Product Development Blog » NPD Process

Cost Engineering and Early Stage Pricing

Sam — Mon, 17 May 2010 18:40:34 +0000

During conceptual design of your product, cost engineering is essential. Once main obstacle that new ventures face is the cost of your product versus desired selling price. Volume can have a huge impact on this. For the gBook e-book reader, you’ll note the cost reduction in total cost from low volume (1000 units) to higher volume (100,000 units) – particularly in the LCD/controller and main processor. This reduces even further when considering volumes of 500,000 to 1M.

However, the entrepreneur should be cautious when selecting features and selling price. Basing selling price on extremely high volume can be tempting – but you may be in a situation of negative margin from introduction until (if ever) you reach the volume estimate. That means negative cash-flow from the onset – which may kill the company before you ever break-even. So, perform your bottom-up and top-down cost estimates – if there is a huge disconnect you may need to cut back on features/capability and/or adjust target market/demographic (higher selling price) to make the economics work. These iterations and cost engineering are essential at the beginning stages of product design.

Are you done with product development when you have a completed design?

Sam — Mon, 25 Jan 2010 17:00:42 +0000

Many people and companies assume that when a product is designed and engineered that the product development process is complete. That is most certainly not the case for physical assembled products – and not expecting this fact can be very frustrating for the inventor and start-up. The product development process continues with production tooling through volume ramp then right into quality control and product improvement.

Once a product or part is designed in computer-aided-design (CAD) and is prototyped, in order to go into production volume tools need to be constructed (these may be injection molds, dies, stamping tooling, etc.). These tools can take anywhere from 5 – 15 weeks to build. Once they are built, the debugging process begins. And here is where things can get frustrating to individuals and companies trying to get a product to market – expect the unexpected. In the figure below, note the testing and refinement and product production ramp phases. It is common to think that product development is complete once detailed design is complete – it is not.

Figure. 1. Ulrich and Eppinger (2004) NPD process.

Even the most well-thought out design will invariable have issues during the last two phases (fit during assembly, sink marks, reliability issues). For complex products, this fine-tuning can take months or years. For an automobile, it can take two years from first prototype to production ready. During this time, design and manufacturing issues are resolved in an iterative manner. It is the response and quick resolution to these issues that is imperative to get a product to market. Things like tooling issue matrices, daily teleconferences, etc. mean the difference of time and money. For the entrepreneur and start-up – be prepared for the unexpected and realize that it takes time to get something right. Plan for the time and costs of product development AFTER the initial design is completed.

Logo Creation and the Development Process

Sam — Mon, 14 Dec 2009 20:44:51 +0000

Logos can make your brand stand out, but how do they get that way? How do inventpreneurs go from ideas, descriptions and emotions to a final product? The featured development of our logo will show you.

The process theory revolves around iterative designs based on refinement and feedback. The process begins with a description of the company / product. The description should include high level functional and emotional statements for example: quality, organized, bringing elements together, which developed into two concepts: “center of the team” and “flow chart process”. For our case, we had our designer read through the existing website and create a first round of designs (left).

We selected our two favorite of the group and encouraged our designer to experiment with colors. We liked logos 4 and 6, but we were looking for some additional work on the logo to expand on the flow chart concept of number 4 and the center of the team concepts in number 6.

We ended up choosing the blue and green flow chart concept and we really liked it. We brought it out into the marketplace and solicited feedback. The feedback that we got was positive, but

we wanted to experiment with adding a little pop to

the logo. The next round contained a lot of pop both with the logo, text and orientation. We liked integrating a circle into the middle of the logo to get back to the center of the team concept.

Of course you knew what we ended up with at the very begining of the post, but I hope that this example of both the logo creation process and the development process as a whole has helped.

Post your Logo Story!

Offshoring and Outsourcing

Sam — Mon, 06 Jul 2009 13:55:58 +0000

By Tucker J. Marion

Today, companies producing physical assembled products such as Black & Decker (B&D) have outsourced production of nearly their entire product line-up to offshore facilities [1]. It has been argued that outsourcing, or the use of outside suppliers to provide services or products, frequently offers a cost competitive alternative to performing the required activities in-house [2]. Predominantly, the overwhelming driver for offshoring and outsourcing were improved cost structures driven by much lower labor rates [3]. For example, in manufacturing U.S. workers making $20 per hour could be replaced by Chinese workers making less than a doller per hour (note references). According to Wu, et al. [4], outsourcing can be viewed as a strategically important activity that enables an enterprise to achieve both short- and long-term benefits. These strategic benefits include focusing on core company strengths such as innovation and design in order to maintain competitive advantages. Assigning tasks to an outside firm or to another group within the company may prove effective in accelerating the overall project [5]. This allows companies like Apple to continue to focus on developing the next iPod while not being burdened with direct manufacturing management [6].

The alternate argument is that in actuality, offshoring and outsourcing can increase total costs. A recent study by the Ventoro Institute notes that 36% of executives noted that offshoring strategies have failed [7]. Irrespective of what side of the argument one falls, one fact remains, offshoring and outsourcing has been pervasive and is accelerating. This trend has now shifted towards the sourcing of higher value-added jobs such as software development, pharmaceutical and drug research, and product design. As with manual labor, the ‘low hanging fruit’ are costs. An average software developer in India earns approximately $6,000 annually versus $63,000 in the U.S [8]. Now, research and development (R&D) is increasingly being performed in these countries on high-value projects. Historically innovation and design ownership were a key component in justifying the movement of jobs overseas: “with lower costs we can innovate more.” Now that these functions are moving as well, what will be left for U.S. employees? Will standards of living be further reduced as once high paying jobs are replaced those that are lower rage? Low-skilled works earn 20-40% less in their replacement jobs [3] – it is reasonable to expect similar figures for skilled employees.

In the U.S., we pin our future on innovation and entrepreneurship. These are critical to enhancing quality of life and standard of living not only in the U.S., but worldwide. The cornerstone of innovation and entrepreneurship are the development and commercialization of novel technologies and services through new firm genesis and sustained growth. If trends continue and more R&D is performed offshore, these countries will be given access to innovations that could foster development of new firms locally, rather than the U.S. What does this mean for the start-up? Well, outsourcing and offshoring can be invaluable to the new firm with scant resources. It allows you to focus on core strengths, while accessing expert partners. But, offshoring and outsourcing is no free lunch. There are communication and cultural barriers, potential quality issues, and intellectual property risks. As an entrepreneur, one needs to be diligent in sourcing decisions and look at the total picture of costs and sustainability. A recent example of a sourcing decision is at Tesla Motors, the electric vehicle manufacturer. After looking at total costs, they have decided to assemble battery packs for their vehicles here in the U.S., versus having them shipped from China. Another case is a Flashpoint Development client, where a partnership has been formed with an Ohio injection molder and the state to develop U.S. sourced injection molds at a fraction of the cost using a new nano material. At FlashPoint, we use outsources and offshore resources daily to great effect for our clients. However, blindly going right to an offshore supplier source is often the easy way out, and may not take the whole equation into account.

References

[1] T.J. Marion, H. Thevenot, and T.W. Simpson, “A Cost-based Methodology for Evaluating Product Platform Commonality Sourcing Decisions with Two Examples,” International Journal of Production Research, vol. 45, no. 22, pp 5285-5308, 2007.

[2] S.D. Eppinger and A.R. Chitkara, “The New Practice of Global Product Development,” MIT Sloan Management Review, 47(4) pp. 22-30, 2006.

[3] R.H.K. Vietnor, J.W. Rivkin, and J. Seminerio, “The Offshoring of America,” Harvard Business School Case Study, 9-708-030, 2008.

[4] F. Wu, H.Z. Li, L.K. Chu, D. Sculli, “An Outsourcing Decision Model for Sustaining Long-term Performance,” International Journal of Production Research, 43(12), pp. 2513-2535, 2005.

[5] K.T. Ulrich and S.D. Eppinger, Product Design and Development, 3rd Edition. Irwin McGraw-Hill, New York, 2004.

[6] S. Levy “The Perfect Thing,” Wired Magazine, November, pp. 136, 2006.

[7] P.J. Hatch, “Offshore 2005 Research: Preliminary Findings and Conclusions,” Ventoro Institure, October 11, 2004, pp. 16-17.

[8] T. Hoffman and P. Thibodeau, “Exporting IT Jobs,” Computerworld, April 28, 2003, p. 42.

Duck Tape Prototypes

Sam — Thu, 05 Feb 2009 20:40:34 +0000

Lets go over some basics about prototyping starting with “duck tape prototypes”. Duck tape prototypes are the very first physical representations of your idea. This phase can be filled with lots of satisfaction for optimists and visionaries or disappointment for the pessimists and short sighted.

Duck tape prototypes are made from available materials found at Home Depot, the grocery store or around the house. The parts are altered using a dremel, file or epoxy putty. These newly altered parts are then assembled using epoxy, super glue and duck tape (hence the name).

These prototypes might not work. The limitations of using existing pieces, the alterations that change the structural integrity and the complications of bonding different shapes and materials will produce defects.

Are they failures? Do they have any value if they don’t work? Well I think Edison said it best when asked about his many failures at building a light bulb… “We have only found 586 ways that won’t work and won’t have to be tried again. Soon, we will find one that does.”

These prototypes are very important at the very beginning. They might not prove the concept, work well enough for testing and look nice enough to present to investors but they add value in many other aspects. You can discover if the method is right, major design issues and experiment with different materials.

It may take many or just a few duck tape prototypes to get a sense of what design will actually work. Then the deisgn, engineering and manufacturing aspects come into play….

Which Idea Should You Pick???

Sam — Thu, 25 Sep 2008 19:53:02 +0000

Many times inventors come to us with their best idea, other times we are presented with the top three and asked which is best. Being confronted with delivering this type of input is difficult for a number of reasons, but mainly because we want to put resources into the best one. The difficulty lies in evaluating the ideas by market size, market pain, price (point flexibility resulting in better margins), development (cost & time), manufacturing costs, competition, potential penetration %, intellectual property.

To evaluate the designs I am going to use a figure from a prior post about evaluating design options. Check out that post to see how to fill in the chart, don’t forget to add in the other variables.

The variables reflect both the good and bad aspects of possible outcomes:

The goal of most of clients is to make money off an invention (market size, penetration %, price points / margin). However, everyone has a finite amount of funding available, so then the goal is to make the most money with X amount of money (development & manufacturing cost). We all have an amount of patience and few are willing to wait years to make profit, so then we add time to market to make the goal: make the most money with $X in T months (development time).

No one wants to get to market only to be met by an injunction and a lawsuit claiming infringement or only to be ripped off a few months later (IP status). Also a product profitability can be seriously hurt when a close competitor alters their product to directly compete with your idea (competition).

Personally, when I first started inventing I had a hard time with this. I remember bringing 20 ideas to a former mentor and being shocked and overwhelmed when I was told to pick out the top two. I worked on the two, one of which branched out into two discrete products, so then I had three (lets call them A, B, C). I believed that if I worked on three ideas, one would pan out and hit it big, a type of portfolio approach. I continued working on the products and the marketing while seeking advice from S.C.O.R.E.. I realized that I needed some type of prototype, but I only had the technical skills to prototype A, so I focused on A. Eventually I was confronted with an interesting question, “If you were to ask for money (bank or investment) how much would you ask for?” This question led me down the path to find out the manufacturing costs for each of the three ideas. As it turned out A & B would cost far more than I was willing to spend or ask for, so I was left with C, an idea I had spent 20% of my time and effort on.

Another interesting thing happened. By focusing on one idea, I was able to make incredible progress. I know that if I had split my time, resources and sanity between three ideas the end results would have been far less. Developing a product almost requires living day and night in that market and technology.

Back to our position on evaluation, I think about venture capitalists. These investors know a specific technology or industry incredibly well. They know all the players, the issues, past failures, technology trends and opportunities of a very small area. These investors are sent thousands of plans a year make a few investments and the general success rate of their investments is one out of seven. Now, we are not market experts, we are product development experts. While we understand how to get products from idea to manufacturing and can help with some of the marketing i.e. packaging and branding, we don’t understand a lot of different customer segments very well, or at least well enough to make that determination when first exposed to an idea.

As you can see this decision involves a lot of work. And while we can help define these variables with an opportunity analysis and feasibility study, it is really up to you (and your gut) as to which idea deserves to move forward. Regardless of what idea you chose (and how you proceed), you are going to have to live with it, work on it and spend money on it. Using this evaluation system, although not perfect and whose results can be easily ignored is important to acknowledge the strenghts and weaknesses of each idea.

Getting Your Invention Perfect: Benefits and Costs

Sam — Mon, 15 Sep 2008 18:47:51 +0000

Inventors, engineers and designers often become paralyzed by perfectionism. Getting your product just right has benefits, but also some real costs and evaluating them rationally instead of just constantly going back to the drawing board is important. To do this analysis an inventor needs to fully understand the costs of heading to market with an imperfect product or redesigning.

The costs of perfectionism:

1. Time to market: As you make revisions, there are other people willing to go to market with an imperfect product. If you have ever been working on a product for years and some thing similar but not as good launches, this lesson is a hard one to learn. Lets say that you launch 6 months later than you competition with a better product, now you are faced with the daunting task of trying to unseat them at retailers. The conversation will probably go something like, but we have something similar and it selling (well or badly, it doesn’t really matter) and we have already set up operating arrangements with them. There are lots of examples of products that were late to market and surpassed a first mover (they are well publicized), but as a whole most items on the rack were the first to market.

2. Development costs: No matter how you decide to improve, whether it be a CAD redesign, a new industrial design, or another prototype these are all extra costs. Often it isn’t the first redesign that affects the projects overall budget, but when you start redesigning and redesigning it becomes a habit and costs will escalate.

The benefits of perfectionism

1. Product Improvement. Hopefully after going back and redesigning the product works better, looks more pleasing is cheaper to produce or another important product characteristic.

2. Easier Market Launch: With a perfect product, marketing, selling and getting retailers should be easier. There will be no bad press about this function or that because everything will work beautifully. And of course the market is much less likely to reject the idea if there are no flaws.

3. Personal Reflection: Knowing what you put out into the market or in front of potential licensees is important for your brain. The anxiety of knowing that one more thing should be done disappears if everything is just right.

Other things to think about

Products rarely go through one generation. If your product is successful, improvements will be necessary no matter what. In fact, there is a number of cases when redesigns and subsequent versions made more money than the original (IPod!). Often times going for perfect is also an indication of focusing on technology push (the solution) over market pull (the problem). If your focus is on solving the problem, then you know when the product is good enough because it solves the problem. However, when you are focused on the solution the drive to improve upon a solution beyond what is actually required is a common tendancy.

Where does this conflict come from?

Often this issue arises when you get inventors with different backgrounds. A former corporate inventor who worked in a business setting knows that the bottom line of development costs drives product launch as much as development actually being done. While heartbreaking the first time, an inventor in this position realizes that the product will either sink or swim and often the further development would not have influenced the market acceptance. An entrepreneur inventor focuses on development costs and first to market. These forces drive the entrepreneur to deliver a product that is good enough, while knowing that improvements can be made for the second version. When inventing is your hobby, redesigns and further development is part of the fun. Unfortunately this is often where inventors get stuck, spend a lot of money only to find that their product has been launched an move onto another idea.

How Do You Know If You Are Done?

The quick answer is prototype, test and ask the market. If you have something that works and people like, then you are done. If you get substantial (you will never please everyone, but when 9/10 people from your target market say X, its substantial) feedback leading you to a different direction then you might want go back and work on it.

IS YOUR PRODUCT DONE?

How to do New Product Research (without going crazy)

Sam — Fri, 29 Aug 2008 21:28:34 +0000

As you dive into your research to discover the market, competition and technology around your invention, the materials you have uncovered start to pile up. If you are like me and you like hard copies to take notes on, highlight and organize, then you will start to develop giant piles, binders and folders loosely organized around the different topics. Many inventors, because of their creativity get a little crazy with all this material. However, I’d like to share a few strategic points and tricks (although not unique or ground breaking) that can help.

1. Brainstorm Keywords
2. Google Search, go through quite a few pages
3. Stay disciplined, use a form that tracks citations and summaries of findings

Now the tricks,

Google Search, check out this link that will explain lots of tricks to isolate the important (or unimportant) keywords. They will cut down on the number of irrelevant results.

Research Template: Come up with a research template to keep track of the important products / websites (if you don’t like hard copies). All this data will be very helpful when you do a full scale competitive product analysis. An example template…

Google Keywords Used - You don’t want to keep searching the same ones

Product Name: Price - Find the price (most likely a range from different vendors)

Summary What is it in 1 sentence

Vendors - Know who they are because you might want to sell there someday. Also helps gauge the strength of the competitor (E.G. Amazon or Bob’s Online Warehouse).

Links - You have to keep track of the citations (nothing more frustrating than trying to re-find a hidden product on the web)

More in-depth Summary of Product - What is their product pitch

Technical Specs - How does it work, can you learn anything from how they did it?

Online Reviews - Where is the product struggling, what is it good at? Is yours better in the important areas???

Product Market Research: Surveys vs. Interviews

Sam — Fri, 22 Aug 2008 16:42:46 +0000

Bryan Daigle’s (founder and president of Idea Tango) recent blog about surveys got me thinking. While I completely agree that a quick and dirty survey, especially early in the idea process is essential, some experts prefer in-depth interviews with customers. In-depth interviews can be very helpful in finding latent (hidden) needs, details on use of new product and demonstrations on how the problem is currently being solved. However a survey can show interesting statistical analysis from a large, random and unknown population sample. So, today I thought I’d do a comparative analysis of surveys vs. interviews.

Surveys

Surveys need to be focused on the analysis from the beginning. This does not mean tailoring the survey for manipulation of responses, but it does mean that you want to know what your analysis will show (good or bad) from the beginning. How do you plan your survey? If you randomly pick people off the street and get them to respond to the survey, what do the results mean? Does your random survey mean that those results can be extrapolated into the whole population of your state, the US and the world? Probably not. However, when you focus your survey on your target market (like Diagle’s example of using hardware store customers) then you can start to apply those statistics to the larger target market.

Why Surveys are good

Surveys help build the market size case. As we talked about earlier, you can apply survey results to a the larger markets saturation percentage. You can also do lots of statistical analysis based on a survey like regression analysis, three factor interaction and radar charts. Surveys often measure instinctual response, which is good because the purchase decision is often quick. Most importantly is the large sample size that can be attained by the easy scaling of a finite document.

Why Surveys are tough

You only get answers to the questions you ask. Seems simple, but the design of a survey can be very strenuous. Question structuring, survey architecture and styling are all difficult variables that affect the survey. More than the survey, the surveyor can have a big affect on the question responses. On my first survey, when I wore a suit I got great responses but a polo didn’t produce the same results (business people survey target). Also, because the sample size is important you are always doing it. I aim for 75 responses, but always keep going.

Why In-Depth Interviews are good

If you can sit down with a customer or have an extended phone call, you can get the person on the other end thinking about your product from their perspective. Often early questions get readdressed later in the conversation after the topic is kicked around in the sub conscience. Interviews can uncover needs unknown to yourself that relate to the problem. Perhaps most importantly, in-depth interviews can help you through the development process. Curious about where to put a button, ask a customer and have them think about it.

Why In depth interviews are tough

Your responders need to take 30 minutes plus out of their day to talk to you. It can be tough to sell someone that taking that time is worth it for them. Aim for people that often meet with people from outside the establishment. The major downfall is the sample size can be very small and even as you grow your sample size, the respondents don’t match up. So you have lots of details on conflicting views. Honestly, this is a part of inventing and you need to sift through the data, pick out what is important (you may not like it) and go with it.

Tips and Tricks

USE STRANGERS

Surveys…

Multiple choice with other write in option on all questions

Put it online, or at least use the online tools:

Zoomerang.com – Online Survey Tool, (costs $ but does some fancy statistical analysis)

Surveymonkey.com – Free, but only simple analysis provided

Provide a treat / prize (lemonade on a hot day)

Keep it short, responders will be more willing if it really only takes 2 minutes

Bryan’s trick- Say its for your friend inventions, respondents will be more honest

In depth Interviews…

Introduce them to your product before meeting them

Send a list of questions in advance

Let the conversation drift into what they think, you will get more than just pounding away on your questions.

Conclusion

Do both, each has its strengths. The good thing is that they both compliment each other.

Survey Sample Questions

I just puilled these questions from a survey I did.

First Qualify the audience to your target market: Age, Gender, Children in household, etc

Do they feel the need: have you ever had a problem with X, what did you do, who was affected adversely, does this bother you?

How much would you pay for a product with these 5 features, where would you buy it and how many would you buy?

We are always here to help with new product development marketing, so feel free to contact us.

Why Research?

Sam — Wed, 06 Aug 2008 14:16:20 +0000

Research is very difficult. It can take days to sift through the internet just to make sure that there isn’t another product just like your idea online. Once you are fairly sure that right now (something could always pop-up tomorrow) there is nothing like it, you widen the net. Eventually you will find some similar products, but they are different, inadequate and off point. Having competition is not bad, but they need to be carefully analyzed. Is the competition a success? Probably not (because you didn’t find them off the bat), so the important question is WHY?

I found something interesting on Inventorspot, a website that shows new products. Behold SleepPhones in Fleece

As someone who did a project in the past involving the sleep assistance (audio visual and other) I thought this was interesting. Some of us do listen to music while falling asleep and some of us worry about being strangled by the wire of a set of headphones.

This inventor could have spent days searching for headphones in headbands and probably found several athletic applications. I wonder if the inventor widened the net? Widdening the net can be very hard, how can I take incremental steps backward from my invention towards the issue and find other competition? A quick keyword brainstorm delivers: sleep audio (mind machines, sleeping cds) sleep speakers and ahh on my second thought I found something interesting / threatening at least worth looking into. This brainstorm was not technology focused (although you should do one of those too) instead it was problem, customer and market focused.

We found: Sleep Therapy Pillow

LESSONS:

1. I am not saying the headband will fail because of the pillow. I am saying that finding competition can be easier if you start taking the customers perspective. Both products solve the issue of being strangled while sleeping, so from a customers perspective they are direct competition.

2. Competition like the pillow whether direct or indirect need to be thoroughly analyzed. How long has the pillow been on sale, how many have they sold, what is their growth like, where are they being sold? Think of all of the competitive products that are inadequate (not saying pillow or headphones are) as market trials of a prototype, the only issue is that you are not privey to the specific data (although with a few phone calls you might get some of them).

3. Lean from your analysis. If the pillows aren’t being sold there maybe several reasons. One reason that you should not ignore is the problem isn’t very prevalent and severe. It might be that the marketing effort was weak, so how would you do it better? Was the price too high, how does your price point compare (pillow $50, headband $60)?

4. When I was inventing, I practically lived on the internet. Searching for new competition, market data, technical breakthroughs can essentially eat up a year. It is important to take steps back from the data (search results) and do the analysis.