kurt salmon white paper consumer driven product development

Consumer-Driven Product Development

www.kurtsalmon.com

Retail and Consumer Brands Insights

2 PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? KURT SALMON GERMANY

Consumer-Driven Product DevelopmentToday’s fast changing and less predictable fashion market environment makes it increasingly challenging for retailers and brands to develop the right pro-ducts in time. Product life cycles become ever shorter and consumers change their preferences from one day to another without prior notice. Industry leaders have turned their product development processes, organisation and systems into a distinctive competitive advantage. They succeed in developing the right products in a time- and cost-efficient way – at an increasingly improved speed-to-market.

A competitive product development translates right back into higher margins. According to a re-cent Kurt Salmon study, each week of lead time reduction results in a 0.25 percentage points in-crease of maintained margin. Kurt Salmon regular-ly benchmarks fashion retailers and brands across the globe on five key performance areas in product development:

Effectiveness: Is a closed-loop planning and controlling process in place to develop the right products? Are consumer insights incorporated in the most effective way?Efficiency: Is the product development time- and cost-efficient? Are the right processes and KPIs in place to measure development efficiency? Calendar Management: Is the calendar properly managed to achieve competitive go-to-market calendar lead times? In total and by individual process step? Organisation: Is the organisational structure (team set-up, location and reporting lines) ap-propriate to support effective and efficient de-velopment? System Support: Do current systems solely man-age product data (PDM) or do they support the complete product life cycle including workflow, internal and external collaboration (PLM)?

Effectiveness – Are you developing the right products?An effective product development uses planning data, trend information and market feedback in a structured, proactive way to create consumer-rele-vant products that lead to increased adoption and hit rates and an improved sales and margin perfor-mance.

line/ buy plans, resulting in a clear and strategy-conform framework to design and develop into.

approach with structured input from countries, key accounts and own stores on future assort-ment needs.

assortment down to product attribute level, based on sell-through data from key accounts and own retail.

and future competitors’ activities, trend research, customer and consumer feedback on ideas, con-cepts and line previews, thereby also leveraging new media (e.g. social networks).

consumer needs as well as optimising product price/ value.

-velopment process to ensure full integrity with financial and assortment plans.

Kurt Salmon has helped many retailers and brands improving their effectiveness in product develop-ment, leading to a better financial and operational performance (cf. figure 1).

Financial Performance

Improvements

Operational Performance

Improvements

sales of 2 - 5% through greater customer relevance

margin of 1 - 3 percentage

points through better sell-through

style adop-tion rate by 25 - 40% through structured market data input

style hit rate by 15 - 20% through shorter cal-endar lead times

Figure 1: Performance improvement through effective product development

www.kurtsalmon.com PRODUCT DEVELOPMENT – ARE YOU COMPETITIVE? 3

Industry leaders do not only plan their margin tar-gets upfront but also keep track of them through-out the development process if products are changed. They are able to translate the require-ments of their consumers in terms of quality, inno-vation, fashionability and price into detailed techni-cal and cost implications for product components and production processes. As sourcing costs have seen a steep increase due to higher cost for mate-rials and labour, engineering skills have become a competitive advantage again. Understanding fab-ric and component prices as well as workmanship allows a more accurate product costing based on design, Bill of Material and technical documenta-tion. It also sets a proper basis for a systematic value engineering by

optimising costly, but non-value adding product attributes or components, replacing materials (e.g. fabrics, trims, acces-sories) through lower cost alternatives of same value from a consumer point of view,differentiating quality requirements for work-manship in products (e.g. number of stitches per centimetre) instead of seeking same high quality standards for all products.optimising engineered production together with suppliers to reduce production minutes.

Efficiency – Are you developing the products right?Leading companies have put various best prac-tices in place to optimise their process efficiency, i.e. to avoid any unnecessary time and cost during

the product design and development process. These best practices are all based on the following five basic principles:

Parallelising activities, e.g. by blocking materials upfront before PO placementSpeeding up activities, e.g. by shifting techni-cal developments to Asia reducing coordination time with suppliers, or by differentiating costing according to product type Synchronising activities, e.g. by avoiding waiting time between design and technical development through better workload balancing and stag-gered designDifferentiating activities, e.g. by differentiating costing and technical specification level of detail according to level of fashionability of productEliminating redundant activities, e.g. by reduc-ing prototype/ sample iterations

A prominent example of where those principles fall into place is material management. As fabric is a core element of the critical path, earlier fabric availability is a key driver for lead time reduction. Upfront blocking reduces waiting times during the development process and bulk production by 4 - 6 weeks. Early and evolving material commitments to suppliers also reduce cost and improve quality, especially if they go along with the consolidation of different materials.

Industry leaders increasingly leverage overseas of-fices for additional activities at the source to sup-port faster decision making and reduce coordination times. They shift, for example, product development, approvals of material, lab dips and samples at dif-ferent stages to overseas counterparts. Kurt Salmon has supported many retail and brand clients in de-fining roles and responsibilities of their overseas of-fices and interfaces with headquarters.Staggered design and development has proven to be a key driver for higher efficiency. It comprises three basic principles:

Start your product development with long lead time products. Long lead time can be due to complexity of design, technical specifications, materials and/ or workmanship.Postpone developments with high demand risks to a later point of time. High demand risks go along with high fashionability and can refer to the full style or single attributes such as material, colour and shape.Stagger handover of completed work packages to the next function (e.g. from design to techni-cal product development) instead of waiting un-til 100% completion of the full collection.

Differentiating multi-step costing, technical speci-fications and prototype sampling is another state-

Kurt Salmon Success Story: Product Development Revamp at European Sportswear Brand

Background: The brand had made substan-tial progress in their move from a manu-facturing-driven wholesale organisation to a consumer-driven brand organisation with a growing retail business; at the same time,

product development processes and the related organisational structures remained centered around a manufacturing-driven mindset.Approach: Kurt Salmon supported the client in benchmarking and developing the future calendar vision and in defining the to-be pro-cess and organisation including FTE require-ments, interfaces with product management and sourcing, split of roles and responsibilities between headquarters and overseas sourcing offices.Result: 12% reduction of total lead time and EBIT increase by 3.5 percentage points.


of-the-art approach to reduce time and cost during the definition of product requirements. Fashion-able items with short lead times do not require the same level of costing, initial sketch and technical specification details compared to standard prod-ucts with longer life times and bigger quantities where a detailed engineering can save substantial cost in production. Similarly, the number of proto-types needed for approval and the number of cri-teria to be checked at samples should be lower for existing or less complex products (cf. figure 2).

Efficiency improvements in product development pay off quickly as they do not require a strate-

Financial Performance

Improvements

Operational Performance

Improvements

sales-men sample cost of >40% in wholesale through earlier in-volvement of coun-tries and key ac-counts

airfreight express cost by up to 70% through clear roles and predefined milestones for deci-sion making

prototype iteration rate of 50 - 65% through stag-gered design, devel-opment and costing process

fit and lab dip iteration rates of 20 - 30% through clear communication and enforcement of technical standards

gic trade-off between cost, quality and time, but rather optimise all of them at the same time. Best practice companies have defined key financial and operational metrics to continuously improve their development efficiency (cf. figure 3).

Calendar Management – Do you manage your calendar properly?To optimally leverage an effective and efficient product development it needs to be combined with an integrated calendar management across functions and company boundaries. Kurt Salmon has identified four distinctive management princi-ples in numerous projects around the globe which distinguish best practice companies from others:

set targets, make them transparent, track and adhere to them.

enforce early collaboration, internally and with external partners.

clear roles and responsibilities for each function in place.

take decisions at predefined milestones and stick to them.

These principles need to be incorporated into cal-endar management. Best practice companies have defined clear meeting milestones and handover points including timing, duration, input, output, participants, roles and responsibilities, as well as key decisions to be taken. Such a disciplined ap-proach to decision-making and timing is vital for shorter lead times. Project experiences have prov-en that often up to 30 - 40% reduction in overall lead time from concept development to in-store date can be achieved.

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Figure 3: Performance improvement through efficient product development

Figure 2: Differentiated product development


Industry leaders work on differentiated go-to-market calendars by supply mode, e.g. for NOS, Seasonal Replenishment, Seasonal Fashion and Quick Response. Such an approach allows to bet-ter exploit key competitive priorities (e.g. time vs. cost) for different types of products. At corporate level, overlapping calendars – both between dif-ferent seasons/ collections and between different supply modes – need to be carefully considered in terms of resource availability and workload. Latest at this point it becomes evident that an increase in the number of collections does not work with long calendars: overlaps between seasons become sig-nificant and can no longer be managed anymore.

Organisational Structure – Do you have the right team structure in place?A proper team structure is a strong enabler for ef-fective and efficient development processes. In product-driven companies cross-functional teams with product/ merchandising, design and techni-cal development simplify the communication and alignment on the demand side between product planning and development. In rather supply chain- and efficiency-driven companies technical product development will be pooled into shared services and be part of sourcing or manufacturing in order to ease the communication on the supply side. Ded-icated teams for material and/ or colour research and development become the more important, the more product development tasks are kept inhouse

and considered a distinctive competitive advantage.Development team sizes should be reviewed from time to time or when changes in the organisation have been made (e.g. outsourcing or shift of prod-uct development activities to Asia). Kurt Salmon knows the productivity benchmarks in creative and technical development and the key impacting fac-tors on developers’ workload.

Do you have the right PDM/ PLM system support?A rising number of European retailers and whole-salers have started to critically review their current system support for product development. Some of them have already begun to select and implement a new Product Lifecycle Management (PLM) system.

Product Development Management Systems (PDM)focus on improving product data management. They prevent designers and developers from re-inventing the wheel during the process. They fea-ture sketch, colour and material libraries which can be leveraged every time a new style is created. They also support technical specification genera-tion, updates and administration. Advanced cost-ing tools allow for a bottom-up costing approach which enables the designer to better design ac-cording to margin and cost targets. PLM systems enhance these functionalities, also covering work-flow management, as well as internal and external collaboration. By providing transparency on de-sign and product development planning and sta-tus data, they enable a real-time interaction with overseas offices and vendors and allow for their collaborative participation throughout the entire process. On the demand side, PLM systems are able to create line plans with product briefs and key metrics which can be planned and tracked throughout the entire season. On the supply side, PLM functionalities include vendor management, production and capacity planning, and vendor compliance/ quality assurance (cf. figure 4).

Kurt Salmon has identified three stages of PLM adoption a retailer or brand would typically go through (cf. figure 5). In the first stage PLM is not used beyond the walls of design and product devel-opment. Working in different systems for products and sourcing does not allow making significant re-ductions in cycle times or costs – product design and development is just one piece of a larger pro-cess that needs to be managed. By moving to the second stage of PLM adoption, retailers and brands link product development and sourcing. Sourcing activities such as raw material management and costing are managed through the PLM system. Furtheremore, information on supplier capabilities and capacities will be stored to improve collabora-tion between product and sourcing. Working of

Kurt Salmon Success Story: Supply Chain Performance Improvement Pro-gramme at Leading Eastern European Retailer

Background: The company was performing well financially, but lagging behind operatio-nally in terms of development efficiency and calendar lead time. Approach: Kurt Salmon was engaged to ulti-mately improve profitability by reducing time-to-market through improved process efficien-cy, clear meeting milestones and a competitive sourcing and supply chain model. The project ranged from strategic concept development to the facilitation of cross-functional commu-nication and the monitoring of calendar ad-herence, using Kurt Salmon’s tracking tool.Result: Decrease of calendar lead time by 15% in the short-term and 25% in the long term with phased guidance of the client from new calendar development through specification of key levers for improvement up to imple-mentation.


a central calendar allows focusing on the critical tasks for all involved parties. While there are great benefits associated with the link of product devel-opment and sourcing in a PLM system, there are even greater benefits to those retailers and brands who take a more expansive approach to PLM adop-tion. The last of what Kurt Salmon considers the three stages in PLM adoption takes PLM systems outside a retailer’s or brand’s “own wall” and con-nects suppliers to the system. Bringing suppliers into the upfront discussions about product design and development shaves off greater amounts of time, cost and quality issues in the process.

Kurt Salmon regularly supports retailers and brands in PLM selection and implementation pro-

jects – from the definition of business requirements to user trainings and go-live – with all major soft-ware vendors, thereby keeping a neutral position.

Project experiences have proven that the following considerations are crucial for successful PLM sys-tem selections and implementations:

1. Define a vision for the future: Identify which new capabilities are critical to the organisation in the next two to four years to understand fu-ture requirements.

2. Focus on critical functionality: Focus on func-tionality which supports what is critical or unique to the business today and tomorrow and do not become hijacked by non-critical func-tionality. Different requirements of headquarters and overseas offices need to be connected.

3. Plan for configuration and customisation: Set expectations of time and budget for configura-tion and customisation and be sure to include the effort for internal staff in the evaluation process.

4. Assess vendor itself along with other selection criteria: It is not only about buying PLM soft-ware, but also about gaining a strategic partner. Evaluate the vendor itself, review who the ven-dor’s other customers are, how the roadmap is created and which opportunities there are for your involvement, such as committees, user con-ferences, and meetings with the product staff.

5. Use demo scripts rather than requirement lists: Demo scripts which articulate process flows pro-vide greater clarity on how well a PLM system will meet your particular needs and help you to better differentiate the vendors.

Figure 5: Sample evaluation of individual benchmarking results

Libraries

Calendar Management, Supplier Management

Collaboration

Planning

Develop-mentSo

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Prod

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LibrariesLibr

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Libraries

MaterialMgmt.

Libraries

Costing

Figure 4: Functionalities of PLM Systems

Stage 1 Stage 2 Stage 3

Product Design &

Development

Product Design &

Development

Product Design &

Development Sourcing Sourcing Sourcing

PLM PLM Component

Suppliers Final Product

Suppliers

PLM

Product Development Automation

Product Development and Sourcing Synchronisation

Collaborative Supply Web

Automation of product design and development function

Improved coordination between PD&D and sourcing

PD&D, sourcing and suppliers combine to optimise entire supply chain

WWhhaatt

Need to cut new product introduction cycle time

Need to cut cycle times and reduce costs through buying clout

Substantial need to improve quality, time to market and product costs

WWhhyy

Create central library of reusable designs and components

Reuse of product components enables quantity discounts

Visibility across entire chain enables players to create the optimal work flow

HHooww

10 - 20% reduction in cycle times 20 - 40% reduction in cycle times; 2 - 3 % reduction in product costs

40 - 80% reduction in cycle times, 3 - 5 % reduction in product costs; 20 - 40% decrease in product quality issues

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Kurt Salmon Product Development Survey – Are you competitive?Kurt Salmon has benchmarked more than 400 Eu-ropean, US and Asian retailers and brands in the apparel and footwear industry to date. The results have created a globally unique database that al-lows fast and deep insights into the competitive positioning of a retailer or brand when it comes to product development. Take part in the survey and get exclusive access to this extensive database! Participants will receive an individual presentation of their benchmarking results in comparison with the top competitors in their industry and segment (cf. figure 6). If you would like to take part in our survey or should you have any questions regard-ing our service offers please contact Dorothea Ern-Stockum or Dr. Sven Kromer at [email protected] or [email protected].

6. Drive the implementation plan and phases: With PLM systems customers should be driving

the implementation planning. Splitting the im-plementation into phases with manageable packages is key. Business value, process change, and organisational readiness should determine which functionality is piloted/ rolled out when and to which brands/ categories.

7. Start change management early with package selection: Getting an organisation ready for a business transformation project takes a long time and it starts with the package selection.

Kurt Salmon Success Story: PLM System Selection Support, Blue Print Definition and Implementation at Leading American Outdoor Brand

Background: Globally operating US footwear company comprised of six brands was looking to reduce the dependency on manual Excel spreadsheets and disparate systems that con-nected merchandising, planning, and product development functions.Approach: Kurt Salmon and the client jointly reviewed the business processes, defined the functional requirements in an RFP and in use cases, and managed the software vendor eva-luation and selection. In the following phases Kurt Salmon supported the detailed process design and the training of the team in the new processes and system.Result: The PLM implementation has been part of a set of initiatives for a targeted 20% reduction in go-to-market calendar lead time.

Development Cycle Development specs to line close/ market week

24 7 42 weeks 33

Technical Development Cycle Fit approval to in-store

23 4 40 weeks 31

= Below average = Average = Best-in-class

Key: As compared to industry averages – Example retail apparel

Figure 6: Sample evaluation of individual benchmarking results

Kurt Salmon Germany GmbHKönigsallee 1140212 DüsseldorfT: +49 (0)211 7595 0 F: +49 (0)211 7595 [email protected]

The authors:

Dr. Sven KromerPartner, Kurt Salmon [email protected]

Senta TrorlichtSenior Consultant, Kurt Salmon [email protected]

Responsible:Dorothea Ern-StockumManaging Director, Kurt Salmon [email protected]

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Formed by the merger of Kurt Salmon Associates and Ineum Consulting, Kurt Salmon is a global manage-ment consultancy of more than 1,600 consultants in 15 countries across five continents.

Kurt Salmon is an industry specialist and in Germany focused on retail, consumer goods and financial services. Today‘s increasingly complex environment demands more than just a consultant — as a trusted advisor, Kurt Salmon works with industry leaders to design and then drive strategies and solutions that make a lasting and meaningful impact. Kurt Salmon is committed to delivering measurable results for its clients through executional excellence.

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kurt salmon white paper consumer driven product development

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