The midwife to new products
By Andrea McKenna
Take the label on a package of frozen peas. Most consumers stop reading after
they’ve determined that the package does contain peas. A fewer number look
at the weight to compare cost-per-ounce value. Even fewer read the caloric count,
consider the nutritional RDA percentages or read the ingredients closely, looking
for contents that could trigger an allergic reaction.
But every piece of information on a label is important to someone and so whoever
is creating the label better get it right. And that’s where the cost comes
in. Something as simple as the label on a package of peas could come under the
scrutiny of the marketing department for look and logo approval, the legal department
to make sure the RDA wording meets guidelines, nutritionists to make sure RDA
and ingredients information is right and copywriters to ensure the label contains
the right wording to prompt a purchase.
That’s just the label. Add to any new product the processes of formulation,
manufacturing and package design and eventually scores of people in various
departments are sending e-mails, returning phone calls and mailing or overnighting
specs on a regular basis.
Enter the Internet. Retailers are using the Internet in ever more ways in their
operations and now some have pushed the web about as far back into the process
as they can—to the creation of house brand products. Before a product ever
becomes part of the supply chain, the Internet is present as a midwife at its
birth.
Right before your eyes
“Using Internet technology is a fantastic tool for collaboration on new
products,” says John Padgett, general manager of b2b development for U.K.
supermarket chain J. Sainsbury plc. “All the parties involved in product
development can see one document that is being built up literally in front of
their eyes.”
Sainsbury is one of the first retailers to use collaborative product development
software to put the workflow of product design and creation into a web-based
process. Since January, Sainsbury has been using the new Collaborative Product
Development solution for internal product development from San Francisco-based
retail trading exchange GlobalNetXchange LLC. Sainsbury expects that web collaboration,
which is based on a workflow and specification management tool developed specifically
with Sainsbury for private label grocery products, will cut 11 weeks out of
a development process that takes 20 to 40 weeks. That will mean a 30% reduction
in costs as well as a 20% increase in revenue because new products will have
a longer life cycle, Padgett says. Sainsbury is so sure of the savings that
it is planning to develop 3,000 products this year using the collaborative solution.
GlobalNetXchange and Sainsbury created software that allows all the parties
in product development—which can range from food scientists to marketers—-to
work together using the web in a real-time, collaborative environment. Instead
of sending details, changes and suggestions back and forth via e-mail or paper
documents, they work on one online document that gives each party access to
certain areas to make updates and changes.
As Sainsbury and others prove the concept, more retailers are sure to adopt
such web-based design and sourcing technology, analysts say, because they will
be seeking ways to derive more profit from house brands. House brands have been
a barometer of the fortunes of retailers, rising in importance as consumers
look for deals and retailers need to squeeze more margin from their sales and
falling as consumers become enamored of brand-label status symbols. Today, house
brands are in the ascendancy again. “The biggest retailers of the world
are moving more and more into private label products,” says Peter Abell,
director of retail research at Boston-based AMR Research Inc.
House brands offer margins of about 27%, taking into account all manufacturing
and marketing costs, while brand name products offer 15% or less, Abell says.
In some cases, the private-label margin can reach 40%.
With the right approach, retailers can turn house brands into desirable brands,
as J.C. Penney Co. Inc. has accomplished with its Arizona brand jeans, thus
creating brand cachet with consumers. “Branding of the retailer and creating
unique products with private label goods is as important as the profit margins,”
Abell says.
Keep ‘em coming back
And rapid development of house brands can be a way to keep customers coming
into stores, Abell says. U.S. retailers take up to eight months to execute new
products, he says, which is not fast enough to capture new customers. “If
consumers go into stores once every three months, how will retailers appear
fresh in the consumer’s mind?” Abell says “That’s the real
key area that especially apparel retailers have lacked.”
And while the early adopter in this case is a supermarket, analysts say other
retail categories can easily adopt collaboration software for product development,
especially in apparel. Several vendors, including Richmond, Calif.-based QRS
Inc. and New Generation Computing Inc. of Miami are promoting solutions which
are just now being implemented by undisclosed retailers in early testing modes.
Wilsons the Leather Experts Inc. is using a New Generation Computing solution
to help coordinate sourcing efforts (see accompanying story). And Schwab Inc.,
which owns and develops the Ralph Lauren line of children’s clothes, uses
a QRS sourcing product to maintain quality control over the sourcing and product
development process at factories around the world.
With margins thinner than other retailers, supermarkets have a greater dependence
on house brands. Today, the grocery segment relies on 22% of sales to come from
private label products. Increasing the margins on those products could show
immediate results on the bottom line. And that is why Sainsbury has become an
enthusiastic adopter of online collaboration for house-brand products.
Online collaboration connects up to 12 parties at three organizations involved
in creating a new grocery product, including at Sainsbury, the suppliers and
the manufacturers. About 900 suppliers are involved in the Sainsbury program
for the development of such products as beer, skincare products and frozen foods—all
of which center around the use of a recipe, which the CPD system is specially
designed to handle.
“The development process is broken down into tasks with a time scale on
each task so we have a predetermined workflow,” Padgett says. “This
gives us much more control over the products. We believe that with tasks being
assigned with a time period that we’ll get out new products to the store
shelves much faster.”
And that means greater profitability. “We know the incremental profit
from new products and we have calculated the benefit of being in the market
weeks before the conventional process would have allowed,” Padgett says.
Such efficiency also allows Sainsbury to leverage resources, Padgett says.
“Because CPD improves efficiency in project management our teams can do
more development projects,” he says. Furthermore, using a single system
that all can view results in fewer errors.
Follow the recipe
Although there is a trend toward moving product development online, from sourcing
material in factories to modifying product designs on the fly, GlobalNetXchange
and Sainsbury had to develop a grocery-specific solution to meet the segment’s
needs. “There was not a product out there that combined the workflow automation
with the necessary technology specs for private label grocery product development,”
says Anne Driscoll, GlobalNetXchange product manager for CPD. “The workflow
tools off the shelf did not understand grocery product development needs, which
require several different levels of specifications ranging from safety, quality
and legal due diligence to nutritional information, testing and process controls.
The grocery segment needed a niche product.”
Driscoll says the Collaborative Product Development solution ties all the pieces
together. “The biggest benefit is that it is based around the product recipe,
anything where there is a complex list of ingredients, such as cleaning products,
food and beverages,” she says. “Anyone in product development can
be included with this software.”
The workflow aspect of CPD allows a retailer or manufacturer to create templates
for each part of the development process. Each party is alerted when the process
requires that person to perform a function. This allows multiple parties to
work simultaneously on one document, giving them access only to what is relevant
to them.
Package artwork, for instance, may have to go to the marketing department to
approve the logo, the legal department to check on ingredient listings and the
copy department to check for wording. “There’s a lot of inefficiency
in moving all this information around and things can get lost along the way,”
Driscoll says. “But CPD ties the input of information together and cuts
down on the approval time. Each party can verify the information and send in
approvals or suggestions for changes using an easy messaging tool that is part
of the software templates.”
GlobalNetXchange hosts the application, which is accessible to employees via
the web using a password and ID. Users pay a yearly licensing fee based on usage.
GNX and Sainsbury did not disclose their investment costs for the solution.
So far, the potential drawback to this type of solution is the radical change
in business processes and the hesitancy of retailers to adopt them. Until the
technology proves itself, retailers won’t adopt it in significant numbers,
says AMR’s Abell. That hesitancy is one reason that having GNX host the
application makes sense, he says. “This is a good application to have on
a web-based exchange like GNX because it’s relatively new to retailers,”
he says.
andrea@verticalwebmedia.com
