4 Challenges for Procurement in Launching New Products

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Procurement Technology

Almost every business faces the challenge of launching new products at some point. For procurement officers, this can be a particularly daunting task. There are several things to take into account when procuring for a new product, from ensuring you have the correct supplies to planning for potential delays.

Launching new products can be challenging, but it’s in the best interest of companies to make sure that procurement plays a central role. Procurement departments are often overlooked when introducing innovative ideas or developing successful innovations for their clients; this overlooks how important these individuals really are (Gartner 2017).

Here are four challenges the procurement teams, around the world, may encounter when launching a new product.

1.Unreliable supplier assessments

Supplier assessment

Without a reliable supplier, the entire launch could be at risk. Unfortunately, supplier assessments can often be unreliable, particularly during the early stages of a launch. This is often due to the fact that suppliers are constantly changing, and it can be difficult to keep up with the latest changes. In addition, supplier assessments are often based on assumptions and guesses, rather than actual data. As a result, they can often be inaccurate. The best way to avoid this problem is to conduct multiple supplier assessments during the pre-launch phase, in order to ensure that you have a reliable supplier.

For example: When in 2016, Samsung decided to launch the Samsung Galaxy Note 7, they chose to get the batteries, manufactured & supplied by a 3rd party manufacturer, at the time, it just seemed to be like a great option where they wouldn’t have to spend a lot by building it themselves, all was well until the first reports of the devices exploding came to light after the launch and they had to recall 2.5 million units. This could have been avoided if they had verified their supplier’s skills and credibility in advance but again, there’s no one way to assess the suppliers and this costed Samsung a loss of a lifetime.

2.The opportunity cost of a late launch

Opportunity cost

The opportunity cost of a late launch is the loss of potential benefit that could have been gained had the launch been timely. In other words, it’s the “cost” of not taking an opportunity when it was available. This opportunity cost can be thought of in terms of both financial and non-financial factors.

For example, if a company delays the launch of a new product, it may miss out on first-mover advantage and market share. Additionally, it may incur higher costs due to increased competition. opportunity cost is an important consideration when making business decisions. By understanding the opportunity cost of a late launch, companies can make more informed decisions about when to bring new products to market.

Like in 2017, Apple launched their iPhone X 3 months after it’s planned launch date which gave their biggest competitor Samsung a chance to gain 7.1% market share in the United Kingdom, even though the iPhone didn’t fail but not all products are as lucky. The First

Mover’s Advantage is something all organisations need to be mindful of and failing to recognise this only leads to losses at the very launch of the product.

3. Failure to get the right cost estimate

Cost estimate

When it comes to a new product introduction (NPI), accurate cost estimation is essential to ensuring that a project comes in on budget and on time. There are a number of factors that can impact the accuracy of a cost estimate, including the complexity of the project, the experience of the estimator, and the availability of data. However, even with all of these factors taken into account, there is always some degree of uncertainty when estimating costs. As a result, it is important to have contingency plans in place in case the actual costs end up being higher than expected. Failure to do so can lead to serious financial problems down the line.

With a manual loop of collecting, updating and calculating new product expenses, NPI teams are unable to take full advantage of their data and analytics capabilities. However, this is not a faultless procedure, and there are times when products are launched at a price that is higher than the desired price, or worse, at a price that is unknown. To address these concerns, procurement teams frequently reevaluate and resource selected suppliers after launch in order to reduce prices. Although there is nothing wrong with resourcing to find a better supplier, it is a better notion for Procurement to concentrate its efforts on strategic projects rather than filling gaps created by inefficient processes.

4. Unable to forecast the demand leading to shortages

Inventory shortage

Many businesses have struggled in recent months due to the global pandemic. One of the biggest challenges has been forecasting demand, which has led to widespread shortages. Low inventory levels have made it difficult for businesses to meet customer demand, leading to frustrated customers and lost sales. The root cause of the problem is the failure to forecast demand accurately. Businesses need to be more proactive in their demand planning, using data and analytics to anticipate customer needs. They also need to improve their procurement processes, ensuring that they have the necessary raw materials on hand to meet demand. By addressing these issues, businesses can avoid the costly consequences of shortages.

When it comes to business, the importance of being prepared cannot be underestimated. Just ask Ericcson, a once-dominant cell phone manufacturer that was dealt a devastating blow when its lone semiconductor supplier suffered a terrible natural disaster in 2000. The disaster destroyed thousands of devices beyond repair and necessitated a multi-month shutdown for repairs, leaving Ericcson scrambling to catch up. The company was forced to slash prices and offer incentives to lure customers back, but the damage had been done. Ericcson’s market share plummeted, and it has never recovered. Today, the company is but a shadow of its former self, a cautionary tale of what can happen when you’re not prepared for the worst. Manufacturers must be equally equipped to deal with risk and increased product demand.

In conclusion, we can say that even though procurement can be a challenge, it is not insurmountable. With the right knowledge and tools, you can overcome any obstacle in your way.

At Zycus, we want to make sure your procurement experience is as smooth and successful as possible. Our team of experts have put together a comprehensive suite of services that will take care of every step of the procurement process for you. Read more about our procurement solutions or contact us today for a demo. We would love to hear from you and help make your next product launch a success!

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