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WHY COMPANIES CAN'T INNOVATE
and how to unleash innovation

Here are 18 common practices that prevent companies from innovating
with links to solutions (in red) presented on this site.

1) Don’t bite off more than Engineering can chew when planning product portfolios, which drastically decreases the success rate of all products.

Solutions:   Rationalize Product Lines to focus on your most profitable products. This can triple your profits immediately! Just stop selling your highest-overhead "loser" products. 

Product Portfolio Case Study.  The book, Fast Innovation, (by Michael L. George, et al., 2005, McGraw-Hill; p. 167) presents a case study which clearly shows how too many projects diminish the chances of project success. 

 In the first, year a prominent company tried to develop 120 products, but resources were spread so thin that no products were introduced at all!     The next year the workload was reduced to 22 projects and they were able to introduce eight products in 24 to 28 months.  In the next year, as they got more focused on only 20 projects, they were able to launch 14 products in 12 months.  Thus they were able to successfully launch almost twice as many products in half the time!

 The results of focusing product development and rationalizing away most existing products during a three year period was that manufacturing productivity tripled, early life failures decreased by 38 times, customer satisfaction  rose from 27% to 90%, revenue increased by 2.4 times, and operational earnings increased from -6% to +7% !

2)   Don’t allow Sales to “take all orders,” sell any option ever built, and “acceptall customizations” and pollute operations with low-volume, hard-to-build products that drain resources away from product development and other improvement programs.

Solutions:   Rationalize Product Lines to eliminate or outsource high-overhead products that are incompatible with your operations and supply chains.   If hard-to-build products really have potential, design them into a family in a product platform.  If they do not fit into any product family, outsource them to a specialist CM or rationalize them away and send all those problems to your competitors!
 

3)  Don’t  “manage” product development with deadline management (track "progress" at meeting arbitrary deadlines and then putting on the pressure if any deadline is late) for the illusion of “early progress.”  This will be counterproductive if poorly set deadlines don’t encourage thorough up-front work. 

Solution for innovation:  Product development phase scheduling should allow enough up-front effort, which is (a) when manufacturable innovation is done and (b) the thorough up-front work that will  cut in half the time to stable production.
 

4)  Be very sure that your product development process actually has a product design phase: Some, even prominent and expensive "processes" don't, and skip from the "concept testing" phase to the "prototype testing." phase.  Check your to see if it has a strong product design phase, or has one at all!

Solution:  Implement DFM and Concurrent Engineering principles, as described in the white paper on Concurrent Engineering.

 

 5)  Don’t quantify only labor and part cost and then allocate (average) all other costs (overhead) over all products, even your best "cash cow"  products.  To make an impact, tell senior management that their favorite products are paying a "loser tax" to pay for all the overhead costs on the "loser" products.

Solution: Implement  total cost measurements to get pricing credit for all the overhead cost reductions, which can range from 1/2 to 1/0 of the usual costs, as shown in for each overhead category the page: http://www.design4manufacturability.com/designing_half_cost_products.htm

 

6)  Don’t try to remove cost after the product is designed, which is so hard to do that it is a waste of resources that will prevent innovation  If this is even attempted, product development teams will have to devote a very high percentage of product development resource to make change orders to try to implement DFM retroactively

Solutions: See Solutions embedded in the article  Seven Reasons Why “Cost Reduction” after Design Doesn’t Work.  

 

7)  Don’t go for the low bidder on custom parts, which means your engineers will have to design the whole part in isolation, send it out for bids, manage a "bidding war," and then deal with the consequences of missing out on concurrent engineering with the best vendor.

Solution Pre-select he best vendor as a vendor/partner,  who will join your team and help you concurrently engineer the part, thus expanding the team without hiring or transferring any personnel.   This article will show many ways this will actually cost less and get parts ramped up quicker.  See point # 15 on cautions about not to drive away the best vendors with onerous terms & conditions and outsourced purchasing and accounts payable. 

 

8)  Don’t offshore manufacturing to "save cost," which makes it hard to do Concurrent Engineering when there are no manufacturing people around to be “concurrent” with. In many offshoring situations, people in engineering and manufacturing are not even working at the same time.  So research can only  be done in one time zone, and launching a product stares with throwing a drawing package "over the ocean," which is followed by the Contract Manufacturer "building to print," whether or not the drawings are perfect, 100% complete, and completely unambiguous -- or not, which is the case in almost all offshoring.  Outsourcing, in general, also involves converting documentation for outsourcing; changing all parts to "local sources of supply" (which may involve changing hundreds of parts and inducing hundreds of new variables), getting outsourcers up to speed; dealing with quality and delivery problems, and so forth and so on.

Solutions.  First, implement   total cost measurements , which will quantify all the "hidden costs" of offshoring.  Second, understand all the costs that can be reduced by the principles of this site, e.g. at the page on how to design half cost  products, and the value of doing all phases of innovation in concurrent engineering teams.  

After DFM training, one large company that has pioneered many of these points, needed to launch an initiative called "DFM vs policy" to correct current counterproductive policies for their first product development team to utilize these new methodologies.


In his travels, the author of this site, Dr. David M. Anderson, has encountered several companies that wasted two-thirds of product development resources on the last three bullets (# 6, 7, and 8), which really puts their future in doubt if that future depends on new product development. Ironically, these attempts thwart six of the eight Half-Cost strategies, for reasons presented at the beginning of the offshoring article.
 

9)  Don't  make  the  definition  of  product  cost  overwhelmingly  based  on   part  cost or that will cause serious problems in quality, product development, and block improvements in supply chains and lean production, summarized in the section below in the section: "Problems Defining "Cost" Mostly as Parts." 

Solutions.  , implement   total cost measurements  and use that to estimate all the total cost savings summarized on the page on Designing Half Cost Products

 

PROBLEMS DEFINING "COST" MOSTLY AS PARTS


10)  Quality compromised.. Pressures to lower part cost results in cheap parts, which will raise quality costs more their anticipated savings, and that will have the following effect on NPD:

11)  Product Development delayed and costing more. Dealing with problems caused by cheap parts will:

  • increase resource demands to deal with quality problems,

  • introduce many variables, which compromise functionality, with change orders to make everything work again and fix new problems caused by all the changes

  • put pressure on teams to compensate for all the above cost increases

  •  delay the time to stable production.

12) Standardization will be thwarted by pressures to keep part cost down because most standard parts are “better” than a proliferation of the minimum spec parts, but the overall gain from standardization would be so great the material overhead four standard parts could be discounted to 1/10 of hard-to-get parts (see the first page of Chapter  4 on Standardization in the   DFM book).

13) Part availability improvements will be also thwarted because more available parts may raise a BOM (Bill Of Material) entry, but the overall cost savings will be enormous by avoiding the cost of obsolescence and supply chain spontaneity which is a key prerequisite to Lean Production.

14) Off-the-shelf parts discouraged, which can focus resources on what customers buy products for and lower overall cost, but this will be discouraged by BOM cost pressures because purchased part cost is the total cost , whereas BOM cost is only material cost. For instance, wires are very inexpensive (as they may be “expensed” and not even be listed on the BOM) but wiring generates enormous labor and quality costs to wire products "like a house." However, DFM solution to wiring problems and cost is standard off-the-shelf cables, which will all look like “new expenses”“ on the BOM.

15)  Vendor/Partnerships can reduce many costs, reduce NPD resources demands, and reduce the time to stable production. However, they will not be an option if purchase cost pressures force teams into the sub-optimal practice of designing in isolation and then going out for the low bidder.

a)  Do not drive your best vendors away with onerous terms and conditions that stretch out payments, which doesn't really save money because

  •  the vendors you drove away would have saved many more costs with better work and do it faster

  • any saved interest will have to be paid back when you realize all this and reverse your beat-up-the-vendor policies,

  • In emergencies, the slow-paying "net 60 day" customer will get the least attention

Vendor relations is no place "beat up vendors" just because you can or have the false believe it saves money.

b)  Don't outsource Accounts Payable. which will inevitably stretches out payments even longer and frustrate vendors with hard to reach offshore people and cumbersome procedure.  Some companies dress these up by calling them "Portals" or :supplier Network" like they are some kind of benefit.   One of these actually makes vendors buy an access code just to get in.

c)  Don't outsource Purchasing which can  thwart standardization, selecting parts for availability (two major bullets above) , and concurrent engineering with both company engineers and vendors.

d)  Do not add onerous terms and conditions to a Non-Disclosure Agreement (and call it a "Services Agreement") and try to slip in net 60 day or worse payment terms (or worse) or thwart class customization by claiming world-wide IP rights to any "work product" done for the class.   Such policies will limit your training to moonlighting professors or research staffers teaching  from published books.

ALERT TO VENDORS AND CONSULTS:  Insist on an NDA without terms and conditions.  Refusing an NDA with terms and conditions is much easier do than refusing to sign something called a "Services Agreement."  which may make one look uncooperative.   But, if it gets that far, it could slow down progress or bring it to a halt, because inappropriate or onerous terms and conditions take much effort and calendar time to negotiate away.  (think insurance to provide a webinar!  or losing your IP right if you customize a lecture; or net 70 days to get paid or longer if Accounts Payable is outsourced offshore).  This will drive away any company's best consultants and experts, so that void will be filled by moonlighting consultants or big consulting firms who will send junior staffer to presented their canned material.  These firms don't mind these agreements because they charge enough to have their own  legal staff who can battle their customer's legal staff.

16)  DFM guidelines thwarted, like “Eliminate Right/Left Parts,” symmetrical parts, and part consolidation will be discouraged if “extra” processing (to make right and left parts the same) raises a BOM entry. In one company the VA team resisted the DFM team’s attempts combine eight different brackets into one by drilling all the holes for all brackets into one versatile version because it would add extra hole drilling to most of the versions! However, if the right and left parts were molded or cast parts, eliminating the extra mold would save tens of thousands of dollars in tooling costs.
                        
17) Concept breakthroughs, that are pivotal for innovation will be missed, if the project time-lines do not provide time for "thorough up front work," as shown in the lower time-lines in both graphs in http://www.design4manufacturability.com/half-the-time.htm

  Example: in the concept breakthrough article, one category of concept breakthrough is for electronics, including higher levels of electronic integration, combining circuit boards, and simplifying inter-board wiring could be discouraged if (a) the status quo is using ‘free” wires and under-reported assembly labor and quality problems and (b) the solutions appear as expensive new BOM entries without quantifying all the cost and throughput benefits.


18)  Inventory costs can easily exceed profits. Without standardization, all delivered parts will go into “raw materials” inventory, which will then be kitted for each production batch, thus creating a lot of Work-In-Process inventory, and then wait as Finished-Goods inventory until shipped. Inventory carrying cost actually costs a quarter of its value per year (see plot in the Mass  Production  article), and can be eliminated by designing for lean production and build-to-order, which will not be possible with all the above consequences of defining cost as primarily based on part cost.


Worst possible scenario:


The worst possible “cost reduction” scenario is to *(a) base “cost” primarily on parts and (b) pressure the design team for ambitious goals, like half the (parts) cost. That much pressure on parts cost will lead to desperate searches for the absolute cheapest cost which will:

- Compromise quality, raise quality costs, worsen reliability, and all the costs to deal with that, which will lengthen product development time.

- Thwart all real supply chain and lean production cost improvements such as standardization, designing for part availability, and off-the-shelf parts, which will be perceived as “raising” a BOM entry

- Discourage vendor/partnership
s if cost pressures on their parts drive the counterproductive practice of designing in isolation and send out for the low-bidder

- Discourage DFM improvements that combine parts and simplify any designs that may raise a BOM entry.
 

Ironically even a miraculous alignment of low-hanging fruit reduces parts cost in half (assuming it isn’t cancelled out by the above), , it would only cut in half mo more than a tenth of the selling price, which would only result in 1/20  of the selling price, instead of one half of selling price as is possible by the techniques at:
http://www.design4manufacturability.com/designing_half_cost_products.htm
 

Call Dr. Anderson at 1-805-924-0100 to discuss implementing these techniques or e-mail him at anderson@build-to-order-consulting.com with your name, title, company, phone, types of products, and needs/opportunities.

 

Dr. David M. Anderson, P.E., fASME, CMC
www.HalfCostProducts.com
phone: 1-805-924-0100
fax: 1-805-924-0200
e-mail: anderson@build-to-order-consulting.com

Copyright 2018 by David M. Anderson

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