There is a high degree of risk associated with developing new food and beverage products. Over 90% do not survive their first year in the market. For new business startups, there is even greater complexity attached to the product development process because a new business is usually being put together at the same time. A process model to manage product development, and new business development is introduced. An overview of quality control and quality assurance is provided, and Canada’s network of food technology centres is introduced. Financial support programs for R&D are summarized at the end of Section 4.
For a more detailed discussion on the Process Model for New Product Development and Business Planning, and instructions on how to use it, see the Food & Beverage Processing in Manitoba Reference Manual (Third Edition, 2017). The Reference Manual also provides much more detail on topics including product quality and systems to assure quality, shelf life studies, working with food centres, sourcing ingredients and accessing financial support for new product development.
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Understanding Product Development
Product development always starts with someone having an idea. It might be an idea for a new product based on a family recipe for a new business to manufacture, or it could be an update of an existing company’s product to take advantage of new ingredients. In this case, the existing company’s updating also creates a new product. However, in these two scenarios, the process for developing these new products is vastly different.
For the existing company product development would likely focus on the new product.
For a new food or beverage business with a new product, the new product development process is much more involved and has a much higher degree of risk. In addition to the physical aspects of creating the new product, the entrepreneur has to investigate regulatory requirements for the first time, research and decide on markets and distribution channels for the product, establish and finance the new business, and create the management resources and systems. In fact, when a new business is being established, a comprehensive business plan is needed. (See Section 1 Market Research and Business Planning for more information.) This section provides a new product development (NPD) process model that guides users to deal with all functional areas of a business.
The purpose of this NPD process model is to reduce risk, and to speed a successful launch. Because so many products fail, it is wise to minimize early stage spending while still gaining as much information as possible in a progressive set of steps or “Stages”. At first, when the risk is highest, modest amounts of money and time are spent. As more research and development (R&D) provides greater certainty and reduces risk, more time and money is spent on each Stage until the marketplace launch.
Process Model to Manage Product Development and its Complexity
Because entrepreneurs (and to a lesser degree existing food and beverage processors) must deal with all the business functions when developing a new product, it is a complex process. It involves countless activities and many critical decisions. A structured process to organize and manage all of these activities is needed to cope with the complexity and to manage the risk associated with each decision. The best ways to manage new product development have been studied for several decades and recommended processes have evolved.
A New Product Development (NPD) Process can best be described as a systematic framework to consolidate all of the activities, analyses and decisions that are necessary when developing a new product, which may also include establishing a new business to oversee product development and eventual commercial production. A detailed, customized NPD Process provides a management tool for entrepreneurs to mitigate risk and increase the likelihood of commercial success. Its key features are the Tracks, Stages, and Go - No Go Decisions.
- Tracks relate to four functional business areas:
- Product
- Manufacturing and technology
- Regulations, and
- Marketing and business planning.
- Stages are the steps that the development of a new product moves through as it progresses from the initial idea to the commercialized product launched in the competitive marketplace.
- Go – No Go Decisions are the formal decisions required by the NPD Process at the end of each Stage (regardless of the number of Stages) to decide whether to:
- Move to the next Stage
- Redo work on the existing Stage before finalizing a decision, or
- Kill the NPD for this product and move to another product with better potential.
The NPD Process Model described on the following pages is a business tool that outlines how each of these four functional areas (Tracks) must be dealt with at each Stage in the NPD process. It will work for all businesses, but will be particularly helpful for entrepreneurs and startup businesses.
Tracks (Functional Business Areas)
The entrepreneur must manage all four of the business functions described below concurrently. As explained previously, existing companies that are developing new products must also manage issues in each of these areas. The key difference is that these existing businesses will already have processes or systems in place to manage some of these activities and decisions e.g. the distribution system may already be in place and all that is needed is to add the new product to the current ordering / warehousing / shipping processes.
Excessive focus on the technical development while ignoring marketing, finance and other business functions has been a frequent cause of new product failures. The NPD process is designed to provide a guide for businesses to overcome this problem.
The four Tracks (functional business areas) are:
- Product, Manufacturing and Technology: Includes the tangible aspects of a product and the manufacturing process for making it – both initially in low volumes (e.g. kitchen scale) and then after market penetration in larger volumes (See Section 8 on Manufacturing Strategies.)
- Regulations: Includes all the food safety, federal, provincial, municipal and export (if exporting) requirements. (See Section 5 on Regulations, Section 6 on Food Safety and Section 7 on Packaging and Labelling requirements.)
- Marketing: Includes all the necessary competitive and market research to define the customer segment, the benefits they perceive, the most competitive supply chain, and the marketing and sales plan for getting customers to buy the new product, rather than a competitor’s product. (See Section 1 Market Research and Business Planning, Section 10 Marketing Strategy, Section 11 Distribution, Section 12 Promotion and Section 13 Pricing.)
- Business Planning: Includes addressing all the increases in required human resources/management resources, planning for the costs of development and expanded sales, and addressing all strategic aspects of creating and keeping the business’s competitive advantage. (See Section 1 Market Research and Business Planning, Section 2 Organizing the Business, Section 3 Protecting the Business, Section 9 Managing the Business and Section 15 Human Resource Management.)
Stages (Steps in the Process)
Traditional NPD Stages (Up to 7 Stages):
Each of the four business functions (Tracks – described above) must be dealt with at every Stage. Specific activities appropriate to the particular requirements of a business must be conducted within each Track at each Stage. This is how the Process Model becomes such a useful management tool. It provides a systematic way to monitor progress in all key aspects of developing a new product, and in the case of a startup company, of all aspects of creating the new business that will manufacture the product. The traditional Stages are:
- Idea – where everything starts
- Concept – fleshing out the idea with a more detailed description and research
- Prototype – making the first samples to debug by researching all aspects
- Pilot Production – designing the manufacturing system and further revising the recipe so it can be made at the larger volume commercial scale. If a production plant has to be built, this Stage will take a significant investment
- Test Market Production – testing in one or more selected target markets. Tests not just the physical product but also the marketing, sales, branding, logistics, distribution chain, supply chain and other aspects of the business. This Stage may require a significant investment
- Launch – full launch in target markets
- Grow the Market – monitor results closely and rapidly, and make changes as needed to improve
Need for Speed NPD Stages (as few as 3 Stages):
- Conceptualization Stage: This merges the traditional Idea and Concept Stages.
- Commercialization Stage: This merges the traditional Prototype, Pilot Production and Test Marketing Stages into one Stage. The business takes the concept and rapidly prototypes and begins to manufacture and test market.
- Marketing and Refinement Stage: This merges the traditional Launch and Grow the Market Stages into one Stage. The company puts the new product into the competitive market to get feedback. A key requirement is to very closely monitor consumer reactions and then to rapidly (and repeated) refine the product and the marketing programs.
The Speed Process is well suited to where three conditions exist:
- There is great pressure for a reduced time-to-market, partly because the product life cycle is shorter, and/or because of first entrant competitive advantages
- Acceptable levels of risk exist in two key areas: manufacturing plant capital cost and/or marketing costs prior to gaining significant test market results/feedback
- The ability exists to use technology (especially social media) to monitor and rapidly respond to consumer reactions in the market with refinement of the product and marketing
However, deciding on the NPD Process (number of Stages) to use is not an either / or decision from the two described above. Instead it is a continuum from one to the other, balancing a need for speedy market entry with the need to mitigate risk.
The model options are shown graphically below.
(INSERT FIGURE 4.1 FROM LONG MANUAL)
Go – No Go Decisions
To gain the benefits in either of the above NPD Processes, entrepreneurs and business managers need to make a formal decision at the end of each Stage. This Go – No Go Decision must not be made until the research for each of the four Tracks (functional business areas described previously) have been completed. The three choices for each Go – No Go decision are:
- Continue to the next Stage
- Redo some of the previous work
- Completely halt the product development process for this product, and move on to a different more promising new product
For each "Go/No Go Decision" there are two factors that impact the decision. They are:
- Do the financial, market and technical analyses indicate a reasonable probability of successful launch of the product?
- Is the cost to conduct the next Stage of the process such that it is a reasonable risk to take in light of 1 above?
These two factors are interactive, so that if the probability of success determined for the first factor is lower, but the cost to conduct the next stage is small, then the decision may be to proceed. But, if the cost to conduct the next stage is very high, then the probabilities of success will have to be higher in order to justify proceeding to the costly next stage.
Product Quality/Assurance
One of the expected outcomes of the NPD process is a manufacturing system that consistently puts out finished products that meet target specifications. For food or beverage products, a good definition of “quality” is a finished product that consistently meets specifications.
Quality in a food or beverage product includes:
- Consistency
- Food safety (See Section 6)
- Physical appearance
- Value
- Nutrition
- Shelf life
Quality control prevents unsatisfactory products from being delivered to customers through proper production and quality inspections. Quality control is primarily the responsibility of the production staff and should be built into the manufacturing process.
Quality assurance is a set of written specifications and standards created as a preventative measure to avoid the production of unsatisfactory products. Quality assurance is a management responsibility as only management can ensure the necessary programs are developed and consistently enforced.
Typically, there are specification records/sheets for:
- Raw material specifications
- Standard procedures
- Finished product standards
- Daily formulation records
- Product inspection reports
Quality can be tested subjectively, and/or objectively, depending on the characteristic being measured.
Examples of objective testing include physical tests (e.g. weight and/or volume checks), chemical tests (e.g. protein, fat, and moisture content), and microbial tests (e.g. coliform count).
Food quality is also measured by subjective testing, using a number of different sensory tests. During the NPD process, sensory evaluation allows trained specialists to measure response to the product as it is eaten. The goal is to develop a product that has the appearance, flavor and texture that the target consumer likes. Trained panels are conducted under controlled conditions to identify specific quality attributes (e.g. saltiness or chewiness).
Shelf life is extremely important because a processor must know how long a new product maintains satisfactory quality under a variety of temperatures and environmental conditions.
The shelf life must be determined through testing prior to launching a product. The complexity of shelf life trials depends on the type of product, the packaging materials used and the desired shelf life.
There are various laboratories and food technology centres that can assist with testing as part of a quality assurance program:
ALS Laboratory Group
Intertek Sunwest
Website: http://www.intertek.com/food/
Manitoba Agriculture, Food Development Centre
Maxxam
Website: http://maxxam.ca/
SGS Canada
Website: http://www.sgs.ca/
Equipment Sourcing
Identifying equipment for production of the product is a critical activity that is done during the NPD process. One way to find appropriate suppliers is through trade associations like Food & Beverage Manitoba. As well, there are several publications that cover equipment suppliers:
Scott’s Directories
Website: www.scottsinfo.com
Prepared Foods
Website: www.preparedfoods.com
Canadian Process Equipment and Control News
Website: www.cpecn.com
Food Processing Magazine
Website: www.foodprocessing.com
Food in Canada
Website: http://www.foodincanada.com/
Raw Material and Ingredient Sourcing
As with equipment needed for processing, the raw materials, ingredients and additives needed for the new product are identified during the NPD process. Before contacting suppliers to source raw material or ingredients it is important to:
- Know specifications and performance requirements
- Know approximate volume requirements so the supplier knows how to price
- Know desired container size that will work with selected processing equipment, batch size and the processing site
Things to consider when contacting an ingredient supplier include:
- Packaging sizes needed
- Pricing structures and volume discounts
- Minimum order requirements
- Shelf life and storage requirements
- Product availability if there is any seasonality or scarcity of supply
- Shipping options
- Food safety systems and quality assurance systems employed to ensure consistency and safety in the production processes, ingredients and in the final product
- Whether ingredients meet certifications that might be relevant to the product e.g. Halal, Kosher, organic, sustainable, etc.
There are many ways to find food ingredient and raw material supplies. Talking with other processors, internet searches, reading trade magazines or attending trade shows are some options. Food & Beverage Manitoba has a membership directory that includes raw material suppliers and ingredient distributors. The Food in Canada Buyers Guide can be searched for suppliers by company name or product category.
research & development Financial Support
R & D projects involving technical uncertainty (as in product development projects) may be eligible for funding from the National Research Council (NRC) through the Industrial Research Assistance Program (IRAP). NRC provides innovation and funding services customized to businesses’ specific needs. The purpose is to help accelerate the growth of the business through increased innovation and technology.
Contact: National Research Council
IRAP Program
Phone Toll-free: 1 (877) 994-4727
National Research Council
R & D projects involving technical uncertainty (as in product development projects) may be eligible for funding from the National Research Council (NRC) through the Industrial Research Assistance Program (IRAP). NRC provides innovation and funding services customized to businesses’ specific needs. The purpose is to help accelerate the growth of the business through increased innovation and technology.
Contact: National Research Council
IRAP Program
Phone Toll-free: 1 (877) 994-4727
Federal Research and Development Tax Credits
Governments offer tax incentives to encourage innovation. One of the federal tax incentives for increased innovation is called Scientific Research and Experimental Development (SR&ED). Businesses can apply for SR&ED investment tax credits for expenditures such as wages, materials, machinery, equipment, some overhead, and SR&ED contracts that are spent on R&D. Many businesses use an accountant or consultant that specializes in assisting with SR&ED claims to ensure they maximize the claim.
Contact: Canada Revenue Agency
SR&ED Division
Telephone: (587) 475-3030
Website: http://www.cra-arc.gc.ca/txcrdt/sred-rsde/menu-eng.html
Manitoba Research and Development Tax Credits
The Manitoba research and development tax credit is, under some conditions, refundable. It is available to corporations with permanent establishments in Manitoba for SR&ED carried out in Manitoba.
Contact: Manitoba Department of Finance
Phone: (204) 945-3744
Toll-Free: (866) 626-4862
Website: http://www.gov.mb.ca/jec/invest/busfacts/govt/rd_taxcredit.html