What is a functional product?
A functional product is a product that has been designed to perform a specific function or functions. Functional products are often seen in industries such as manufacturing, where they are used to perform tasks such as assembly, testing and inspection.
What is an innovative product?
An innovative product is a product that has been developed with the aim of being new and different from existing products. Innovative products are often seen in industries such as technology, where companies strive to create new and better products to meet the needs of their customers.
Functional products and innovative products have different purposes within a company’s supply chain. Functional products are designed to perform specific tasks within the supply chain, while innovative products are developed with the aim of being new and different from existing products. Functional products are essential to the efficient running of a supply chain, while innovative products can help to improve the overall performance of the supply chain.
We may categorize a product as being either a functional or an inventive product based on its nature. Supply chain management techniques that managers should use will also vary depending on the nature of the product. Functional goods are ones that consumers purchase in a wide range of retail outlets and have more consistent and predictable demand, as well as long life cycles.
People usually don’t have much brand loyalty for functional products, and the products’ prices are very sensitive to changes. On the other hand, innovative products are newly developed products with a shorter life cycle. They are mostly found in specialty stores, and people tend to be more brand loyal to them. The demand of innovative products is also less predictable than that of functional products, and people are often willing to pay a higher price for innovative products.
In order to manage functional products effectively, managers should focus on managing the inventory and keeping the cost low. Because functional products have stable and predictable demand, managers can use various methods to forecast future demand and adjust production accordingly. In addition, since people are not very brand loyal to functional products, it is important for managers to focus on keeping the cost low so that the company can compete on price.
For innovative products, since the demand is less predictable, managers should focus on managing the supply chain so that they can quickly respond to changes in demand. In addition, since people are more brand loyal to innovative products, it is important for managers to focus on building a strong brand so that people will be willing to pay a higher price for the product.
Functional goods, for example, most of the kitchen utensil, are typically considered to be functional products since it is simpler for a kitchen utensil company to estimate consumer demand and the demand will not vary much. However, due to strong market competition resulting from this demand nature, profit margins on functional items have been squeezed. Given that revenue is certain, managers prioritize reducing physical expenditure.
Therefore, firms would cut corners to reduce the manufacturing cost and selling price in order to increase market share. As a result, quality of functional product is often being neglected. On the other hand, innovative products are less easy to predict people’s demand because it is new in market and people are not used to it yet. The revenue flow is also unstable because consumers may or may not accept this new product.
Firms would have to spend more on research and development (R&D) in order to come up with an innovative product that can be accepted by consumers. Even if the product is finally being accepted by consumers, there will still be a period of time for them to get used to it before they start using it frequently like they use a functional product. The market competition of innovative product is also not as severe as the functional one because it is still new in market, which gives the firm more room to increase profit margin. Nevertheless, quality should not be neglected as well since it is an important part of innovation.
The primary objective of a product’s supply chain is to support the manufacture of functional items. Because it can efficiently satisfy predicted demand at the lowest possible cost, physically Efficient Process is a more suitable supply chain model for functional products.
Managers may also freeze the production schedule and use IT systems like manufacturing-resource-planning software to orchestrate the entire supply chain to minimize inventory and increase production efficiency because functional products have few forecasting errors.
On the contrary, for innovative products that are subject to high uncertainty and rapidly changing demand, a responsive supply chain is necessary to quickly adapt to market changes and satisfy customer needs. A responsive supply chain is characterized by shorter lead times, higher flexibility, and quick response times. In order to build a responsive supply chain, managers need to carefully forecast demand, use agile manufacturing methods, and employ collaborative technologies such as e-commerce platforms and social media.
Innovative goods, on the other hand, have more volatile and unpredictable demand and a shorter life cycle. Innovative products are possible to produce significant profit margins due to their unpredictable demand nature, which leads to less competition. When iPad was initially released, no comparable product existed on the market. That is to say that if individuals want this innovative product, Apple is the only company capable of providing it. As a result of this little competition market, Apple may earn a large profit margin.
However, in order to make innovative products, firm has to invest more in R&D. As we all know, functional product is the kind of product which people use it in daily life and the demand is relatively stable and predictable. For example, everybody needs food and clothes to live, so the demand for these products is always there and it’s not going to change much over time.
And because the demand is relatively stable, there tends to be more competition in this market, which drives down profit margins. In order to compete in such a market, companies need to have efficient supply chain management and be able to produce their products at a lower cost than their competitors.
In conclusion, a functional product is a product that people are already familiar with and does not require much marketing effort to promote whereas an innovative product is a new product that people are not familiar with and requires more marketing effort to promote. Quality should not be neglected for either type of product.