Wednesday, 21 September 2016

Role of Logistics in the New Product Development (NPD)

In today’s highly competitive environment, logistics plays a key role in any firm’s success. It also plays a critical role during new product development (NPD). There are several literatures available about the importance of different logistics activities at the time of NPD, but there is a gap of literatures to find out the most important activities during this period. This research work explores the most important logistics activities in a chemical industry specifically during NPD. The in-depth analysis and multiple case interviews enable me to identify few critical aspects of logistics during NPD in a chemical industry.

In the entire thesis, theories are presented from literature reviews, and then analysed by real-life cases from AstraZeneca, Tikkurila, and Aerosol Scandinavia. Several interviews have been conducted with the supply chain and product development professionals of these industries. A qualitative method has been employed, in order to achieve more precise and deep understanding about this topic. The finding of this thesis suggests that customer service, procurement, plant and warehouse site selection, traffic, and transportation are the most important logistics activities, on which organisation should focus to enhance the performance of a new product.

Key words: - Logistics, New Product Development (NPD), and Chemical Industry.

Brief Description-

In recent years, industrial firms are concentrating on product innovation to satiate the customer’s dynamic need, and to sustain in the increasing global competition with the ever-changing technological phenomenon (Cooper, and Kleinschmidt, 1991). For many firms, an innovative new product is an essential criterion for long-term survival (Zacharia, and Mentzer, 2007; Balbontin, et al., 2000). It gives customers an additional reason to buy their products avoiding low margins (Fisher, 1997), creates new sales and profit (Takeuchi, and Nonaka, 1986), provides sustained growth and competitive advantage (Cooper, 1990), raises industry standards, attracts human resource, exploits non-utilized R&D discoveries, and builds confidence and momentum for the management (Wheelwright, and Sasser, 1989). 

In today’s highly competitive globalised environment, NPD is one of the riskiest yet most important management challenges (Cooper, and Kleinschmidt, 1991). Firm’s market position will deteriorate without the introduction of new products for long-time (Yelkur, and Herbig, 1996). Previous research by Kellogg School of Management reveals that products less than five-years and one-year-old generate around 50 percent and 10 percent of company’s revenue respectively. According to Hanfield et al. (2002), 40 percent or more revenues come from new products introduced in the previous year. From the interviews of supply chain and production development professionals, I knew that new products (< 5 years old) in Tikkurila (paint industry) bring approximately 10-20 percent of total profit. For aerosol industry, this profit is around 25-30 percent even for the product less than 2 years old.

From the response of the professionals of AstraZeneca, Tikkurila, and Aerosol Scandinavia, I found that there are several motivational factors play key roles at the time of NPD in these chemical industries. Management also faces several challenges during this period. Management takes some primary strategies to increase the success rate of newly developed products. These several motivational factors, challenges, and primary strategies are plotted below using 'Likert' scaling technique (1-5 scale, 1-not important, 5-most important) from the ranking (average) of product development and supply chain professionals of these industries. 

In the process of NPD, Supply Chain Management (SCM), as well as Logistics plays significant roles. Here, I experimented qualitatively through case study research over fourteen logistics activities related to NPD in the three chemical industry contexts. I found critical logistics activities during NPD are customer service, procurement, plant and warehouse site selection, traffic and transportation, warehousing and storage and logistics communication (Fig. below).

Fig: Importance of fourteen logistics activities during NPD (according to industry professionals)

On the other hand, according to my opinion, sustainability issues like energy preservation and pollution reduction policies should be integrated in the innovation process to save our planet from environment’s harmful effect as well as to reduce the cost of the new product.

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