For industrial market distribution the situation is more variable. Frequently the seller will have his own fleet of vehicles and may have warehousing facilities or geographically dispersed depots. An example might be a company that manufactures components for the motor industry. It may manufacture in one or more locations and have storage depots located near its customers. It may also deliver products direct to the motor manufacturer’s plant either using its own transport or by using an independent haulier.
If the company makes products for international markets it may have to prepare and package products for sea or air freight. This could include using haulage contractors who will deliver direct into Europe using roll-on roll-off ferries.
Price structure tends to vary widely, but is usually based on negotiation between the seller and buyer. It may be done through a process of enquiry and quotation or may simply be based on price lists and discounts separately negotiated.
Research and development
New product design and development is often a crucial factor in the survival of a company. In an industry that is fast changing, firms must continually revise their design and range of products. This is necessary because of the relentless progress of technology as well as the actions of competitors and the changing preferences of customers.
A good example of this situation is the motor industry. The British motor industry has gone through turbulent times, caused by its relative inefficiency compared with Japan and Germany and also because the quality of its products was below that of its competitors. This difficult position was then made worse by having products that lacked some of the innovative features of the competition.
There are three basic ways of approaching design and development:
• driven by marketing
• driven by technology
• coordinated approach.
A system driven by marketing is one that puts the customer needs first, and only produces goods, which are known to sell. Market research is carried out, which establishes what is needed. If the development is technology driven then it is a matter of selling what it is possible to make. The product range is developed so that production processes are as efficient as possible and the products are technically superior, hence possessing a natural advantage in the market place. Marketing’s job is therefore to create the market and sell the product.
Both approaches have their merits, but each of them omit important aspects, hence the idea that a coordinated approach would be better. With this approach the needs of the market are considered at the same time as the needs of the production operation and of design and development. In many businesses this inter-functional system works best, since the functions of R&D, production, marketing, purchasing, quality control and material control are all taken into account. However, its success depends on how well the interface between these functions is managed and integrated. Sometimes committees are used as matrix structures or task forces (the latter being set up especially to see in new product developments). In some parts of the motor industry a function called programme timing coordinates the activities of the major functions by agreeing and setting target dates and events using network planning techniques.
The basic product development process is outlined as follows:
• idea generation
• selection of a suitable design
• preliminary design prototype construction
• design modification
• final design.
This is a complex process and involves cooperative work between the design and development engineers, marketing specialists, production engineers and skilled craft engineers to name some of the major players.
Ideas can come from the identification of new customer needs, the invention of new materials or the successful modification of existing products. Selection from new ideas will be based on factors like:
• market potential
• financial feasibility
• operations compatibility.
This means screening out ideas that have little marketability are too expensive to make at a profit and which do not fit easily alongside current production processes.
After this, preliminary designs will be made within which trade-offs between cost, quality and functionality will be made. This can involve the processes of value analysis and value engineering. These processes look at both the product and the methods of production with a view to maintaining good product performance and durability whilst achieving low cost.
Prototypes are then produced, possibly by hand and certainly not by using mass production methods. This is followed by rigorous testing to verify the marketing and technical performance characteristics required. Sometimes this process will involve test marketing to check customer acceptance of the new product.
Final design will include the modifications made to the design as a result of prototype testing. The full specification and drawings will be prepared so that production can be planned and started.