product development - ACS Publications

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EDWIN M. OTT, The A n n r y l v a n i a

Salt Manufacturing Co., Phi/ade/phia, Pa.

T h i s article discusses the methods used by the Pennsylvania Salt Alanufacturing Co. in providing management with the information i t requires to keep abreast of new product developments. Typical progress points at which reports are submitted to management are outlined. These generally coincide with the need for a management decision involving the authorization to proceed to the next

stage of development, usually at times when appropriation or marketing authority is required. Pennsalt’s formal procedure for obtaining approval of appropriations and securing authorization for sales of new products is described and the usefulness of these methods in keeping all interested personnel of the company informed on new products is outlined.

INFORMING MANAGEMENT ON PRODUCT DEVELOPMENT I

S THE progress oi a iiwv clieiiiical through the many atages 01 research, del-elopinent, and trial sales, toward its final

acceptance as a permanent conipanj’ product, there :ire several clearly defined points a t which the project must be appraised. \\%en tlevelopnient of the new product reach(1s oiie of tliesc points, mnnagenient must drcide ivhrther or not further effort xiid exp,t~riseare justified. h t t h e Pennsylvania Salt LIanufacturing Co., the market research divisioii plays a central role in assembling and reportiiig the information required b y management in reaching sound n e x product decisions. Pennsalt’s market research division is a staff organization reporting to the president of tlie compnny and ha5 been assigned the responsibility of objectivrly :ippr:3ising expansioii proposals whether these involvr i l e \ ~or old products. The methods to be described apply to expaii.- the expense of the research project. .Inother objective of this study by the market research division is t o provide information t h a t will be helpful in develop ing the proposed new product. T h e report will disclose the products now being used for the intended application, their cost, method of use, and limitations. D a t a of this nature ma>-serve as a guide in designing the new product and point out the objectives t h a t must be met with regard t.o price and performance. Funds for Laboratory Research

JVkien his program is formulated, the manager of research arid developnient submits a proposed research and development budget to the president. T h e president, in turn, requests comments trom the division heads including the manager of the market research division and the11 submits the budget to Peniisalt’s board of directors for approval. T h e information required by management in this prcliminary stage is assur:mce that the most promising ne^ product ideas have been considerrd ; t h a t those select,ed appear to offer the greatest profit opport unif,y; :tud that if the research program is successful, there is :in atlequate rnarket to justify the expellee of developing the new protiUCt. After approval of the budget by the board of directors, Iakioratory development is started. When experimentation hiis progressed to a point n-here samples are available, the product is evaluated for appropriate applications in the various product developmrrit, department laboratories and is also sent h y research arid development to potential users for further testing in order to evaluate the product for applications outside the scope of Pennsalt’s application research facilities. Usually these tests are made in the plants or laboratories of relatively fen- firms. When the product made by research and development is it new material for which commercial uses have not been knoir-n or n-how uses are o.itside the fir.lds of interest of the several sales

.\t cai.11 oi t h r w apprais:il points, manageriiciit itpprol-a1 is required lwi’ore the project can proceed to the next step in its cievelopnient. dome products, because of their nature, skip one or inor(’ of these points. For exnmple, Pennsalt has a strong sales ory:tnization selling industrial cleaners. K h e n a new tj-pe cleaner is tlt.vcloped, it mover; directly from lahoratory developmerit aiid fic:ltl evnluatioii t i l - research and d sales and, subsequently, to perni:irient comni sales division. S o market developinent is required I)c,cause its ire k n o w i . Since it is manufactured in rxirtiiig equipmeiit, no pilot plant or commercial plant approprkitions are needed anti those appraisals are not required. For such a product, appraisal would be made only a t steps 1, 2, 4,and ti. Throughout the follon.ing discussion it is assumed that the new product is t o be a composition for n-hich uses must be de.hidl \ d l move through all phases of n e w product Preliminary Evaluation

-4s t h e time for preparing the research and development pro-

gram for the ensuing year approacheq, the manager of the ree w ~ , c ~and h development division considers each new product idea

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INDUSTRIAL AND ENGINEERING CHEMISTRY

departments, research and development will request the establishment of a market development project. Request far M a r k e t Development

.luthorization for a market development project is obtained through Pennsalt’s new product authorization procedure. This bystem has been designed t o keep management and operating persomiel advised of every new product development and to ensure t h a t all possible opportunities for profit are explored. Iriitier the system, the request for market development ivould t)e submitted on a standard Pennsalt printed form called ,.ltequest for Market Developiuent.” This form is usually completed by the manager of research and development. It cont;tiiis :I description of the product and the reasons for the proposed project. I t is sent t o the manager of market research along with a research arid development division “ S e w Product 8ummary Report” which contains a suniniary of the result,s of the work of research anti development. This includes physical, chemical, aud toxicological properties; a list of investigated and suggested uses; estimates of laboratory anti plant protluction costs: tclntative specifications; methods of nianufacture: packaging r ~ c o i n rnendation.i; patent review; and other data specific to the product. On receipt of the request for market development, the niiinager of market research undertakes a study of’ the proposed project. IIe reviews reports and discusses the product with the manager of research and development and others who might have information on the new product. If it is of a t>-pet h a t can t i e evaluated by market research techniques, he develops estim i t e s of market potential, Pennsalt’s sales volume, and probable profit. H e then suni~narizerthe available information, estimates the cost of the market development project, and describes I’ennsalt’s opportunities in B brief report t o the president. Copies are distributed t o top maiiagemerlt and t o thc requestor 0 1 1 receipt of this report the president will decide whether or not the niarket development project should lie approved. He iiidicates his decision on the request for m a r a t tievelopnient and returns it to t,he manager oi inarlret research. If the project has been approved, copies of the form are distributed to the iollowiiig rxecutives: President Vice president of sales Vice president of inanuiacturiiig Presidents of subsidiary companies Controller Manager of rcjearch and development Manager of patent department General purchasing agent llanager of packaging and labeling department Manager of advertising hIanager of traffic department SIaiiagei~of public relations The wide distribution of the approved request for market development includes all of Pennsalt ’s top management and the he:tds of operating departments t h a t will be affected by the project. Receipt of the form serves t o notify each that the ne\\- product described is receiving active promotional attention b y the company and t h a t i t is one step nearer to its estaiiliihrnent as a company product. Receipt of the approved form sets in motion the following actions: 1. Cont~roller: sets u p code designation for tabulating the new product in 1.B.M. equipment 2. Traffic Manager: deternlines freight manifest 3. Manager of packaging and labeling: ensures that p:tck:iging and labeling arrangements are complete 4. Purchasing agent: arranges for sources of raw and processing materials 5. hlanager of market research: launches market derelopment program

Vol. 43, No. 4

Requesrs for funds for Pilct Plant

During market development most of the recognized technique? as well as some that are original with Pennsalt are employed. .si market development progresses, production of t h e new protluct must be stepped u p to provide larger quantities for samples, field evaluation, and sales. Eventually, the volume will exceed the capacity of existing equipment and a larger pilot plant or semicommercial plant must be inst,alled. At Pennsalt, fund? for construction are olitainrtl through the appropriation request procedure. Appropriation Request Procedure. Appropriation requests are usually prepared by the superintendent of the plant at which the equipment is t o be installed, although they are sonietime~ prepared by t h e research and development division, the sale. division, or others in c a ? a where funds must be appropriated by the board of directors for nonplant items. appropriation requests are submitted to the vice president of manufacturing. H e reviews each request and forwards it to t h e president. On receipt of a n appropriate request covering an expansion, the president sends it t o the manager of market research for analysis. H e studies all the technical and economic factors of t h e proposal and summarizes his findings in a brief report called a “Summary of Information.” This report will reveal the strong as well as the ireak points of the proposal. I t contains a n estimate of the necessary working capit,al t,hat is needed in addition to the capital required for fixed investment covered by the appropriation request. T h e report includes a n estimate of the return on fixed and on total investment, return on sales, turnover, profit lost on any captive products divert,ed from sales t o production of the new product, break-even point and other significant data. Information is compiled in accordance with the pattern system described bj- Davies and Collins ( 1 ) . Since the sunimary of information is restricted t o about two pages, only t h e more pertinent of all the facts developed can be included. T h e completed summary is attached t o the appropriation request (copies t o all major executives) which is returned t o t h e president. After reading the summary, if the president is convinced t h a t the appropriation is justified, he will present t h e appropriation request t o the board of directors at its next meeting and the information contained in the s ~ m n i a r yi8 used by the tioard iis a basis for decision. Transfer to Sales Division

After the pilot plant or semicommercial plant has been a p proved by the board of directors and the plant has been const,ructed, a larger volume of the new product is available for inarlcet exploration. If the product is succes~ful, continued markrt development \vi11 build the sales and profit potential u p to a level where the product is attractive t o the sales division. If the use pattern hits become stahilized and the product can be sold on a perfor~nunce rather than a n experimental basis, i t might be desirable to transfer the new product to the sales division. T h e procedure ior obtaining approval for a new product b y the sales division ditTers but slightlq- from the system for securing authorization for market development t,hat has beea described. T h e sales n1an:tger who is t o handle the new product sdbmits a staiitlard l’eiinsiilt form, “Seiv Product .iuthorization Request.” This request is dirtriliuted to the executive previously listed befor(. final :~pprovalis granted. This gives everyone conceriied a n opportunity to coinmerit o u the proposed ne\v product, and i t provides early notificatiori so t h a t all details oi packaging, labeling, patents, freight manifest, and specifications can be completed when the new product is authorized for sale. T h e niiin;tger of market reseawh prepares a summary of informatioil which is distributed to top management executives. Guitlcd by the information contained in this report, the vice president of sales decides whether or not to approve the new

INDUSTRIAL AND ENGINEERING CHEMISTRY

April 1951

product. H e indicates his decision by completing a form called, “Sotice of Decision.” S e w products are usually approved for ,‘trial sales” initially until sales esperience proves them vorthy of taking a permanent place alongside the other members of Pennsalt’s family of product*. Approval for trial sales is indicated on the notice of decision, arid a limit as to the length of time of the program before reauthorization and quantity of material is defined. On approval of the transfer to the salrs division, the market research division suhmits a complt>te rcport of its activities during market development. This report is in great detail slid covers all technical and economic factors. I t also includes a list of the customers who were contacted m d their reactions t o the new product. T h e main purpose of this report is to supply the snles division with the information it needs t.0 sell the new product effectively. The break from market research to sales is not it sharp one. .Uthough the transfer of responsibility takes place almost inimediately, the market research division activity decreases gradu:illy as the sales division’s increases. >[embers of the research and developnient division and the market research division act as consultants during the change-over period. I t is also possible that the market research division may continue with market development of the product for uses which have not yet been firiiily established. Acceptance for Commercial Status

When the trial sales time limit has e s p i r d or the allowed quantity has been sold by the sales division, performunce is reviewed by m:trket research and summarized in a brief report to the vice prwident of sales and other top esecutives and the sales manager supervising the trial program. If sales results during the trial sales program indicate that the new product is ready for pcrmanent addition to the company’s product line, a new product authorization request for commercial status is submitted. This request is processed in the same manner a*j the request for trial sales. However, more is known about the product at the end of the trial period. Information on manufact,uring costs, Felling expenses, selling prices, trade practices, product acceptance, profit margin, and the many other new produrt ronsirlerri-

C. P. NEIDIG,

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tions have been learned by the trial sales experience. The market research report submitted at this time is more factual, hut it u still condensed into a maximum of two pages. Commercial status will not usually be granted if there are any questionable aspects such as lorn profit margin, unproved performance or product :Lcceptance, iiisufficieiit volunie, or other doubtful features. Trial sales authorization would continue to he rcnencld until the product is rc:ad>- for commercial status or

abandoned. Oncr conimc~rcialstittiis has twen :tpproved the product no longrr receives the “new produc*t trcutmeiit~.” I t takes its plac*e among Pennsdt’s other item- 2md m:inagemeiit rrccivrs reports on its performance pt~riot1ic:illyalong with othilr product.;; it is judged almost entirc,ly 0 1 1 its sales and profit voluinci. Request for Commercial Plant

.\s the sales volume increases further, the scmicominervial

plant rventunlly will twcome inadequat.c and a full s c d e plant is needed. An appropriate request, is then submitted by the manufacturing division. This requwt is processed in the siziiic~rnanrier :LS that for :t pilot plant under Pennualt’s appropriation request procedure. \Vhi,n the comnicrcial plant is requested, many more facts are avail:tt)le for analysis of thc. request than w : r e \\-hen the pilot plant approprintion w a s consid~red. Becausc. t,hr investment is much grpatc’r and more permarleiit in nature, tht: appropriation for commrrcial plant receiver very careful scrutiny, and all factors are examined thoroughly. Although :I great amount, of study is made, the results are again summarized into B tiyo-page report to the president as Ivith the pilot plrtnt rqiicwt. On completion of this market research report and approv:il of the new plant by the board of directors, the product h u passed its last appraiad point and is no longer considered a (‘nt*w’’ product. The profit that it returns is the reward that justifiw all the effort and espense that wrre expended during lalmratory and commercial dwelopment. Literature Cited

(1) Dnries and Collins, Chem. IndJ.. 56,T o . 6 , 949 53 (June 19431 R L C E I V L DSeptember 11, 1950

The A t l a n t k Refining Co., Philadelphia, f a .

-4s the ultimate ohjectite in the debelopnient of new chemical products is to create sales, it is important that customer contacts, including field interviews, be made as early as possible after introduction of the product. Initial field contacts are made on a limited scale when sample quantities are available. During this stage, market

potentials are determined and necessary product impro\ements are made. As much technical and useful inforiiintion as is available is given to prospective custoniers. .4fter wide sample distribution, frequent follow-ups, preferably field contacts, are necessary to push the n e w product from development to larger scale sales.

NEW PRODUCT INTRODUCTION Field Interviews S E of the most important steps in the development of neiv

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chemical products is the field interview. The saying, “Build a hetter mousetrap and the world will beat a path t,o your door,” may be true t,oday, but chemical companies cannot afford to wait for this acceptance. Entirely too many companies are taking their ”better mousetraps” t o the consumerlint waiting for the consumer to come to them. Thus, field inter-

v i c w have become a bmic function in developing and markeb ing new or improved cheniical products. It is often inipomible to determine where the idea for a new product or group of products originates. Sometimes it begins in research laboratories where chemists are continually synthesizing new products and may develop one with unique properties. At other times, the impetus may come from the sales department