e.Digital Corporation (fka EDIG)

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OT,but interesting-Collaborative product commerce--the next frontier The next big differentiator for technology companies will be the ability to harness collaboration for new-product development. Many of the tools exist today.-

Thought Leadership Series: Part 2
By Peter Williams and Marilyn Stemper, EBN
May 7, 2002 (9:29 AM)
URL: http://www.ebnews.com/story/OEG20020507S0026

The Internet revolution of the 1990s was just so much prologue for the next wave of business-to-business commerce: collaborative product commerce, or CPC. Electronics companies can realize significant gains in operational and financial performance by applying the principles and tools of collaboration to the design of new products.

In the late 1990s, businesses began with basic transactions online, then moved to supply chain visibility and shared forecasts. Standards organizations such as RosettaNet tended to follow, and

reinforce, the same sequence with the development of industry standards. Along the way, as outsourcing gained momentum, collaboration between companies became the focus. Core capabilities were developed, and executives recognized the ability to differentiate their corporate capabilities by adopting collaborative architectures.

In the 2001 recession, businesses that had embraced collaboration often fared better than those that did not. Now, as the electronics industry's recession comes to an end, companies with collaborative supply chains and collaboration experience are best positioned to benefit from CPC.

CPC is the application of the same collaborative ethos and Web technology used in b2b commerce but applied to the disciplines of new-product introduction (NPI) and product lifecycle management. It's an important area of focus because the design process is growing too complex for traditional processes to handle. (See diagram on page 32.)

Indeed, there are a number of factors driving the trend toward CPC:

- Efficiency. Some 70% to 80% of a product's lifecycle cost is fixed during design. Cheaper products increasingly win business-and allow their makers to retain margin and stay ahead of market- and competitor-driven price deflation curves. This in turn drives engineering cost out of the products themselves and cuts time and cost out of the processes that created them.

- Customization. Even mass-market products are increasingly customized, with more options, frequent bundling of intellectual property (IP), and smaller production runs. Profitability demands multiple products based on configurable platforms and speed and flexibility in the customization process.

- Technology evolution. Products are evolving with more and more IP being packed into smaller and smaller spaces. This is especially prominent in the semiconductor field, with ever-greater gate densities, but also in consumer devices and other equipment. The processes to integrate this IP and create the end product become increasingly complex.

- Speed. The in-market life of many electronic products is decreasing, in some cases to six months or less, so a week's reduction in time-to-market and time-to-volume may be material. The ability to get products to market rapidly becomes even more critical. Design cycles can no longer take 18 to 24 months when best-in-class companies are applying collaborative design techniques to reduce them to 11 to 15 months or less.

- Leveraging IP. Many businesses are responding to the increasing speed of product evolution by leveraging the IP they already own to avoid reinvention or re-sourcing. This requires careful cataloging and management of patents, designs, components, assemblies, etc. to maximize reuse.

- Disaggregation of value chains. The design process now has separate niches for IP owners, contract designers, solid modelers, layout specialists, integrators, and others. There is also a growing stress on “DFx” (design for manufacture, design for lifecycle cost), requiring further specialist contributions, often in parallel. Getting products to market therefore requires managed collaboration between many players based on shared processes and data.

- Exploiting the art of the possible. Industries such as defense or civil engineering have always sought to collaborate because aircraft carriers or oil refineries are too complex to build without it. What is different now is that the tools, bandwidth, access, and increasingly the standards are available to make integrated, collaborative online design and development feasible for smaller products such as PDAs and third-generation wireless phones. The fundamentals of CPC leverage investments already made in e-procurement, inventory consolidation, collaborative planning, CRM, and data federation.

The bottom line is that new-product development represents an area of immense value that, for the most part, collaboration has still to realize. In response, companies are focusing their efforts on:

- Re-engineering NPI processes to exploit the scope of CPC technologies to support more concurrent activities and manage risk with standardized process controls and automation across disaggregated engineering value chains.

- Supporting this re-engineering by integrating product data to create a single logical view of the product across all relevant players.

- Integrating engineering design with production sourcing.

- Linking parametric data with available inventory components to assess IP reuse by cost as well as design criteria.

Collaborative product commerce is the application of e-business to all product lifecycle activities, providing a cohesive framework to address issues related to product development, commercialization, and lifecycle management across the extended enterprise.

In its most fundamental form, CPC helps companies engineer both time and risk out of NPI processes by promoting process concurrency. The focus is on speed and defining a set of product introduction processes with clear stages. Each stage has a go/no-go gate to help manage risk.

The CPC framework includes modular process definitions to accommodate different development and analysis requirements for each new product based on shared workflow and shared visibility of process, analysis, and outcomes. Equally important is the creation of a single logical set of product data-an integrated product data environment-that can be used across the full lifecycle of a product by all players inside and outside the enterprise.

Based on work with early adopters of CPC techniques, we found that average performance entitlements over a four-year benefit cycle can yield many concrete business improvements. These include:

- Cutting proposal/quoting cycle times by as much as 50%;

- Improving cycle time up to 25%;

- Boosting first-pass yield up to 90% from as low as 10%;

- Raising performance-to-schedule 95% from an industry average of 50% to 60%;

- Reducing nonvalue-added work up to 60%;

- Cutting new part number introductions up to 10%;

- Paring new part number introduction costs up to 20%;

- Reducing the number of engineering change orders up to 25%, with cycle time reduction up to 60%;

- Eliminating manufacturing scrap and rework reduction up to 15%.

Significant as these benefits are, however, in some ways they miss the real point of CPC-creating better products. Other benefits include boosting the in-market life of products by reducing time-to-market and, if integrated properly with supply chain and operations management, reducing time-to-volume.

CPC also increases product reliability and reduces risks in product introduction. And from an engineering standpoint, CPC helps improve capacity, product innovation, and the effective use of IP.

CPC provides value when it is the foundation of a product realization core competency. This consists of four enterprisewide capabilities built on a common data and technology foundation. (See chart on page 36.) While the benefits of CPC are evident, CPC is both technologically and behaviorally harder to achieve than the fundamental elements of supply chain collaboration, and the risks of getting it wrong are higher. What follows is a discussion of the four critical capabilities and how CPC supports them.

1. Product lifecycle management

Some 46% of all resources spent on the development and launch of new products is wasted on products that either never make it to market or fail upon arrival. Of those products that do make it to implementation, between 60% and 90% do not meet customer expectations, depending on the industry. The design goals of the product lifecycle management capability are to improve these odds by employing:

- A through-life focus on the product that includes design, production ramp-up (time-to-volume), introduction to the market, in-life yield management and planned upgrades, and end-of-life management.

- Maximum process concurrency, which takes time out of the process and prevents otherwise elegant designs that prove too difficult to source or manufacture in a timely fashion or are not to the customer's liking.

- An organizational format that supports process concurrency by integrating disciplines involved in the lifecycle-design, sourcing, manufacturing, marketing, suppliers, and customers-from the outset. The key components here are two-fold: multidisciplinary teaming and clear accountability for the combined outputs of the team.

- A clear overall process based on a set of stage gates that allow risk to be managed and controlled with clear go/no-go decisions. Companies need modular process and workflow segments within each stage gate to allow the design process to be configured to fit the product in question.

The CPC foundation provides the single logical product data set that supports concurrent activity based on shared visibility of that data, as well as supporting the workflow that defines each contribution and when it is required in the process. Procurement and SCM professionals have a critical role to play in product lifecycle management because supplier management and supply chain improvements often make up a large part of the business case for CPC.

For example, they provide up-to-date listings and catalogs of qualified suppliers and parts to other departments within the company and to supply chain partners such as contract manufacturers. This helps prevent requalification of parts and the excessive growth in the supplier base. They also manage the approved-vendor list and the design-win process.

2. Product portfolio and IP management

One important aspect of portfolio management is the competitive management of a company's products. Our research has shown that products first to market, compared with the second entrant, achieve 43% greater market share, 26% higher profits, and a 214% increase in return on investment.

Good product portfolio and IP management ensures that the total set of the enterprise's products and services supports-and will continue to support-its position in the market. Its design goals are to provide the processes, organization, and systems to:

- Support regular environment scanning-the market, customers, competitors, technology trends-and relating these to product requirements.

- Manage R&D priorities and measure R&D return.

- Support portfolio definition, identifying or creating key product platforms that will allow families of variants to be spun off with less investment and requiring less development time and fewer new components than creating each separately.

- Manage the portfolio-for example, by measuring the ROI across the product portfolio as a whole rather than by individual product-to allow the possibility of failure that must accompany effective innovation.

- Clearly allocate portfolio and product management roles and accountability so that they work together, not against each other.

- Catalog and leverage IP, including technology patents, assemblies, and components that may already exist. Also catalog solutions to previous problems, including such mundane things as components that may already have been qualified. There are two objectives here: exploit the company's intellectual assets to the fullest possible extent, and avoid recreating these processes. Best-practice companies protect IP and leverage a separate product or profit center in its own right.

The CPC foundation provides the tools for environment scanning and portfolio management and offer visibility into the company's intellectual assets.

3. Collaboration management

Collaboration management capability provides the strategy, process, and systems infrastructure for identifying, negotiating, and executing the partnerships the business requires. These can range from IP acquisition or access through contract design services and contract manufacturing. Key issues that are frequently the preserve of procurement and SCM professionals include:

- Choosing and qualifying partners;

- Negotiating agreements;

- Integrating partner contributions into the lifecycle process, including end-to-end design and operation of processes that span organizational boundaries with minimum handoff errors and delays;

- Managing the relationship-partner performance, metrics, returns, etc.

The CPC foundation provides core connectivity, the shared visibility of product data and workflow that supports effective partner contributions to the lifecycle of the product, and effective management of partner issues and performance.

4. Innovation management

This is the most frequently overlooked element of the product-realization core competence because it has been the least quantifiable. Innovation management includes the ability to conceive, find, evaluate, and bring to fruition ideas for new products and processes. Some businesses fail to capture the ideas. Some capture them but subject them to excessive scrutiny or hurdle rates that kill them when they might otherwise be valuable. Some have a blame culture that punishes failure and discourages risk taking. Other businesses go in the opposite direction-they fail to test and filter ideas sufficiently and pursue too many leads, thus losing momentum or coherence and wasting investment.

New-product revenue as a proportion of total revenue is a key performance measure for today's leading technology companies. The key to effective innovation is balance, which is achieved through:

- Effective envisioning and idea search processes;

- An “idea capture” mechanism;

- Balanced and effective evaluation criteria-effective in the sense that ideas that pass get senior management backing and ideas that do not are discontinued;

- A culture that supports ideation and rewards the personal risk that innovation requires. It should reward rather than penalize “honorable failure.”

Innovation is not just the preserve of new products. Innovations in the design process, the supply chain, and in component and supplier management are just as critical to the overall success of new products-and to margins-as innovations with the products themselves. Procurement and SCM professionals should therefore be as centrally involved as product engineers in innovation management.

The CPC foundation helps support innovation with the IP search and management functionality discussed above. It also supports the processes required to evaluate and filter innovative product ideas.

How to implement CPC

For all the immense benefits that it can offer, CPC is technically and behaviorally difficult to implement, and in our experience, there are a number of key strategies for success:

- Prioritize and modularize your effort and select only those areas corresponding to your vision. The full suite of CPC systems in the foundation is large and complex-implement it in stages, albeit with a clear overall vision and end goal in mind.

- Be clear on the benefits you need. As an example, reducing manpower or cutting cost may not create value in getting your product to market ahead of the competition. Is it about cost, speed to market, or volume? IP leverage or innovation? Establish design goals, implement processes and functionality that deliver on these goals, and develop the metrics that encourage them to happen.

- The things that waste time also create cost. Re-engineer for time and cost reduction follows. Re-engineer for cost and you may reduce capability and end up adding time.

- Organize for concurrency. Data and workflow are useless without a clear organizational concept covering multidisciplinary teaming and accountability for outcomes.

- Organize for customer involvement as you'd organize for concurrency.

- Organizational change has long been touted as the key to success or failure for most corporate initiatives, and CPC is no different. Businesses need to overcome the “fences” that have been built between operations and engineering and between both of these and marketing. This can be difficult because engineering is an area that hasn't seen large corporate initiatives since the 1980s when concurrent engineering was in vogue. With the need to offer quarterly product upgrades, many technology companies will enter cautiously because none will want to disrupt the lifeblood of product creation.

- Don't necessarily assume a monolithic architecture that requires a huge data conversion effort and centralized control. But if you do have a more federated vision that allows data to remain on legacy systems, be sure to engineer data management and update processes that keep the different data sets synchronized and up to date.

Peter Williams, a director at PwC Consulting in San Francisco, specializes in collaborative design and CPC.

Marilyn Stemper, a PwC Consulting partner, leads the Collaborative Product Commerce practice in the western United States and also consults directly for Fortune 100 clients in the high-tech industry.
http://www.ebnews.com/story/OEG20020507S0026
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