum of problems. If these two key steps are completed properly, the product team will catch almost all of the issues that might plague a new design, and at the same time keep the customers happy and on time with their project. Only after the key prototype step should the product team move on to specification writing and tooling considerations.

Another issue is that almost all of the key tasks noted at the beginning of this section are owned by the product engineer. There is a tendency at the company for other people on these product development teams to leave all decision making to the product engineer, which is a problem. When a group relies on one individual to be the only decision-maker, there will likely be key points overlooked. The company's system needs to be modified to have other key team members assume more responsibility, risks and rewards for the success of the project.

Phase 3: Process Design and Development.

At this phase, the company has decided to pursue an opportunity, the prototypes have been built and function well, and presumably the company can build them in a high-volume setting. At this company, the key deliverable of this step of the product development process is the development of a manufacturing process or system of processes to achieve quality products. Key activities include:

1. Packaging standards
2. Process flow charts
3. Floor plan layout
4. Process Failure Mode Effects Analysis (PFMEA)
5. Health, Safety and Environmental Effects
6. Process instructions - bills of material, routings, other work instructions

By this stage of the product introduction process, the opportunity is well along its path towards production. The product team has prototyped the design, worked out any problems, decided on pricing and worked out internal cost structure. This phase is the nuts and bolts of actually building parts in high volumes. Process flows are completed, and work instructions for operators who will actually build the parts are developed and documented. For this phase, there is not a great deal of difference between the challenges facing contract manufacturing firms versus a normal manufacturer. By this stage, the developed work is past the initial design concerns and more into the details.

Still, it is here that some previously unknown concerns such as environmental issues can arise. The company does a great deal of business with firms in Europe and the far east, and has become very familiar with the much stricter environmental requirements in Europe, for instance, than here in the United States. Perhaps some of these issues should be addressed sooner to avoid difficult and expensive changes to the process at this late stage.

Phase 4: Product and Process Validation.

At this stage, the processes used for manufacturing the product are validated. A sample of parts from a pilot or trial run is carefully evaluated to determine if everything regarding the part meets the customer's requirements. Activities include:

1. Complete pilot run on production line
2. Evaluate all measurement systems
3. Perform dimension analysis on sample parts to verify correctness of tooling
4. Perform capability studies on key product characteristics to insure process' ability to meet the tolerances specified.
5. Prepare documentation as needed.

In phase 4, company's production process and equipment capability are ready for validation. It is here that issues with tooling being built out of tolerance or process equipment not being up to the task of meeting certain tolerances may be uncovered. Some of these surprises could be mitigated by the two-fold prototype approach I suggested earlier. If the company builds the part down the production line as much as possible in the prototype process, these hidden problems will be often found early enough in the process to easily and economically fix them. Of course, some production processes, such as expensive custom tooling are difficult or impossible to run early in the design cycle.

This is another challenge facing the contract manufacturing firm - almost every job has custom tooling which will perform differently depending on the design. While it is true that the company, for instance, has a great deal of experience with flex circuits, every job has one or two very difficult requirements that carry a significant amount of risk. Of course, this is where the competitive advantage and profit margins also reside. A firm that has most of the design under their own control faces a lot less risk in this area. For this company's product introduction process there are not a lot of opportunities for change or improvement at this stage.

Phase 5: Feedback, Assessment and Corrective Action.

This stage is commonly called the post-mortem. Here, several production runs of a new design are looked at and checked to see where there is room for improvement. By now the product's responsibility has shifted away from a product engineer and more towards a manufacturing engineer, who looks at both product and process together to look for possible improvements. There may be capabilities that require improvement, quality issues that are recurring, or cost saving measures that can be implemented. This is an important step in the continuous improvement process, but again, there are not a lot of differences for the contract manufacturing firms in terms of challenges than any other company.

Suggestions to improve the product introduction process

As this research progressed, it was realised that the key differences in terms of challenges unique to contract manufacturing firms like the company studied are in the front-end phases of product development. The importance of prudent use of front-end time is stressed in the new product development literature (Ulrich & Eppinger 2000, Chapter 2; Smith & Reinertson 1997, Chapter 3). Smith and Reinertson noted that in their experience, as much as 90 percent of development time had already elapsed before any work began (1997, p 50). This is especially true for contract manufacturing firms. Companies like this one studied find that customers may have already consumed much of the front-end time with their own product development process. Therefore a better way of using what little time may be available is needed.

Many of the ideas set forth by Robert G. Cooper in his book Winning at New Products are relevant. Cooper lists several Critical Success Factors in his book that he considers lessons for success (2001). One of the key factors relating to product development for contract manufacturers such as the company in this study is "more predevelopment work - the up-front homework - must be done before product development gets underway" (Cooper 2001, p90). There are many improvements that can be made to this phase of the development process to ensure that opportunities with a good fit are pursued. Some projects, as difficult as that can be for some people to accept, should be killed at this stage. It is important to know how the opportunity will benefit the company as well as the customer in order to make a sound business decision.

Another critical success factor according to Cooper is: "Leveraging core competencies is vital to success; 'step-out' projects tend to fail" (Cooper 2001, p 98). The company has often taken on opportunities that were close to its core competency, but had one or two elements with which it had no experience. The result was often a product that exceeded cost targets and was plagued with quality problems. The difficult decision not to pursue some opportunities must be made in order to ensure successful products. In describing the Stage-Gate^TM process, Cooper makes the point that one of the system's strengths is that it allows for parallel processing (2001, p 144). Cooper notes that activities at each stage can be undertaken concurrently, not sequentially, which makes the process much more efficient.

This is an improvement that can be made to the company's product introduction process. Many of the tasks in the various phases of the process are designed to be completed sequentially. This causes the company to lose valuable time in the development cycle. If these tasks can be worked on in parallel, the design time can be reduced significantly.

Another idea relates to increased use of CAD/CAM technologies in product development. In The Virtual Engineer, Howard Crabb notes "...CAD/CAM ushered in a whole new way to rapidly design, develop and validate products for manufacturing." (Crabb 1998, p90). At this company, and probably other contract manufacturers, CAD is often used internally only, as a design tool. There is a need to explore using CAD/CAM early in the development process as a tool to help select good opportunities. The company's products are almost always integrated into other subassemblies by its customers and are rarely stand-alone products. Therefore if the company has CAD systems capable of integrating with customer's CAD systems so that its parts can be effectively modelled early in the design process, the company will have a much better chance for success.

The company has used the Internet primarily as a marketing tool in the past. As Anthony Mills notes in Collaborative Engineering and the Internet, there are many opportunities to use Intranets, Extranets and the Internet to accelerate development processes (Mills, 1998). If contract manufacturers can begin using these tools as a way to communicate design guides to potential customers earlier in the cycle, a lot of the wasted efforts can be eliminated in the company's reactions to new opportunities.

As mentioned earlier, co-located work teams have proven to help the company a great deal. However, more work is needed here. Smith and Reinertson note that often a critical member of the team, usually marketing, does not sit with the team (1997, p 155). This is true right now at the company, where marketing is, in fact, in another building on its campus. The company has seen the benefits of co-located teams and are now ready to move to the next level where more functions of their product development teams are located together for better, faster communication.

There are many opportunities for contract manufacturers to save time and make better use of resources in the product development cycle. Most of room for improvement is in the front end of the process, which is the area that the company is looking at improving.

The impact of tough economic times on the product development process

Authors would be remiss if they did not note that during this project, the company used for the case study has faced some tough economic times. Some key investment shortfalls coupled with the recent recession have hit the company very hard. Since mid-2001 there have been several rounds of layoffs culminating with the April 30, 2002 announcement of chapter 11 bankruptcy. Along the way the company has also lost many people and resources due to attrition. All of this has made the product introduction process very difficult to manage and in some cases caused many key steps to be skipped altogether. This can be a tough situation, while new products and sales are needed to survive, there are fewer and fewer people to do the work.

Cooper notes that another critical success factor is "...the resources must be in place; there is no free lunch in product innovation" (2001, p106). The people that remain at the company are overworked and have too many projects that are at the same point in the product introduction process. This almost ensures that key steps in the development process will be missed.

One possible solution, even in tough times, is that put forth by Smith and Reinertson in the chapter "Preventing Overloads". They note that projects should first be ranked by their importance and then assign resources to those projects deemed the most important (1997, p219). This means some projects will not be staffed, and as we discussed earlier, perhaps this is a way to decide which opportunities will not be pursued.

The company will not be truly successful at introducing new products again until staffing levels are such that there are enough people to perform all of the functions. Still, there are improvements in the process as noted earlier that can help streamline a complicated, underutilised process and make it a tool that can make people more efficient and help the company make sound business decisions.

Conclusions and path forward

Contract manufacturing firms face many of the same challenges as other companies in the product development process. Additionally, there is the added challenge of not having complete design control and having many of the early decisions already made by a potential customer. In authors' opinion, the key is even more careful management of the fuzzy front end to ensure success. The use of modern technology such as CAD/CAM and the Internet can be a method for some companies to better manage the front end and work more closely with customers to have their design concerns addressed early in the customer's process. Parallel activities and proper staffing also are critical to a successful product launch. Effective communication is the key element in all these activities and co-location of people working on the project is a key way to foster this communication.

At this company there is a need to get through the difficult financial state it is in, and at that time rebuild and improve many of the systems, which were used for product introduction. With careful selection of opportunities and good management of the process, the company will be successful.

Authors' biographical sketches

Sameer Kumar is a Professor and Qwest Chair in Global Communications and Technology in the College of Business at the University of St. Thomas, Minneapolis, Minnesota. Major areas of research interests include optimisation concepts applied to design and operational management of production and service systems where issues relating to selection, and deployment of technologies and capital investment justification decisions are also considered. More recently, areas of research interest have included innovative approaches to product development, and supply chain management, encompassing theory development such as linkages between management of supply chain, e-commerce, m-commerce, technology life cycle including modelling of decisions in supply chain, and enterprise information system.

James Wellbrock has worked in a variety of roles in industry including: production supervision, product engineering and application engineering. Most recently he has worked on a team tasked with the introduction of a new electronic material suitable for the high-frequency and microwave communication markets. He has a bachelor's degree in electrical/electronic engineering from North Dakota State University and an associate's degree from Fergus Falls Community College.

References

Business System Team, Company Document DC 00, "Demand Creation", March 20, 2000.

Cooper, Robert G Winning at New Products: Accelerating the Process From Idea to Launch, Cambridge, MA: Perseus Publishing, 2001.

Crabb, Howard C, The Virtual EngineerTM: 21st Century Product Development, SME and AMSE press, 1998, pg. 90.

Mills, Anthony. Collaborative Engineering and the Internet. SME Press, 1998.

Smith, Preston G. and Donald G. Reinertson. Developing Products in Half the Time: New Rules, New Tools, Second Edition, John Wiley and Sons, 1997.

Ulrich, Karl T., and Steven D. Eppinger, Product Design and Development, Second Edition, McGraw-Hill, 2000.