Supply Chain Impact - Research and Development
Supply chain impacts almost every function of your company.
Casual observers might think I’m biased. But those who read these pages closely will recognize that supply chain is not only the coolest thing going and the team you really, really want to be on – but supply chain also impacts almost every other function at your company. Simply put, supply chain really is the best place to be in the entire world.
Is Supply Chain Really The Coolest Thing In The World?
So, okay, I might be biased.
But not too far off base. Supply chain does impact almost every function at your company.
Yes, Because What Else Can Do This?
Let’s take a look at the supply chain impact of just one of those other functions – Research and Development (R&D). Typically, R&D departments operate outside the constraints of the real world. The R&D world is one without cost of goods concerns or inventory valuation or on-time delivery metrics.
Sometimes R&D engineers or scientists have their own purchasing person. More often they just order what they want from whomever they want. Oh yeah, R&D also lives in a world free of approved supplier lists.
Don’t Get Me Wrong
R&D is important. Okay, okay – it’s critical. Without someone researching and developing new products, we’d all be staring at the mastodon herds wondering how in the heck to take one of them down and eat it.
And without R&D anticipating the next generation of consumer demand, televisions would still come in wooden boxes and Pizza Hut would never have put cheese inside its crust.
Yes, life is better because of R&D. But it’s one thing to research and develop a product. It’s quite another thing to get that thing under every Christmas tree in North America.
For that, you need supply chain. And not just any old supply chain. An optimized supply chain.
If your company doesn’t have a process that transitions products from R&D to commercial production, feel free to create one.
In some instances, there’s an intermediate step – between R&D and commercial production – where the kinks are worked out. That intermediate step can be a department that goes by New Product Introduction or Onboarding or Pre-commercialization – and they should be working with the same supplier base that the commercial side’s supply chain team uses.
Before a product leaves the sterile comfort of R&D, it needs to be vetted by lots of folks. Marketing will figure out if it’s viable in the marketplace.
Sales will figure out if it’s sellable.
Manufacturing will figure out if it’s makeable and at what cost.
In some cases, Regulatory will provide input as to how long it’ll take government agencies to approve it.
You might have a team of people trying to figure out if governments or insurance agencies feel your new product provides enough of a benefit over what’s currently in the marketplace, so that they’ll either pay for it themselves or reimburse consumers for your product.
And then, of course, Finance will come in and shoot the whole idea down. Cost of goods might be too high. Or the retail sales price might be too low. Or the margins might otherwise too thin.
Supply Chain To The Rescue
Consider this case study: There once was a supply chain manager. Let’s call him Roscoe. Roscoe works at a golf club company.
- The R&D guys develop a super awesome, next gen driver.
- Manufacturing determines cost of goods on the new driver is 10% higher than the current driver.
- Marketing tells R&D that if they made the driver head glossy black, that’d be the hip thing to do.
- Manufacturing ups the COGS estimate.
- Finance steps in and says no.
There’s no way to get the selling price high enough to justify such a high COGS. Roscoe joins the fray.
He flies to China and negotiates the COGS down. A successful next gen driver means higher demand (thanks to the glossy black driver head) and volumes go up, inventory is held optimally throughout the supply chain.
- R&D is happy.
- Marketing is ecstatic.
- Sales rocket skyward.
- And Finance moves on to find the next village to plunder.
Yes, optimizing supply chain is more awesome than eating a bacon cheeseburger on a roller coaster, while U2 performs live in the next car.