Ever wondered what impact your product design decision has on the supply chain? Collaboration between marketing, product development, finance, procurement and supply chain teams saves costs along the value chain and gives your brand a competitive advantage.
A product might be attractive for customers but drive unnecessary supply chain costs because of the impact the product design has on sourcing, packaging, production, warehousing and transportation. 70-80% of the cost of goods of a product is decided at the development and design stage by factors such as the number of materials and components, country of supply, lead time of materials, standardization of parts across the product portfolio, physical characteristics, and the complexity of the product.
How can product design impact challenges and costs along the main elements of the supply chain?
The number of materials in a product and from where these materials are sourced have big impacts on the supply chain costs. Packaging from China might be very price competitive, but the lead times are long, require large minimum order quantities, can be complex to source, and quality is more difficult to control than when sourced more locally. If the products contain unique ingredients that can only be sourced from one supplier in a remote part of the world, transportation can get costly and the dependability on the supplier can be risky. Involving supply chain and other cross-functional teams during the design process helps answer design and materials questions that solve problems long before they happen and ultimately improve timeline efficiency.
Production costs are often driven by the complexity of the materials and the ability to produce in high volumes. Product standardization and common components that are used in many different products reduce the requirements for changeovers on the production lines and for high inventory. The right design decisions can help to standardize core manufacturing processes and minimize customization and differentiation until late in the production process. Product design is an important factor in determining the level of standardization during the production process.
Most warehouses have standardized rack dimensions and store products on pallets. Ideally, the packaging of products allows optimization of the tie (number of cartons on one layer) and tier (number of layers of cartons) of a pallet pattern. This not only maximizes the space on a pallet, but it also provides better stability and protection of the products. Some POS product displays may not fit into standard racking and are therefore more expensive to store. POS displayers and other packaging material can be stored flat and assembled shortly before shipping. Retailers also prefer products that take up less storage space and can be stacked easily.
Volume and weight of products drive some of the main costs in transportation. This applies to road transportation as well as sea and air freight. Sometimes more expensive, lighter materials are more cost effective to transport and have a positive overall impact on the cost of goods. For ecommerce, the design of the products can determine how much packaging is needed to protect and ship the products.
So how do we prevent development and design decisions from having a negative impact on the supply chain? In many companies, supply chain and procurement teams don’t get involved in the product design processes and only learn about a new product when they are asked to order the materials. Product development and design teams don’t always have the ideal materials and processes in mind while designing a new product, whereas supply chain generally has a better understanding of the process, material, and component availability required to produce a product efficiently and effectively. A study in 2017 by management consultancy Bain & Company showed that a cross-functional design process lowers costs by 38 per cent compared to a silo approach. It is essential that supply chain teams are involved at an early stage of the product design phase and that marketing, product development, procurement, finance, and supply chain teams closely collaborate during the entire process.
About the Author
Rene Jacquat is the founder of LogiChain Solutions, based in San Francisco, United States. His experience includes operations, supply chain management and logistics in the consumer goods industry. Rene provides comprehensive support and solutions to food & beverage companies to scale operations and optimize supply chain while considering sustainable practices throughout all elements of the value chain.