Transcript New Product Development Presented by Bill Ray of Precast Consulting Services

New Product Development
Presented by Bill Ray of Precast Consulting Services
New Product Development
Agenda
 Credits
 Ideas with a payoff
 New product development & margin improvement
 Example product line – Lightpole Bases
 Checklist for success
 Summary
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New Product Development
Credits
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Arrow Concrete Products – Granby, CT
Arco Concrete – Fort Lupton, CO
Aurora Precast – Aurora, IL
Colorado Precast – Loveland, CO
Southern Precast – Alachua, FL
Utility Structures – Nepean, Ontario
Wilbert Precast – Spokane, WA
Adam Neuwald – NPCA staff
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New Product Development
Who is Bill Ray
 Principal at Precast Consulting
 Background
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Business owner
General manager
Project manager
Chief fin. Officer
Education
 MBA University of Chicago
 BS Florida state
PCI certified producer
Sales exceeding $15 million
Projects exceeding $ 10 million
Sales exceeding $150 million
 Contact info:
770-979-3711. [email protected]
 website:
www. precastconsulting.com
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New Product Development
New Product development – Margin Improvement
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New Product Development
Margin Improvement
The starting point – What’s your sales margin?
 Analysis: compute sales margin by product line
 Sales and cost of production by product line
 Allocate fixed costs to product lines
 Get involved to keep the effort focused and efficient
 Results
 Product lines losing money need immediate attention
 High margin product lines need emphasis
 Product lines with margins 0-5% need to be replaced
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New Product Development
Margin Improvement
Progression toward commodities
Profit by Product line
Sales
$000
15,000
100%
Total Cost of Goods Sold 12,500
Gross Margin
%
2,500
17%
Sales, General & Admin
Interest costs
1,000
500
Profit before Tax
%
$ 1,000
6.7%
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New Product Development
Margin Improvement
Progression toward commodities
Profit by Product line
$000
Sales
15,000
100%
Total Cost of Goods Sold
Bleeders
Cash Cows
200
2%
4,300
28%
10,000
67%
500
3%
12,500
190
3,655
8,280
375
Gross Margin
%
2,500
17%
10
5%
645
15%
1,720
17%
125
25%
Sales, General & Admin
Interest costs
1,000
500
20
10
325
150
600
300
55
20
$ 1,000
6.7%
(20)
-10%
150
3.5%
820
8.2%
50
10%
Profit before Tax
%
Losers
Stars
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New Product Development
Margin Improvement
Progression toward commodities
Profit by Product line
$000
Sales
15,000
100%
Total Cost of Goods Sold
Bleeders
Cash Cows
200
2%
4,300
28%
10,000
67%
500
3%
12,500
190
3,655
8,280
375
Gross Margin
%
2,500
17%
10
5%
645
15%
1,720
17%
125
25%
Sales, General & Admin
Interest costs
1,000
500
20
10
325
150
600
300
55
20
$ 1,000
6.7%
(20)
-10%
150
3.5%
820
8.2%
50
10%
Profit before Tax
%
Losers
Stars
Take action benchmark guidelines:
1. If Losers exceed Stars
2. If Bleeders exceed Cash Cows
3. If Cash Cows are less than 50% of all sales
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New Product Development
Margin Improvement
Commodity Pricing – Low Margin
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Products undifferentiated - interchangeable
Standard specifications
Technology is mature
Buyers market – excess capacity
Low cost producer sets the price
Product sales margin less than 5%
Many products fit this description
 Quality and ethical challenges
 They remain the primary market for many producers
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New Product Development
Margin Improvement
Commodity Pricing – What’s the answer?
1. New production technology
 Margin improvements are typically short lived
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New Product Development
Margin Improvement
Commodity Pricing – What’s the answer?
1. New production technology
2. Differentiate your products & services – improve margin
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Focus on markets
Create value
Segment customers
New services
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Be market driven rather than product driven
Provide solutions, not products
Better focus on market needs
Focus on selected markets & customers
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New Product Development
Margin Improvement
Commodity Pricing – What’s the answer?
1. New production technology
2. Differentiate your products & services – improve margin
3. Develop new products – improve margin
 Focused product - Displace another building system
 Focused service - Solve a specific problem or reduce costs
 Market strength - Successful new products build on what you are
already doing
Replace your least profitable commodity business
New Product Development is today’s topic
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New Product Development
Margin Improvement
Commodity Pricing – What’s the answer?
1. New production technology
2. Differentiate your products & services – improve margin
3. Develop new products – improve margin
Every commodity was once a new product with high margin competing
with and displacing another building system
Precast manholes once were a
new product competing with brick
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New Product Lines
Action Plan
Precast Competitive Advantages
 Owners
 Strength (5000+ PSI)
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Plant Quality
Durability
Fire resistance
Project specific (appearance, maintenance, etc)
 Architects & Specifiers
 Design & engineering services
 Engineering envelope – design objectives
 Job cost savings
 Speed of construction
 Contractors
 Turn key contract – risk reduction
 All weather construction
 Shortage of masons
 Reduction of trades on the job
 Precast relative advantages differ from market to market
 The greatest advantages are against other building systems
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New Product Lines
Action Plan
Bill Ray’s Principles:
1. High margin new products compete with other building
systems, not other precast.
2. Successful new products build upon what you are doing now.
3. Find your new products with your partner architects &
specifiers
4. It takes time. New products take two years to develop.
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New Product Lines
Today’s Agenda A 7-Step Action Plan
1. Find the product
2. Evaluate the product
3. Design the product
4. Pricing guidelines
5. Patent protection
Example – Lightpole Base
6. It takes time
7. It takes commitment
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
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Survey your jobs
Survey your architects
Survey your customers
Ask questions: big and small
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
 Survey your jobs
 Survey your architects
 Survey your customers
Look for new products . . .
And you will find you have been walking right by them without noticing.
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
 Survey your jobs
 Survey your architects
 Survey your customers
2. Evaluate potential products
Perform a structured features & benefits evaluation
 Benefits to the owner
 Benefits to the architect
 Benefits to the contractor
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
 Survey your jobs
 Survey your architects
 Survey your customers
2. Evaluate potential products
Structured Features & benefits evaluation
Identify specifiers required to reach target markets
 Architects
 Commercial developers
 Electrical contractors
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
 Survey your jobs
 Survey your architects
 Survey your customers
2. Evaluate potential products
Structured Features & benefits evaluation
Specifiers required to reach target markets
Identify market size by product Survey your jobs
 Ask specifiers
 Dodge Reports
 Freedonia – Market Research Firms
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
2. Evaluate potential products
3. Design the product
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Come to the specifier with a specific product
Drawings
Specific price point
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
1. Find the product
2. Evaluate potential products
3. Design the product
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Come to the specifier with a specific product
Drawings
Specific price point
 Be competitive with customers’ full cost
 Price the features
 Show the included benefits
 Charge what the market will bear
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New Product Lines
Action Plan
Successful new products compete with other building systems, not other precast
4. Pricing guidelines
Don’t use formula pricing
 Product enhancements
 Product innovations
 New products
5. Patent Protection
 Examples:
 Pat. Pending
 Protection
- Premium pricing
- Partner without introductory pricing
- Initial pricing should never be at breakeven
Protect unique designs & materials
- Special designs & connx details
- Protection during the application - about 2 years
- Draw the patents broadly to cover variations
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
Lightpole base - An example
Developer:
I could cast this with readi-mix for
$80/yard, why should I spend 5 or 6
times that amount for precast?
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
2. Features and benefits evaluation
Product Quality
Precast – steel forms
CIP Sonotube
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
2.
Features and benefits evaluation
All weather construction
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
2.
Features and benefits evaluation
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Rapid project completion
Reduction of trades on the job
Reduced contractor overhead
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
3. Design the Product
Come to specifiers with a specific product line
Round and/or square
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
3. Design the product
Come to specifiers with a specific product line
Architectural shapes
& finishes
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
3. Design the product
Come to specifiers with a specific product line
. Bolt patterns
. Electrical conduit &
JB design
. Engineering design
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New Product Lines
Lightpole base example – Market Summary
 Markets
 Commercial development
 Tract subdivisions
 Shelf item
 Customers
 Developers
 Electrical Contractors
 Competitors
 CIP in Sonotube
 Currently precast market share is low
 Specifiers
 Architects
 Lightpole manufacturers
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
Developer:
I could cast this with readi-mix for
$80/yard, why should I spend 5 or 6
times that amount for precast?
What’s the answer?
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New Product Lines
Lightpole base example
Successful new products build on what you are doing now
 Cast in place costs more that you think
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Materials
Labor
Supervision
Overhead such as procurement & admin.
Rework
Delay of job due to weather
 Precast is higher quality
 Anchor bolt alignment
 Conduit & JB problems
 Appearance factors
 Risk with precast is lower
 Job delay due to weather or rework
 Single source contracting
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New Product Lines
Lightpole base example
This product line could be a winner!
Product Advantages to the customer
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Rapid construction – reduced project scheduling risks
Product quality – bolt hole & elec connx
Appearance – Steel form finish vs. Sonotube
Cost - Reduced GC overhead & supervision costs
Market Advantages to the producer
 Competes with other building systems – good margin
 Product line extension from current – known req.
 Builds relationships with existing specifiers – customers
Action Plan
1. Survey specifiers for product requirements
2. Design & price typical prototype
3. Present a specific product to specifiers with price point
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New Product Lines
Action Plan
Product Development must be a way of life
6. It takes time
There are many excuses for inaction
 Persistence is the most important trait
 Go for a small early success
 It takes two years
7. It’s ongoing
New products turn into commodities
 Specifiers write specifications, margins are reduce
 New product development must be a way of life
 You need to have one or two new products in each stage of
development
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Precast Consulting Services, Inc.
New Product Development – Margin Improvement
Success or Failure?
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New Product Lines
Checklist for failure
 1. Did not commit to a sustained effort
 2. What I wanted to produce was not what the customer wanted
 3. Did not learn to do business with the new customer type
 4. The new product competes with other precast at low margin
 5. Unsolved production problems
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New Product Lines
Checklist for Success
 1. Find the product
 2. Evaluate the product
 3. Design the product
 4. Price it correctly
 5. Patent protection may help
 6. It takes time
 7. It’s ongoing
 8. It’s up to you
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New Product Development
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