How Manufacturing Can Create Risk in Your NPI Plans

Introduction

New Product Introduction (NPI) is a critical phase in the lifecycle of any product, especially in the electronics industry where Printed Circuit Boards (PCBs) and electronic components are integral. While NPI is essential for bringing innovative products to market, it is fraught with risks, particularly in the manufacturing phase. This article explores how manufacturing can create risks in your NPI plans, focusing on parts procurement during scaling and go-to-market strategies. We will delve into four key insights, each followed by a "So What" conclusion and actionable steps to mitigate these risks.

1. Supply Chain Disruptions

Insight

Supply chain disruptions pose a significant threat to the stability and efficiency of manufacturing processes. These disruptions can stem from a multitude of sources, such as geopolitical tensions that may lead to trade embargoes or sanctions, natural disasters that can destroy infrastructure and logistics networks, and global pandemics that can halt production and affect labor availability. In industries like PCB manufacturing and electronic components, where specialized parts are often procured from a select few suppliers, the ripple effect of any disruption can be catastrophic, leading to a complete standstill in production lines.

Example

A pertinent example of such a disruption is the COVID-19 pandemic, which led to an unprecedented global impact on supply chains. The pandemic caused a domino effect, resulting in severe shortages of semiconductors and other vital electronic components. Tech giants such as Apple and major automotive manufacturers were among those significantly impacted, facing extensive delays in their production timelines. These delays were a direct result of the scarcity of components, which are integral to the assembly of their products.

For further reading on the impact of the COVID-19 pandemic on supply chains the comprehensive report by the Harvard Business Review titled "Global Supply Chains in a Post-Pandemic World" is a useful reference. 

So What?

The repercussions of supply chain disruptions extend beyond mere production delays. They can lead to postponed product launches, inflated operational costs, and can severely tarnish a company’s market reputation. To combat these risks, companies are advised to adopt the following strategies:

• Diversify Suppliers: Cultivate a network of suppliers to minimize reliance on a single entity. This approach not only mitigates risk but also potentially leverages competitive pricing.
• Inventory Management: Implement a strategic inventory management system that includes maintaining a safety stock of essential components. This buffer stock acts as insurance against supply chain interruptions.
• Supply Chain Visibility: Employ sophisticated tracking and monitoring systems to gain real-time visibility into the supply chain. This enables companies to anticipate disruptions and respond proactively.

By implementing these strategies, companies can enhance their resilience against future supply chain challenges and maintain a competitive edge in the market. It is crucial for businesses to recognize the importance of a robust supply chain management plan as part of their overall operational strategy.

2. Quality Control Issues

Insight

Quality control (QC) is the cornerstone of manufacturing, especially in the production of PCBs and electronic components. The presence of any defects in these critical components can precipitate catastrophic product failures, trigger extensive recalls, and lead to substantial financial repercussions. The challenge of maintaining unwavering quality becomes even more pronounced during the scaling phase of manufacturing, where the volume of production increases and the margin for error must decrease correspondingly.

Example

The case of Samsung’s Galaxy Note 7 recall in 2016 is a stark reminder of the consequences of QC failures. The smartphone was found to have battery defects that caused overheating and, in some cases, explosions. This led to a global recall that not only incurred massive financial losses but also inflicted long-lasting damage to Samsung’s brand reputation. The incident underscores the critical nature of QC in safeguarding product integrity and consumer trust. The implications of QC failures to the value of a company should not be underestimated, as the attached figure of Samsung’s share price over a period during the Note 7 issue shows. There is a 11% drop in share price from 8th September 2016 to 12th September 2016, during which time the recall of Galaxy Note 7 was announced.

Figure 1: Samsung Share-price (USD) from 1-AUG-2016 to 30-OCT-2016

So What?

The implications of QC issues are far-reaching. They can disrupt product functionality, precipitate recalls, and erode customer confidence. To mitigate these risks, companies are encouraged to implement the following measures:

• Implement Rigorous Testing: Develop and enforce exhaustive testing protocols for all components and finished products. This includes both pre- and post-production testing to ensure that every product meets the required standards of quality before it reaches the consumer.
• Continuous Improvement: Foster a culture that prioritizes continuous improvement, which involves regular analysis and refinement of manufacturing processes. This initiative-taking approach helps in the early detection and rectification of quality issues, thereby minimizing the risk of defects.
• Supplier Audits: Conduct thorough and regular audits of suppliers to verify that they adhere to the established quality standards. This process should also include corrective measures to address any identified deficiencies, ensuring that the supply chain contributes positively to the overall quality of the product.

By diligently applying these strategies, companies can significantly reduce the likelihood of QC issues and maintain a powerful reputation for reliability and excellence in the market. It is imperative for businesses to recognize the critical role that effective quality control plays in their long-term success and customer satisfaction.

3. Lead Time Variability

Insight

Lead time variability is a critical factor in the manufacturing sector, particularly in the production of PCBs and electronic components. It refers to the unpredictable fluctuations in the duration required to procure raw materials and components, as well as to complete the manufacturing process. These inconsistencies can significantly disrupt production schedules, causing delays in product launches, especially during the crucial go-to-market phase when timing is often tied to market trends and consumer demand.

Example

Consider a hypothetical scenario where a company is gearing up to launch a new product that incorporates PCBs. If the lead time for essential components like microcontrollers or capacitors is subject to significant variability, the company may encounter unexpected delays. For instance, if a new microcontroller is suddenly in high demand due to its adoption by multiple manufacturers, the lead time for this component could increase dramatically, leaving the company unable to meet its production deadlines. This can lead to missed opportunities, such as failing to capitalize on a trending technology wave, and can also inflate costs due to rush orders or expedited shipping. This article from Science Direct lays out the statistical evidence on how reducing variability in lead times can be quantified into value for a business.

So What?

The impact of lead time variability can be profound, affecting not just production schedules but also a company’s financial health and market position. To address these challenges, companies should consider the following strategies:

• Forecasting and Planning: Implement advanced forecasting tools and methodologies to accurately predict demand and plan procurement activities. This can involve statistical analysis, market trend evaluations, and predictive modeling to anticipate future needs and adjust procurement schedules accordingly.
• Supplier Relationships: Forge strong, collaborative relationships with suppliers. This can include negotiating contracts that provide for better lead times, establishing priority order status, and collaborating closely with suppliers to ensure they understand the company’s needs and timelines.
• Flexible Manufacturing: Develop flexible manufacturing systems that can quickly adapt to changes in lead times. This might involve modular production setups, cross-training employees to work on different product lines, or investing in technology that allows for rapid reconfiguration of manufacturing processes.

By proactively managing lead time variability through these strategies, companies can enhance their agility and responsiveness, ensuring that they remain competitive and capable of meeting market demands despite the inherent uncertainties of the supply chain.

4. Cost Overruns

Insight

Cost overruns are a common risk in the manufacturing phase of NPI. They occur when the actual cost of production exceeds the initial budget estimates, which can happen due to unforeseen increases in the prices of components, labor, or changes in manufacturing processes. These overruns can quickly erode profit margins and render the product less competitive in the marketplace. Managing these costs is crucial to maintaining the financial viability of a new product and ensuring its success.

Example

An example of cost overruns could be seen in the development of new electronic devices. If a company is in the process of creating a new gadget and suddenly the prices of essential components such as integrated circuits or resistors surge unexpectedly, the production budget can balloon. This scenario was evident in the case of any major tech company that faced significant cost overruns due to a sudden spike in semiconductor prices, leading to higher overall production costs and a subsequent reduction in profitability. 

Figure 2: 12-inch Wafer average selling price quotes (low-high) from TMSC from 2020-2024 in USD where 2024 is the predicted range.

Product launches are challenging and it is common to see them fail to hit their goals on profitability, both from a time perspective (launching late and thus costing more to launch) and a sales perspective (not achieving predicted volumes and thus driving less profit). Gartner has found that 45% of product launches are delayed by at least one month. 

So What?

The implications of cost overruns are multifaceted. They not only affect the company’s bottom line but also its strategic positioning in the market. To effectively manage and mitigate the risks associated with cost overruns, companies should adopt the following strategies:

• Cost Management: Implement comprehensive cost management practices that encompass monitoring and controlling expenses across all stages of production. This includes the use of budgeting tools, cost analysis, and financial forecasting to keep expenditures in check.
• Supplier Negotiations: Engage in strategic negotiations with suppliers to secure long-term contracts that stabilize prices. This approach helps reduce the risk of sudden cost fluctuations and ensures a steady supply of components at predictable costs.
• Value Engineering: Pursue value engineering by continuously exploring ways to optimize product design and manufacturing processes. This involves analyzing the cost-benefit ratio of design choices and manufacturing techniques to identify areas where costs can be reduced without compromising the quality or performance of the product.

By implementing these strategies, companies can better control costs, maintain healthy profit margins, and ensure that their products remain competitive in the fast-paced market. It is essential for businesses to recognize the importance of rigorous cost management and strategic planning in the NPI phase to avoid financial pitfalls and achieve long-term success.

Conclusion

Manufacturing is a critical phase in the NPI process, but it is also fraught with risks that can derail your plans. These risks, which include supply chain disruptions, quality control issues, lead time variability, and cost overruns, can significantly impact a company’s ability to successfully bring a new product to market. However, by understanding these risks and implementing strategic measures to mitigate them, companies can navigate the complexities of the NPI process more effectively.

Companies can enhance their resilience against supply chain disruptions by diversifying their suppliers and maintaining inventory buffers. Quality control issues can be addressed through rigorous testing and continuous improvement. Lead time variability can be managed with advanced forecasting and strong supplier relationships. Cost overruns can be controlled through comprehensive cost management and value engineering.

By addressing these risks, companies can not only enhance their NPI plans but also increase the likelihood of successful product launches. This approach to risk management in the manufacturing phase of NPI is crucial for companies to maintain a competitive edge in the fast-paced and ever-evolving market. The successful navigation of these potential risks in the NPI process is a testament to a company’s strategic planning, operational efficiency, and market resilience.