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By David Feder, Technical Editor | 04/06/2010
On the April 2010 magazine cover, we popped a champagne cork when our research indicated a 19.5 percent increase in capital spending for 2010. We felt similarly giddy in January, when our annual Manufacturing Trends Survey found 66 percent of our Plant Operations respondents were optimistic going into the new year.
While our 39th Annual R&D Survey shows no retreat, our product development readers appear to be a more cautious group. It's a good sign that, for the second year, new product development is the most important target of R&D efforts – much more so than cost control, which was a key concern in 2008, and up 1.6 percentage points over last year's vote for new product development.
But when asked about the R&D department's budget, 51 percent say it looks about the same as last year's (which probably was reduced from the previous year), 22 percent report it's been increased and 15 percent indicate it's been cut. Not bad, but nothing to celebrate – except to note last year's figures were reversed, with 28 percent saying their budgets were cut and only 14 percent claiming their allotments were increased.
Still, this indicates processors either see new growth around the bend or they recognize a Business 101 rule: Economic downturns are the best time for growth -- material costs go down and competition for capital goes up (possibly hindering your competitors). All those factors can allow you to jump ahead of the Nervous Nells, who are overly risk averse.
(It's worth noting the Natural Products Expo West show in March was great vindication of this new product exuberance: More than 60,000 exhibitors and attendees crowded the Anaheim Convention Center for four days of interesting, albeit nichey, new products.)
The second most-targeted area of R&D mimics last year's — existing product improvement — although in total, it was lower by a few percentage points at 25 percent versus nearly 30. This year, we divided that answer to better reflect just what sort of improvements our processors are working on. In a nearly even split, existing product improvement accounted for about 13 percent, while "cleaning up" current products by making them natural or organic or removing perceived-as-negative ingredients accounted for 12 percent.
Of course, many processors are working a combination of such improvements into their lines. "While we will look to develop new products, we will also search for ways to make them natural and as organic as possible," says one manufacturer of seasoning blends. Another processor notes, "We are seriously working to remove MSG, hydrolyzed vegetable proteins and added I+G [Disodium Inosinate (IMP)+ Disodium Guanylate (GMP)] from our entire product line. We are also working on lowering salt/sodium values throughout our product line."
Another area of minuscule growth is the 10 percent who say product-line extensions are what they'll be spending most of their time on this year (last year it was 9 percent).
Creativity is certainly the name of the game in juggling economic concerns with new investment. Let's hope those who slashed their R&D budgets won't get left in the dust when their competitors hit the shelves with a flurry of new and improved products. As one processor put it so succinctly, "We're spending more to keep our company well ahead of the competition [in order to] continue (our) success."
One respondent in this year's survey is applying the concept of research and development not only in product development but into more efficient use, and conservation, of materials and energy. How? By investing in the utilization of biowaste energy as a "value-added" aspect of production. This is the sort of forward thinking that pays off at a rate of four for one: Once in actual costs saved on energy, once in money saved disposing of the waste, once toward preserving the environment for the future and finally in the ability to enhance the value of products to the consumer through green marketing.
As manufacturers slowly leave their risk-averse shells, investments of time, personnel and especially R&D dollars are being treated with a fine-tooth comb. While not much has changed internally in terms of who's on the larger product development team, the big gains are in outside forces. The utilization of outside consulting nearly doubled, from just under 10 percent last year to just over 17 percent, and the involvement of a single supplier in the mix tripled from 2 to 6 percent.
In 2009, respondents noted 70 percent of new product development decisions were being made in a centralized fashion at the corporate level. Whether recognition of the need to get input at all levels or a desire to spread the risk around to cover one's brass behind, the top dogs are loosening the reins this year: Centralized decision-making dropped below 50 percent. The decentralized method – where decisions are made by separate business units or other groups — rose from last year's 30 percent to almost 40 percent. Also, we targeted more explicitly where R&D fits in to find that for almost 13 percent "R&D really gets to call the shots."
This is borne out by the analysis of who actually sets the goals of product development. R&D has the greatest input, with 85 percent being "very involved" in those decisions (versus 2009's 74 percent). Marketing & Sales stayed very involved at the same rate, about two-thirds. Decentralization notwithstanding, there's still a strong hand on the tiller: Whereas last year those with the title CEO, President or CFO were "very involved" to the tune of just 43 percent, this year more than 54 percent claimed such involvement. General Management rose in this area slightly, from 48 percent to 52 percent. And the Manufacturing & Plant Ops folks held steady at 23 percent. (Many questions allowed more than one answer.)