Risk management framework for a new product development integrated with supply chain management

1. Title
Risk management framework for a new product development integrated with supply
chain management

2.1. Abstract
In the rapidly growing globalised competitive world, companies are pursuing different
strategies to grow their business and introducing new products in every market segment to
gain competitive advantage. But to sustain competitive advantage, the new products need to
be both technologically advanced and innovative in design. Quite often projects of new
product development (NPD) are associated with risks in various stages of product
development life cycle, right from concept development to delivery of the product to the
market.

Lewis (1998) defines risk as anything that can go wrong in a project that can cause loss or
harm the projects activity. The challenge lies in how to manage those risks in projects.

Many times, by overlook, certain risks are not identified and once failure occurs it is
concluded that if that particular risks was identified well in advance and analysed
systematically, perhaps that failure could have been avoided. Despite our understanding of
complex systems, we cannot identify all of the factors that contribute to risk and success.
Analysis of the risks that are identified is another sub-process of risk management where
some managers use the analysis tool of less relevance to the type of analysis to be carried
out, resulting in an ineffective analysis of the identified risks.

Design engineers are often challenged by risks and typically want to get it right, rather than
getting it on time and at lowest cost, which conflict a project management setting by time,
cost, and organizational constraints. Moreover, a complex project and its outcomes
demands organisational change, but there exists a resistance to change in the project
management or supplier team and also in the customer’s organisation due to corporate
cultural variations. Risk analysis is key task and the analysis method has to be chosen
carefully, and failure to do so will escalate the cost factor associated with that risk and may
even be a cause of failure to the project. Managing the risks in project of NPDs is not only
important to the firm that develops the products, but also to the team that develops the
product, the end customer, the firm’s suppliers and contractors, financiers, insurers and
other stakeholders as well.

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 Risk management framework for a new product development integrated with supply chain management

The scope of the research is about developing a framework of risk management process for
a project of NPD using tools and techniques of project risk management, and integrating
them with strategies involved in NPD and also the concept of Early Supplier Involvement
(ESI) concept associated with supply chain management (SCM). The research outlines and
illustrates the application of risk management tools and techniques to manage various risks
associated with NPD, taking suppliers also in to account during the design and development
phase of a new product development.

2.1. Aim
The aim of the research is to synthesize a risk management system for managing the risks
involved in a NPD underpinned with SCM concept of ESI in supplier development.

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 Risk management framework for a new product development integrated with supply chain management

3. Preliminary Literature Review

The review of the literature intends to review the theoretical background comprising of three
sections as given below:
1. Project Risk Management Process;
2. The strategies involved with NPD; and
3. The process of ESI related to SCM.

3.1. Project Risk Management Process

(PMBOK® Guide 2004:237) Project risk management is the systematic process of risk
management planning, identifying, analysing, and responding to various risks associated
with a project, and monitoring and control on a project:
1. Risk Management Planning to decide how to approach and plan the risk
management activities and execute the activities for the project
2. Risk Identification to determine and document which risks might affect the project
3. Qualitative Risk Analysis of risks and conditions to prioritise their impacts on project
objectives by assessing and combining their probability of occurrence and impact.
4. Quantitative Risk Analysis to analyse numerically the effect on overall project
objectives of identified risks.
5. Risk Response Planning to develop procedures and techniques to enhance
opportunities and reduce threats to the project’s objectives
6. Risk Monitoring and Control to monitor residual risks, identify new risks, execute risk
reduction plans, and evaluating their effectives throughout the project life cycle.

Figure 3.1.1 shows an iterative risk management process. (Fringenti and Comninos
2002:284).

Fig. 3.1.1 Iterative Risk Management Process (Fringenti and Comninos 2002)

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 Risk management framework for a new product development integrated with supply chain management

3.1.1. Risk Management Planning

Risk Management Planning is to develop a plan to manage, monitor, and control the risks
(Shtub et. al 2005:357). The essential inputs to the risk management process include
purpose, objectives, strategies, scope, stakeholder analysis and communication strategy,
and key assumptions (Fringenti and Comninos 2002:285).

3.1.2. Risk Identification

(Lock 2003) Brainstorming is an effective technique for considering many aspects of risk and
identifying possible risks. Various other tools and techniques include issues generation,
purpose, scope and objectives analysis, deliverables breakdown structures, milestone
objective charts, checklists, judgements based on experience and records, flow analysis,
systems analysis and scenario analysis (Fringenti and Comninos 2002:287).

3.1.3. Qualitative Risk Analysis

(Fringenti and Comninos 2002:289) Qualitative analysis describes the likelihood of each
event arising and its consequences.
Qualitative analysis is used:
 as an initial activity to identify risks that require more detailed analysis,
 where the level of risk does not justify the time and effort required for a full analysis,
or
 where the numerical data are inadequate for performing quantitative analysis.

(Lock 2003) Failure mode and effect analysis (FMEA) is another very helpful qualitative
approach in considering and analysing the identified risks wherein possible risks are
considered with their cause and then predict all their possible effects.

3.1.4. Quantitative Risk Analysis

By Quantitative analysis method, numerical values are assigned to risks and their possible
effects. It often examines the probable impact on project time and cost performance.
Alternatively, ranking numbers can be assigned after evaluation of every identified risk and
thereby prioritising. Thus risk quantification of a qualitative analysis method FMEA becomes
quantitative failure mode effect and criticality analysis (FMECA) (Lock 2003).

Quantitative analysis uses numerical values for both likelihood and consequences using
data from variety of sources same as those for qualitative analysis and the quality of the

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 Risk management framework for a new product development integrated with supply chain management

analysis depends on the accuracy and completeness of numerical values used (Fringenti
and Comninos 2002:291).

3.1.5. Risk Response Planning or Risk Treatment

(Shtub et. al 2005:359-360) The next step in the analysis is to decide how to handle the
identified risks or to develop contingency plans. (Fringenti and Comninos 2002:293-94) Risk
response plan involves identifying the range of options for treating risk, assessing those
options, preparing risk treatment plans and implementing them and the different ways are:
• Information gathering in case of risks generated by uncertainty, wherein an effort is
made to collect information in the form of literature search, feasibility studies,
purchasing of knowledge or patents, reverse engineering, hiring or new employees
and so on to reduce the level of uncertainty to reduce or eliminate the risk.
• Accepting the risk and form that a part of the risk response plan
• Retaining the risk in case there has been a failure to identify a risk or a risk that has
emerged during project process
• Risk elimination or avoidance of the activity or the factor that causes the risk to
eliminate the impact or probability of its occurrence without having a harmful effect on
the project scope, organization, cost, time and quality as sometimes avoiding a risk
could require changes to scope, planning, technique, design and so on.
• Risk Mitigation or abatement or reduction by reducing the impact or probability of the
risk occurrence to diminish the severity of loss in case of the risk occurrence through
actions such as organization audit and compliance processes, formal project health
checks, and reviews of specifications, analysis/design and implementation, project
management, portfolio management, quality assurance, training, supervision, testing
and research and development.
• Risk sharing with another stake holder in the project
• Risk transfer to a third party by contractual or other means such as partnerships and
joint ventures or through insurance purchase to pay any penalties associated with
any kind of risk thereby transferring the risk.
• Risk buffering by means of extra time to the schedule or management reserve to the
budget in order to protect the project from risk by absorbing it.
• Contingency Planning that can be used as soon as a risk event occurs, thus reducing
the response time and the impact of the risk on the project.

3.1.6 Risk Monitoring and Control

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 Risk management framework for a new product development integrated with supply chain management

Risk monitoring and control throughout the project life cycle involves new information
collection to understand the hurdles faced by the project as the risk probability and impact of
existing risks may change and the stakeholders may realign their tolerances and
expectations. And hence, it is very important to continuously monitor the existing risks and
to identify new risks as soon as possible to keep track and update risk management plan.
(Shtub et. al 2005:360).

3.2. The strategies involved with NPD

(Barkley 2008:6-8) Company must lay down the following strategies in assuring for creating
a culture of ideas.

1. Core business priority as NPD and opportunity generation.

a. Corporate must communicate the importance of NPD for its growth.

b. Priority must be given for NPD while taking decisions and actions.

2. Remove barriers of idea generation.

a. Provide Inspirational leadership to encourage thinking out-of-the-box.

b. Eliminate the fear of failure and rejection.

i. Consider risks as opportunities to overcome failure by improvements

which will improve company efficiency and effectiveness.

 Product improvement could enhance sales and marketing

efficiency

 Service improvements could enable sustain product life and

long term customer relationship

3. Provide current products and services information and feedback system.

a. System of open feedback and recommendations in various forms from every

level of the organisation.

b. Make employee engagement a vital part for growth.

4. Create positive and sustainable environment for new idea.

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 Risk management framework for a new product development integrated with supply chain management

a. Encourage for new idea generation which needs to be conceptualized and

defined through reviews for NPD.

5. Develop flexible process of filtering, evaluation and transitioning ideas into NPD
portfolio and process.

6. Manage and control NPD including marketing.

a. Conduct risk assessment and response, use a risk matrix to categorize new
concepts and identify their risks, impacts, probabilities, severity, and
contingencies.

7. Make real success stories in NPDs to demonstrate the growth of business.

a. Publicise new product successes as stories and reports in company

newsletters and other media to generate higher success.

b. Highlight rewards for the employees for their success to make others feel the
winning attitude in other employees.

3.3. The process of ESI related to SCM

Supply chain management is the integration of each element of supply, design, production,
and distribution from extraction of raw material to end customer delivery. (Rudzki et al.
2006). Managing supplier relationships is the vital part of strategic supply management as
market changes and trends makes external suppliers a critical part of a firm's value chain
(Trent 2007). Through a good relationship, supplier development activities by means of
collaboration with suppliers in various forms of partnerships, enables to improve overall
effectiveness and efficiency of the supply chain as a whole (Ford et al. 1998).

(Krause and Handfield 1999:9) One of the important steps in supplier development during
Integrative Development stage is Supplier Integration in NPD. Suppliers are integrated into
buyers supply chain network by means of supplier involvement in D&D of new products,
processes, and services, Refer appendix Fig. A for supplier development Model – Step #10.

ESI is the process of relying on suppliers, either physically or virtually, to provide support
early on during strategic planning, demand and supply planning, continuous improvement
projects, project planning and development of new technologies and products. ESI is often
associated with new product development and the factors that drive include the need for
continuous improvement, the need to develop new products, services, and processes

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 Risk management framework for a new product development integrated with supply chain management

quickly and also save cost by doing the design right at first time, thus achieving reduced
cycle times of concept-to-customer (Trent 2007).

Though there are various expenses involved in supplier relationship management, buyer
companies reap the benefits such as achieving are lower production costs by means of right
first time design, improved material flow through reduced inventory, and reduced
administration costs by means of integrated information systems (Ford et al. 1998).

Overall benefits to the buyer company are reduction in material cost, reduction in
development and manufacturing cost, reduction in development cycle time, improvement in
quality, functionality, features and technology. Table 3.3.1 presents findings from the study
that focused on how different organisations involve suppliers during product and
process development and reveal that ESI deliver better performance results (Trent 2007).
Early Involvement
Reduction in material costs 20%
Reduction in development cycle time 20%
Improvement in material quality 20%
Reduction in development costs 20%
Reduction in manufacturing costs 10%
Improvement in product functionality, features, & technology 20%

Table.3.3.1. Median Improvements from ESI (Trent 2007:227)

3.4. Integration of Risk Management, Strategies and SCM

Once the first task of literature review of project risk management of NPD, strategies
associated with NPD and SCM concept of ESI are completed, the next task would be to
undertake the review of some case studies related to NPD risk management and ESI. This
will enable to grasp ideas how theory has been implemented in to practice and what are the
challenges and unforeseen situations that was faced by certain firms.

Further, the relevant data of literature review and case study would be reviewed based on
their relevance with the project, then analysed and synthesised towards new ideas and
results. The integrated results and ideas will then be reviewed and evaluated against aim
and objectives of the project which could then enable to deliver recommendations and draw
out conclusions accordingly.

We can conclude from the literature review activities that the risks associated with a project
of NPD are identified, analysed, monitored and controlled, and responded using the tools

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 Risk management framework for a new product development integrated with supply chain management

and techniques of project risk management, and then integrate with strategies involved in
NPD and concept of ESI concept associated to SCM in the supplier integration process of
supplier development to develop a framework of new product risk management system.

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 Risk management framework for a new product development integrated with supply chain management

4. Project Objectives
The main objective of the research is to co-relate the risk management aspects of a project
of NPD with the concept of ESI associated with SCM along with the strategies involved in
NPD.

The sub-objectives of the research for achieving the project aim comprises of variables of
the three subject areas namely risk management, strategies of NPD and ESI in SCM and
are as follows:
1. Prepare the project risk management plan for a NPD.
2. Develop quantitative and qualitative risk analysis framework for NPD.
3. Identify and analyse the strategies for NPD including SWOT analysis.
4. Link ESI concept to risk management process
5. Deduce risk analysis tool with the strategies and ESI concept of NPD
6. Synthesize a framework of risk management system

5. Project Deliverables
The key deliverable of the research is a framework for product development managers to
consider various aspects of risk in the development of new products and enable to bring
down the number of failure by responding and managing the risks, hand-in-hand various
strategies of NPD and also with the involvement of suppliers at the product development
stage itself. In addition, the outcomes from the objectives are as follows:
1. Risk management process for a NPD.
2. Amalgamating ESI into risk management process
3. Analysis matrix.
4. SWOT matrix.
5. Risk response register
6. Framework of risk management system linking NPD strategies and ESI.

6. Reasons for interests in the project

Choosing a project is definitely an overwhelming challenge as it involves consideration of
various factors such as personal interest, strength, weakness, subject knowledge,
experience, skills and also looking at budding aspects of current industry requirements for
potential employees. The mind map that was prepared considering the above said factors

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 Risk management framework for a new product development integrated with supply chain management

has helped to narrow down to a particular subject area that I would be interested to take
some research activity.

I have gained basic knowledge in NPD through my work experience as a Product

Development Engineer. With this background knowledge and with the help of research, I will
attempt to develop a risk management framework for a project of new product development
and linking with SCM. Thus, compliment theory learnt with practical knowledge gained. The
research will also aid me towards my short-term career goal to become a Product
Development Manager. I have a very good risk predicting and foreseeing capability which
requires prompt initiation of thoughts with self motivation. My subject knowledge in risk
management field needs to be enriched, which I intend to do by means of carrying out
literature review to gain knowledge through the research project. Also, the research question
was very interesting to me. The subject area is right fit, not too broad or narrow, and could
be researched.

7. Key Questions attempted to answer in the project

The research can be referred to as an objective type from the project point of view and
further the research study is primarily a co-relational research that tries to discover or
establish the existence of a relationship or interdependence between the risk management
aspects of a product development, strategies associated with NPD, and with SCM concept
of ESI.
Based on literature review and previous background analysis, the research attempts to
answer the following:
1. What are the probability, severity and impacts of risks in a NPD?
2. What is the relationship between risk management of NPD and SCM?
3. What are the benefits of NPD by ESI through risk mitigation?
4. What is the effectiveness of the overall risk management process in the new
approach?

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 Risk management framework for a new product development integrated with supply chain management

8. Research Methods intended to use and Sources of data

8.1. Intended Research Method
Sl. Research
Reason
No Method
Literature review enables to -
• identify the area where research has not been carried out in
the past, thus guides in the right direction by refining
• lay a strong foundation on the research topic by providing
theoretical background
• identify key issues and potential gaps in the research area in
Library
1 order to recommend new proposals in the context of existing
Based
knowledge.
• provides supporting evidence for practical problems
• familiarise with the theoretical concepts and methodologies in
subject area of intended research and how they are applied.
• analyse the relevant data and critically evaluate with evidence
collected.
Case study enables to -
• understand the methodologies followed in historical project
Case
management of NPD
2 study
• understand the real industry scenario by giving actual
reports
practices in the specific subject field
• draw conclusion and recommendations with specific evidence

8.2. Source of data

The primary sources of data would be only theses/dissertations available in Lanchester
library. Those theses which are not available in library would be requested through
Document Supply services, if required.

The secondary source of data would be library based literature review of textbooks and
peer-reviewed journal articles including case study reports relevant to the core subject areas
covered in the research including some of the case study of previously collected historic
data. Online database such as Emerald and EBSCO will also be used to access online
journals and e-books.

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 Risk management framework for a new product development integrated with supply chain management

9. DRAFT CHAPTER HEADINGS

1. Introduction
1.1. Background
1.2. Aims
1.3. Objective
2. Research Methodology
2.1. Literature Review
2.1.1. Project Risk Management
2.1.2. Strategies in NPD
2.1.3. Supply Chain Management in NPD
2.2. Case study
3. Data Collection, Review and Analysis
4. Synthesise and integration of results and ideas
5. Evaluation
6. Recommendations
7. Conclusion
8. List of References
9. Bibliography
10. Appendices
11. Index

10. Ethical consideration and plagiarism

I have clearly read the Ethical Guidelines and understood to comply with the University's
ethics requirements. Majority of the information and data that I require for the project are
from literature review and there won’t be any ethical issues as no living participants are
related to the project.

I clearly understand about plagiarism and how to avoid plagiarism. Whenever I use the
results of others work I will give an acknowledgement by including citation and/or paraphrase
into my own words whilst being true to the original content as per Harvard Referencing style
followed at Coventry University,

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 Risk management framework for a new product development integrated with supply chain management

11. Project Gantt chart

The draft project plan indicating start and end dates, the deliverables and key milestones
has been outlined using MS Project and is included in the Appendix Fig.B. Contingency days
are not considered at moment and will be included during risk management process in
design stage for the research project which is the first task as indicated in the Gantt chart.

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 Risk management framework for a new product development integrated with supply chain management

12. List of References

Barkley,B.T. (2008) Project Management in new product development. New York: The
McGraw-Hill Companies,Inc.

Burnes,B, Dale,B (1998) Working in partnership. Hampshire: Gower Publishing Limited

Ford,D, Gadde,L, Hakansson,H, Lundgren,A, Snehota,I, Turnbull,P, Wilson,D (1998)

Managing Business Relationships. West Sussex: John Wiley & Sons Ltd

Frigenti,E, Comninos,D (2002) The practice of project management. London: Kogan Page

Handfield, R.B., Ragatz,G.L., Petersen, K.J.,Monczka, R.M.,(1999) 'Involving Suppliers in

New Product Development.'. California Management Review 42 (Issue 1), 59-82

Krause,D.R., Handfield, R.B., Ragatz (1999) ‘Developing A World-Class Supply Base'.

Centre for Advanced Purchasing Studies 42 (Issue 1), 6-11

Lewis,J.P., (1998) Mastering Project Management. New York: McGraw-Hill

Lock,D (2003) Project Management. Hampshire: Gover Publishing Ltd

Meredith,J.R., Samuel,J.M.Jr. (2006) Project Management-A Managerial Approach. New

Jersey: John Wiley & Sons Ltd

Rudzki,R.A.,Smock,D.A.,Katzorke,M and Stewar,S.Jr (2006) Straight to the Bottom Line—

An Executive's Roadmap to World Class Supply Management. Indiana: J.Ross
Publishing

Shtub,A., Bard,J.F., Globerson,S (2005) 2nd edn. Project Management Processes,

Methodologies, and Economics. New Jersey: Pearson Education, Inc.

Trent,R.J. (2007) Strategic Supply Management: Creating the Next Source of Competitive
Advantage. Indiana: J.Ross Publishing

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13. Appendix
1. Fig.A. Supplier Model (Krause and Handfield 1999:9)

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Risk management framework for a new product development integrated with supply chain management

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