Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
New Product Development Managing Cost Approach. A Case Study at
the Furniture Sector
Trigkas Marios1, Papadopoulos Ioannis2 and Karagouni Glykeria2
The present paper refers to the presentation of a case study regarding the NPD process through
the lens of cost and project management approach, in the furniture industry in Greece. The
design and development of new products are nowadays approached under a wider point of view,
instead of simply referring to the products’ characteristics. It is a practical implementation of NPD
process in order to achieve time to market and cost effectiveness of the development of a green
and smart furniture. We investigate the process of a Green and Smart (GSF) new product
development, under the context of a related research project for developing an innovative
product. Our findings show that, the NPD may follow a sequential or a concurrent process,
depending on the complexity of the project and the available resources of a team/firm, aiming to
cost reduction and performance. The designing and manufacturing phases, are the two most
important phases of the whole process, with resources demands, mainly in costs and time, to
hold the greater percentage of the total available budget of the project. Project management,
team members knowledge and technical skills along with alliances of research institutes and
firms, play also a crucial role for a successful and cost effective NPD according to customers’
needs.
Keywords: NPD, Cost Oriented NPD, Time to Market NPD, NPD Efficiency, GSF, Furniture
Field of Research: Management
1. Introduction
Till recently, the NPD (New Product Development) process focused on the determination of the
characteristics that a product should incorporate in order to meet specific functional standards
imposed by manufacturing procedures and operational constraints of firms. However, the design and
development of new products are nowadays approached under a wider point of view; instead of simply
referring to the products’ characteristics, several “external” factors are taken into consideration, such
as:
• Customer needs
• Quality
• The reduction of production’s cost and evaluation
• The assembling and distribution processes
• Environmental impacts during and after the production process
• Further use and recycling
• Products’ Life Cycle
Furthermore, new product development is seen as crucial for the long-term survival and growth of the
firm (Baumol, 2002). Academic literature is increasingly getting interested in NPD processes within
firms (Damanpour, 1991; Brown and Eisenhardt, 1995; Cooper, 1999; Ernst, 2002; Barczak et al.,
2009). The common finding of related theoretical and empirical findings highlights the structural
design of the NPD process as one of the critical factors in achieving successful innovation (Cooper,
1
Aristotle University of Thessaloniki – Department of Forestry & Natural Environment, Lab. of Forest Economics, Finikas
Thessaloniki, building B, 55134 mtrigkas@for.auth.
2
Technological Educational Institute of Thessaly, Department of Wood & Furniture Design and Technology, V. Griva 11,
Karditsa. Greece, 43100, papad@teilar.gr karagg@teilar.gr
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
2003). In particular, the implementation of structural mechanisms such as cross-functional structures
(Griffin, 1997; Song et al., 1997), stage-gate processes (Canez et al., 2007; Cooper, 1996), and
formalized NPD procedures (Schmidt et al., 2009) have been found to positively influence the
innovation performance of firms. Several researches (Olsen et al., 2001; Song and Xie, 2000) have
provided evidence that within a particular NPD project the product innovativeness moderates the
relationship between the effectiveness of the structure (i.e., formal or cross-functional) and the
performance of the NPD project.
Thus, a central question that rises is whether an NPD project that is mainly financed by external
funding, could be designed and implemented in an efficient and effective way, based on cost
orientation among several phases, time to market approach and project management, in order to meet
the needs of a low tech sector and of an emerging market. Based on this question, the present
research, focuses on a NPD in the furniture sector, presenting in a practical approach through a case
study, the development of a Green and Smart Furniture (GSF) project, giving specific attention to the
design and cost management of the project, in order to deliver successful innovation.
2. MANAGERIAL APSPECTS ON NPD
2.1 NPD in general
The generic product development process follows α “market-pull” process (Urlich and Eppinger, 2000).
Phase 0: Phase 1:
Planning Concept
Developme
nt
Phase 2:
SystemLevel
Design
Phase 3:
Detail
Design
Phase 4:
Testing
Refinement
Phase 5:
Production
Ramp-Up
Furthermore, one type of Concept Development is called the front-end process. This process:
(Source: Urlich and Eppinger, 2000. New product design and development)
Besides the above steps, there are three more activities involved in the whole process:
1. Economic analysis
2. Benchmarking of competitive products
3. Modeling and prototyping
Another issue concerning NPD regards the development of alliances and networks in order to expand
resource bases and face strong competitive counterparts at global level. Towards this direction, NPD
processes involve the development of networks, joint ventures and outsourcing schemes
(Staudenmayer et al., 2005). The imperative need of project teams seems to indicate that knowledge
and skills of experts are a perquisite in order to develop novel products (Badir et al., 2008). This need
may even mean that members of a new product development team each come from potentially
different firms and organizations (i.e. research centers and laboratories), have to communicate and
coordinate with one another in order to accomplish their development activities in an effective way
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
(Staudenmayer et al., 2005). The level of communication and interaction is actually crucial in
successful new products’ launch (Badir et al., 2003; Gerwin, 2004; Ulrich and Eppinger, 2000).
Prior research has provided evidence on the positive impact of firms’ strategic alliances on
innovativeness (Trigkas et al., 2012; Shan et al., 1994). External collaborators and consultants
required are differentiating according to the NPD technique and process flow that is going to be used.
Industrial experience at empirical, sectoral and managerial level is also very important (Kitsios, 2000).
However, the main role of consultants and team leaders is the organization, leadership and training of
project teams and the control of project activities, until the firm has the capability to run a project by
itself.
2.2 Cost and time to market NPD orientation
Besides design and the role of cost and / or time in manufacturing or the entire development process
as the most critical variables, several other factors appear to play critical roles in NPD processes such
as the management of the NPD process, the cross-functional nature of the NPD team, the external
and internal communication of the team, the skills and knowledge of the project manager and the
degree of customer and supplier involvement (Brown and Eisenhardt 1995; Krishnan and Ulrich 2001).
Bajaj et al. (2002) focus on three drivers related to the management of the design phase of NPD:
i)
ii)
iii)
the degree of specialization input in design,
the degree of oversight by the project manager in the design phase and
the intensity of customer interaction during design
The structure of NPD project management is decisive for success or failure in a company. With more
complex products (large number of parts, many functions, etc.) or products with high process
complexity (for example, a difficult production process sequence), it is necessary to execute operation
steps as in Concurrent Engineering. In other words, the steps are executed in parallel to satisfy, on
one hand, the requirements of the system complexity and, on the other hand, the demands of time and
process sequence optimization. Time scheduling and capacity planning have overtaxed design and
development for decades and recent investigations show need for improving these activities.
Investigations of product development methodology have shown repeatedly that considerable time
and expense can be saved by making the correct decisions in the early product development stages.
Many firms have begun to adopt concurrent new product development (NPD) processes in which
product design phases occur in a non-linear and iterative manner. While concurrent NPD processes
increase flexibility and reduce time-to-market as compared to traditional sequential processes,
concurrency increases task uncertainty since the product design process begins before all important
product features and specifications have been established. Such changes can result in costly redesign
and rework. Extensive research (Gopalakrishnan et al., 2015; Wouters et al., 2009; Booker et al.,
2007; Cooper, 2002; Davila & Wouters, 2004) suggests target costing, where product design teams
are assigned specific cost goals, is an effective method of controlling costs in sequential NPD.
Other researchers (Trigkas et al., 2012, Swink et al., 2006) approach the operationalization of holistic
new product development (NPD) project performance, employing a sequential data envelopment
analysis (DEA) methodology that simultaneously incorporates multiple factors including new product
development cost, product cost, product quality, and project lead time. The results support that
tradeoffs among NPD performance outcomes, are manifested more strongly in highly efficient projects
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
when compared to inefficient projects. These methodologies are also used in order to propose
benchmarking techniques and best practice approach for NPD and innovation management.
3. THE GREEN AND SMART FURNITURE – G.S.F. CASE STUDY
3.1 The GSF project in general
The aim of the specific NPD project is the development of intelligent and purely ecological furniture
that can improve the existing way of in-house activities and operation regarding the furniture, utilizing
modern technologies not only for the manufacturing and material and final product traceability, but also
at the furniture’s use. At the same time, this very furniture will provide the sustenance or even the
vivification of the natural way of life and manageability by all possible users (elderly, children, people
with special needs etc.)
The project is: a) the first worldwide to attempt the manufacture of a final furniture product which will
be both smart and ecological and b) follows a structured methodology of new product development
(NPD by Ulrich and Eppinger.
The natural object of the project includes six (6) Work packages, (i) organizing the process of New
GSF Product Development - Preparatory work, (ii) determination of GSF market in Greece and its
tendencies (Targeting and trend analysis), (iii) design of eco-logical - GS domestic furniture, (iv)
production Technology of eco-logical GS domestic furniture, (v) economic analyses and (vi)
promotion and communication of eco - logical furniture, which constitute distinguishable activity groups
of resembling nature with considerable synergy and complementarity, while at the same time they
maintain a relative independence among them, in order to make their partially overlapping
development feasible.
The project follows the process of NPD, as described by Ulrich and Eppinger. This particular
methodology is followed by the biggest enterprises in the world and is considered one of the most
effective ones, as long as it concerns both the process and the achievement of the desirable results.
The steps and the applied methodology of the GSF project are the following:
• New product development planning (time planning - process) of the GSF project (Design Brief),
product lists, timetables etc)
• A study of all relative provisions that are in effect internationally for the certification, in order that
the final result is compatible with the current legislation.
• Market research of both the sector enterprises on their intention to manufacture and promote
and consumers for their intention to buy eco-logical furniture,
• Design of eco-logical domestic furniture through a considerable number of drawings
/ideas/concepts from special furniture designers, members of the main research team and
exterior collaborators and the appointment of the best,
• Registration of relative patents for the best drawings that will result,
• creation of functional prototypes and pilot production of at least one of the above mentioned
using the available equipment of the Department of Wood & Furniture Design and Technology
and recording of all processes (eg production problems, necessary modifications, new solutions
etc)
• Use of pilot product by volunteer customer/s and evaluation of their experience of it
• Analysis of production technology of the specific furniture with a particular emphasis on the
quality control and the formulation of basic manufacturing principles and directives,
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
•
•
Formulation of an effective marketing plan for their promotion in the Greek and international
market
Creation of a core of values that will serve the branding of the GS furniture, exploiting the total
design (Branding by design).
3.2 Management structure and procedures
The achievement of the proposed objectives and deliverables is also supported by the advanced
equipment of the Department of Wood and Furniture Design and Technology, TEI of Larissa, which is
analytically presented bellow and is considered as very sufficient.
For the implementation of WP-1 “Organizing the process of new GSF Product Development Preparatory work”, WP-2 “Determination of GSF market in Greece and its tendencies”, WP-5
“Economic analyses” and WP-6 “Promotion and communication of eco - logical furniture", the project
will utilize the equipment of the Laboratory of Applied Marketing, Administration and Economy. The
equipment refers to modern PCs equipped with special programs as: SPSS ver. 17.0 for the statistical
analysis of the questionnaires, GMMSO2 for the marketing research, DEA (Data Envelopment of
Analysis) for the realisation of special economic analyses, Innovation Inventory for the evaluation of
the economic viability of the innovative concept etc. Corresponding electronic equipment also exists in
the Laboratories of the Departments of a) Business Administration of Athens University of Economics
and Business, b) Business Administration of TEI of Larissa, which will collaborate with the research
team.
For the implementation of the most activities of WP3 “Design of eco-logical - GS domestic furniture”,
the research team will use the equipment of a) the Laboratory of Furniture Industrial Design and b)
Furniture Design (CAD), which allocate modern PCs equipped with most new versions of furniture
design software (CAD-CAM, Pytha etc), rapid prototyper (3D printer) for furniture model creation,
plotters, scanners and printers.
For the achievement of the majority of activities of WP4 “Production Technology of eco-logical GS
domestic furniture” the research team will use the equipment of the Laboratory of a) Furniture
Manufacture Technology and b) Quality Control of the Department of Wood and Furniture Design and
Technology, TEI of Larissa.
Additionally, the research team may use the equipment of the relative Laboratory of the Department of
Electrical Engineering, TEI of Larissa with a specialization and experience on "intelligent" products and
constructions.
3.3 Cost management
The following tables depict the timetable of each working package, analytical deliverables, costs per
working package/objective/category/time and project reporting.
As it is observed, the development of the GSF product, follows a sequential procedure, beginning with
the organization of the process for the NPD, with market study to follow along with the rest of the
development phases. The objectives of the two first phases of the project are the overall planning of
the project and more precisely the methodical organization of research in order to focus in the
manufacture of eco-logical furniture based on the existing international standards in regard to product
quality, the existing legislation and the requirements of consumers. Moreover, these phases are
aiming at a broad briefing round the ecological furniture and the acquisition and diffusion of know-how
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
that is required by all main and supporting teams’ members, all stakeholders as well as the public. The
market study and trend analysis play a fundamental role during this first phases of the GSF
development, targeting both enterprises and consumers, aiming at the explicit formulation of
manufacturing criteria as well as the production process planning and the final products. It constitutes
a particularly useful guide for the enterprises of the furniture sector.
The next two stages of the GSF development, design and manufacturing of GSF are a bit
differentiating, regarding the sequence of execution. As shown in Table 1 parts of these two phases
are implemented in parallel, in accordance to satisfy the requirements of the product complexity and
the demands of time and process sequence optimization. Furthermore, cost saving is achieved, since
a nonlinear interaction between team members occurs, focusing to the desired product’s
characteristics and the technological requirements for the building of a prototype.
Table 1. Timetable of working packages and analytical activities of GSF project
Title
Activities
2013
WP1
"Organizing the process of New
GSF Product Development Preparatory work"
Α1.1. Scientific planning
Α1.2. Literature review
Α1.3. Collection of relative legislation and
regulations
Α1.4. Case studies and parallel scenario
Α1.5. Design Brief
Α1.6. Establishment of evaluation criteria per
project phase
Α1.7. Organization of a workshop for all
stakeholders
"Determination of GSF market
WP2 in Greece and its tendencies
(Targeting and trend analysis)"
Α2.1. Choice of the sample and formation of
questionnaires
Α2.2. Use of pre-questionnaires and
finalization of the content of final
questionnaires
Α2.3 Conduct of the market research,
Α2.4. Results elaboration and a report of
these with conclusions
Α2.5. Publication of results
WP3
"Design of eco-logical - GS
domestic furniture"
Α3.1. Establishment of final design criteria
/objectives and characteristics of GS
furniture
Α3.2. Creation and registration of ideas /
proposals in 2-D (sketches) and 3D
Α3.3. Analysis and valuation of
ideas/proposals from the evaluation
committee
Α3.4. 3-D Design of the prevailing ideas
/proposals and choice of suitable materials
and mechanisms
Α3.5. Final valuation and selection of only
one or two ideas /proposals
Α3.6. Filing of the final design study and
manufacturing drawings of selected
proposal(s)
Α3.7. Patenting of the selected proposal(s) /
idea(s) and final manufacturing drawings at
NPR (OBI)
Α3.8. Publication of selected ideas
/proposals in sector-journals
Year
2014
2015
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
WP4
"Production Technology of ecological GS domestic furniture"
Α4.1. Manufacture of functional prototype(s)
and prototype(s) for pilot production for
recording the whole process
Α4.2. Determination of the production
technology
Α4.3 Determination of assembly (ies)
Α4.4. Determination of use of most suitable
timber species
Α4.5 Determination and choice of the
suitable raw and secondary material that
will ensure the "ecologic character" of the
furniture
Α4.6. Determination and supply of essential
technological – electronic equipment that
will ensure the "smartness" of the furniture
Α4.7. Application of the essential processes
of quality controls
Α4.8 Recording of impressions and
observations by the furniture’s voluntary use
WP5
"Economic analyses"
Α5.1 Collection of basic data
Α5.2 Methodology development
Α5.3 Feasibility study of production and
estimation of manufacturing costs
Α5.4 Cost accounting of production
Α5.5 Business plan for mass production
Α5.6 Research paper
Α5.7 Workshop Organisation and realisation
WP6
"Promotion and communication
of eco - logical furniture"
Α6.1. Determination of marketing objectives
for the 1st "oiko - logical" - GF furniture, and
determination of new niche markets
Α6.2. Determination of the marketing
strategy for the innovative product
Α6.3. Determination of channels for internal
and exterior communication
Α6.4. Effective communication activities
Α6.5. Study on brand strategy
Α6.6. Publication of a relative newsletter
Α6.7. Activities for collaborations with
government owned institutions and other
educational institutions
Next, table 2 summarizes the costs of each step regarding the GSF development. Thus, if we consider
the three (3) first working packages as an integrated designing phase, WP 4 as the manufacturing
phase and WP’s 5 and 6 as the business planning phase, we can argue that this phase is more cost
intensive, holding the 42.9% of the total budget of the project. This fact is in accordance to several
investigations of product development methodology, which have shown repeatedly that considerable
time and expense can be saved by making the correct decisions in the early product development
stages (during clarification of the task and the first concept development). If more emphasis is placed
on "up-front" efforts, fewer iterations and improvements are needed later. Shortening product
development times requires investing more time and capacity in the early stages of product
development than was done previously. Therefore, preplanning and early identification of critical
properties of future products are needed for avoiding iterative loops. This also enables product
planners to react quickly to market changes.
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
Table 2. Cost allocated per work package.
Title
Activities
2013
WP1
WP2
WP3
WP4
Year
2014
2015
"Organizing the process of
New GSF Product
Development - Preparatory
work"
"Determination
of
GSF
market in Greece and its
tendencies (Targeting and
trend analysis)"
"Design of eco-logical - GS
domestic furniture"
"Production Technology of
eco-logical GS domestic
furniture"
WP5
"Economic analyses"
WP6
"Promotion and
communication of eco logical furniture"
Cost (€)
8,600
12,400
17,600
19,300
16,400
15,700
TOTAL
90,000
Levering our analysis and according to the next Table 3, we the majority of the GSF costs has to do
mainly with personnel costs, at a percentage of 60% of the total budget of the project, while the rest
are mainly administrative and promotion/dissemination costs. These personnel costs are dealing with
the main research group of the GSF project and external collaborators from different research fields
and organizations, at the concept of a networking product development. Based to these data, we can
argue that the GSF project achieves a very satisfactory cost reduction regarding the desired
equipment for the development and manufacturing of a GSF prototype, practically the related budget
is zero! This is due to the open innovation process adopted to the project and the networking and
alliance nature of the project, regarding the involvement of specialized research institutes in the
specific field. Thus, the GSF project combined competencies from wood technology, ICT technology,
furniture technology, design, electronics, NPD and innovation management, marketing, and all
necessary research methodologies to design and later produce the innovative eco-smart piece of
furniture. This is crucial for the Greek furniture sector and the Greek SME’s in general, in order to
move towards radical innovations, using outsourcing and achieving them with a very efficient way, if
we consider their limited liquidity and the capability in using sources and investments.
Table 3. Cost allocated per category and year.
Category
A1. Personnel Costs (Main Research
Group)
A2.
Personnel
Costs
(External
Collaborators)
A3. Travel and Subsistence
A4. Equipment/Hardware/Software Costs
A5. Consumables
A6. Office Consumables
A7. Publicity Costs
A8. Various cost*
Total cost covered by LLP** (total A1A8)
2013
2014
2015
TOTAL
5,700
5,800
18,000
29,500
7,000
11,100
6,400
24,500
5,200
0
0
1,100
2,000
0
2,000
0
8,000
1,500
300
4,500
5,800
0
0
2,400
2,700
500
13,000
0
8,000
5,000
5,000
5,000
21,000
33,200
35,800
90,000
The main cost category regarding personnel involved in the GSF project is further analyzed as shown
in the nest Table 4. We can also note that the greater percentage (26.2%) of these costs, are dealing
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
with the design phase, while only a 9.1% refers to the manufacturing phase. This fact also, leads us to
the conclusion that the GSF project is a design oriented project, allowing an efficient and effective
NPD.
Another issue, regarding the management of the GSF project is that the project managers monitored
the GSF by tracking specific tasks performed by the design and the manufacturing team. We observe
that, according to Table 1, the project management adopts varying levels of oversight, having a high
degree of micro-management, especially during the designing phase. This is due to the assumption
that, project managers in general, confirm that projects with higher design budgets required
proportionately higher number of tasks to be monitored (Bajaj, et al. 2002).
Table 4.
Cost
Cost categories
1. Personnel Costs (Main
Research Group)
2. Personnel Costs (External
Collaborators)
3. Travel Expenses
4.Equipment/Hardware/Soft
ware Costs
5. Consumables and
Stationery
6. Dissemination costs
7. Other costs
WP1
WP2
WP3
WP4
WP5
WP6
2,800
2,900
4,400
2,800
8,300
8,300
Budget/cat
egory (€)
29,500
2,900
4,100
6,500
5,400
3,800
1,800
24,500
1,200
4,000
1,000
1,000
2,300
3,500
13,000
0
0
0
8,000
0
0
8,000
500
600
1,200
300
800
1,600
5,000
1,200
800
0
1,300
1,200
500
5,000
0
0
4,500
500
0
0
5,000
categories of the GSF project per working package.
CONCLUSIONS
During new product development (NPD) firms make critical design and sourcing decisions that
determine the new product’s cost, performance, competitive position, and profitability. The purchase
price of materials and components for the new product provides only part of the picture for design and
sourcing decisions. This case study provides evidence that the type of NPD process moderates the
effectiveness of cost goals in motivating cost reduction performance, with the designing phase to play
the most significant role, regarding the development of green and smart furniture product.
The NPD may follow a sequential or a concurrent process, depending on the complexity of the project
and the available resources of a team/firm, aiming to cost reduction and performance. The present
study could add to the existing academic literature by presenting a practical implementation of a NPD
process, at a low tech sector such as the furniture sector, with important recommendations given to
the operations management and project managers, that concurrent NPD processes could be
implemented to reduce time-to-market in response to increasing global competition. Similarly, target
costing has been recommended in the cost management literature as an important tool to ensure
newly designed products can be introduced at a competitive market price (Wouters, et al. 2009).
The results point also to the importance of project management experience, management
commitment, and cross-functional integration in achieving a high level of efficiency. We hope that NPD
managers will consider our practical suggestions and that our results may motivate researchers to
continue exploring the NPD process in a wide variety of organizational settings, especially in low tech
sectors, where resources are limited.
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
Aknowledgements
This research has been co-financed by the European Union (European Social Fund - ESF) and Greek
national funds through the Operational Program "Education and Lifelong Learning" of the National
Strategic Reference Framework (NSRF) - Research Funding Program: ARCHIMEDES III. Investing in
knowledge society through the European Social Fund.
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