Tools that can track the costs of introducing a product throughout the supply chain, as well as those that attempt to predict each item's profit potential and the effect on its category, are being employed in the supermarket industry's effort to streamline the product-introduction process.
Nearly everyone agrees that item introductions have room for improvement, both in boosting the percentage of new products that succeed and in making the introduction process itself more efficient.
Retailers and wholesalers are becoming aware of the strain on their systems that new products entail. "Bringing a product to market is expensive, not only for the manufacturer but for the retailer," said John McCabe, category manager for grocery at Penn Traffic Co., Syracuse, N.Y.
"Everyone in the supply chain needs to be mindful of identifying and eliminating those items destined for failure," said Joey Ely, director of category management resources at Fleming Cos., Oklahoma City.
"Thousands of new products are introduced each year, but only one-third succeed," noted Fred Crawford, national director of retail and consumer products for Ernst & Young, New York. Other experts put the new-item failure rate even higher.
Even for products that eventually become successful, the introduction process requires resources throughout the supply chain. "There's the cost of warehousing and distribution, the information-technology cost of putting the item in the system, shelf labels and shelf placement, and those are just a few," said McCabe.
Certain areas like perishables are even more expensive because they're "very sensitive items as far as handling is concerned," he added. With that type of item, "you can't afford to make too many costly mistakes."
Penn Traffic uses a checklist of various criteria to evaluate new items before they are brought in, he added, though he declined to provide specifics.
Associated Food Stores, Salt Lake City, has also standardized and simplified the introduction process, requiring all manufacturers to include the same information about new products and limiting them to one page each.
This simple change has been helpful in eliminating chaos, said Ron Christensen, director of distribution center inventory management at Associated Food Stores.
The wholesaler plans to enhance its new product introduction process further, with the development of a data warehouse system that will analyze retail data and wholesale costs of distribution.
"This system will help determine what we stock," Christensen said. "We would be able to evaluate the impact of the new item for that category or section on the shelf, based on the history of the item.
"Usually, an item is test-marketed," he added. "We will put that information into a simulation to see what it could do for the profit of that section. If [the section profit] is negative, then we would have to look at the item differently."
Currently, if Associated likes a new item, it is given further review after seeing the manufacturer's one-page description. Once the analysis is complete, "if we want to bring the item in, we order it then," he said. "We used to wait and see what the stores wanted. But if it's a key item and it looks like it's going to be a success, we bring it right in."
From there, "we apply it into our schematic flow charts for that section, which may require some discontinuing of other products," Christensen explained. "We make a recommendation to the store as to where to place it on the shelf. Then, we order it, get it in and distribute it as fast as we can, based on the independents' ability to absorb the new product."
Systems that incorporate information from several links in the supply chain can also help retailers evaluate new products.
A retailer who requested anonymity is in the process of implementing a system for forecasting and ordering products. This system will be linked to its warehouse management and category management systems. The retailer will then be able to obtain activity-based costing information to help in product decision-making.
"From a logistics perspective, we assume the procurement, merchandising and category managers are determining the value of the item," the source said. "But in the future, we will be providing them with ABC strategies on the value of the item in the supply chain."
For now, many wholesalers and retailers rely on processes within their category management efforts to weed out weak products. Fleming Cos., Oklahoma City, scores items using specific criteria to measure what it thinks will be the success of the new item.
"We look at segmentation, we look at consumer trends and we look at whether it's a new category or a new brand," said Joey Ely, director of category management resources at Fleming Cos. "We also ask whether it is going to grow the category."
In addition, "we review how it fits into retailer strategy and its implications to store brands," he added. "Those are things that we do at category and brand level. At the retailer level, we look at issues such as volume and return on investment, incremental category volume, support levels as far as promotions and allocation of retailer resources.
"We also look at promotional support," Ely explained. "For many items the first year they do well because they are promoted. In year two, the volume starts to decline because the promotion declines. Items are not really established yet. There is a need for long-term support all the way through year two, and most brands don't do that."