Purchasing Involvement in Product Development: A Framework
Finn Wynstra Arjan van Weele Bjorn Axeisson
Eindhoven University of Technology ISBM Report 4-1999
Institute for the Study of Business Markets The Pennsylvania State University 402 Business Administration Building University Park, PA 16802-3004 (814) 863-2782 or (814) 863-0413 Fax
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ISBM Working PaDer submitted to the EuroDean Journal of Purchasing and SuDDly Management Purchasing Involvement in Product Development: A Framework Finn Wynstraa,*, Arjan van Weelea, Bj6rn Axelssonb aEindhoven Centre for Innovation Studies/Institute for Purchasing & Supply Development, Eindhoven University of Technology, P0 Box 513 5600 MB Eindhoven, Netherlands Tel. +31 40 2473841, Fax +31 40 2465949 bJ6nk6ping International Business School, P0 Box 1026 S-551 11 J6nk6ping, Sweden -
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*:
Tel. +46 36 156136 Fax +46 36 161069 Corresponding author (
[email protected])
Abstract Both within academia and practice, the involvement of purchasing and suppliers in product development has attracted considerable attention during the last decade. However, most research is limited to the context of single development projects, focusing on possible short-term contributions such as the reduction of development lead-time. Long-term issues such as technological alignment between supplier and manufacturer are relatively ignored. Therefore, this article seeks to develop a coherent framework of specific activities across a number of different management areas within purchasing involvement in product development. This framework may help to implement, improve and audit this involvement. Key words: productdevelopment, purchasing involvement, early supplier involvement
1. How to get innovations out of suppliers Imagine the Zetor company, a manufacturer of packaging machines and equipment. Zetor used to be a quite innovative company, constantly turning out new packaging machines. Still, due to increasing competition and falling prices, it has increasingly been forced to reduce costs. In part, this has been achieved by outsourcing a major share of its production activities to suppliers. 1
Currently, however, the company seems to have substantial difficulties in developing new products. Some of the key components in Zetor’s machines are still developed and manufactured internally, but it appears to be quite difficult for Zetor management to collaborate with suppliers in developing or implementing certain innovations. Management is not very used to involve external parties in its product development process, and has little ideas how to manage such involvement. The company’s purchasing manager is therefore looking for a kind of framework that may help his company to consider the different tasks or issues that are related to collaborating with suppliers in product development. Such a tool could be useful in assessing and improving its current management practices in getting innovations out of suppliers (H~kansson and Eriksson, 1993).
2. Background Over the past decade or so, the interest in purchasing involvement in product development has increased considerably1. This development can be attributed to two main factors: first, the increasing awareness of the purchasing function’s possible contribution to the firm’s strategic position, and secondly, the growing importance of innovation and product development in creating competitive advantage. Having subcontracted large parts of their production to external suppliers, manufacturers increasingly become dependent on these suppliers with regard to developing and innovating their products. To create competitive advantage, companies need product innovations; and to realise potential innovations, and to realise them quickly and efficiently, they need to co-operate with suppliers. The involvement of suppliers in product development and the role of the purchasing function in managing this involvement has been an issue of interest for quite some time already (e.g. McLean, 1964; Bergman and Johanson, 1978). In the early 1990’s, however, the interest for these issues received a big impulse from studies on the organisation of development projects for new automobiles in Japan on the one hand, and the US and Europe on the other (a.o. Clark and Fujimoto, 1991; Womack et al., 1990; Lamming, 1986). These studies showed that Japanese manufacturers were able to turn out new automobiles at a faster pace, with more innovative features, and with less effort in terms of development hours or number of engineers involved. The explanation forwarded was that in developing new cars, Japanese manufacturers relied more 1
See: Burt and Soukup, 1985; Axelsson, 1987; Clark, 1989; Williams and Smith, 1990; Bonaccorsi, 1992;
Dowlatshahi, 1992; H~kansson and Eriksson, 1993; Lamming, 1993; ONeal, 1993; Birou, 1994; Hartley, 1994; Hines, 1994; Kamath and Liker, 1994; Mendez and Pearson, 1994; Nishiguchi, 1994; Peter, 1996; Ragatz et al., 1997; Bonaccorsi, 1997.
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heavily on the extra and specialised development potential embedded in the skills, competencies and knowledge of suppliers (Clark, 1989). Despite the growing body of research in the area, close examination reveals its limitations especially in terms of defining what purchasing involvement in product development consists of. In fact, the limitations of most of the available research manifest themselves in three aspects: the scope, the coherence and the empirical basis of the research. First, most publications have focused on purchasing involvement in product development as being equivalent to managing supplier involvement in new product development projects (c.f. Burt and Soukup, 1985; Dowlatshahi, 1992; ONeal, 1993; Birou, 1994; Mendez and Pearson, 1994). However, there are purchasing related activities within the context of product development that are not directly connected to managing the involvement of specific suppliers in a single development project. Examples are participating in the definition of the technological core competencies of the firm, or carrying out (supplier) market research with respect to new technologies. Both are activities that may be carried out independently from a specific development project. Essentially, the difference between purchasing involvement and managing supplier involvement in product development regards the collection and dissemination of information before or in parallel to the actual involvement of suppliers. Consequently, by focusing only on managing supplier involvement in development projects, a comprehensive overview of all the appropriate purchasing activities regarding product development is lacking. At the basis of this limitation in scope, lies a lack of coherence within most existing research. There does not seem to be a coherent view of what purchasing involvement in product development actually is. Most research tends to identify rather fragmentarily a number of issues or processes, while there is no clear delineation, no integrated framework of what purchasing involvement consists of. Finally, most studies have been limited to large-scale assembly industries, primarily the automotive industry (Clark, 1989; Lamming, 1993; Hines, 1994), or the electronics industry (Mendez and Pearson, 1994; Nishiguchi, 1994). Consequently, little is known about purchasing involvement in product development in other industries, like those with unit/small series and process production. The research underlying this article was designed to overcome these three limitations. It has not been limited to purchasing involvement in product development projects, neither to the automotive and electronics industry. It has also been explicitly aimed at developing a more coherent delineation and definition of purchasing involvement in product development, in the form 3
of a framework listing the various activities this involvement consists of. The framework of activities may be used as an instrument by business professionals such as purchasing managers, product development and general managers, for implementing, improving and auditing the involvement of the purchasing function in product development. Section 3 presents a first delineation of the main areas within purchasing involvement in product development, based on a review of a wide range of literature on product development and supplier relations. In section 4, the methodology of the empirical research underlying this article is briefly described. The basic framework is introduced in section 5, involving a revision, based on the empirical findings, of the first set of main areas. The specific activities for each of the areas are discussed in more detail in section 6, deriving examples from our empi~cal research to illustrate these activities. The final section sums up the conclusions and recommendations that can be derived from this research.
3. Areas of purchasing involvement In the previous section, it has been argued that specific research on purchasing involvement in product development is limited in its scope and coherence by focusing on single development projects, and by not clearly delineating what purchasing involvement actually consists of. At the start of our empirical research, therefore, a review of a rather broad range of existing literature, on product development and supplier relations, was carried out in order to get a first overview of the possible ‘areas’ that may be distinguished within purchasing involvement in product development. Based on this literature review, three different areas can be distinguished within purchasing involvement in product development: (1) Projects; (2) Suppliers; and (3) Technologies. Each of these areas is emphasised by a different ‘school’ or tradition of research, as illustrated in Table 1. As argued earlier, most of the research on purchasing’s role in product development has been based on studying individual development projects. This particular type of research moreover has focused on the role of the purchasing department rather than the role of the purchasing function. Most of this type of research is predominantly Anglo-Saxon in origin (see Table 1). The area of ‘Suppliers’ involves the permanent and long-term tasks of maintaining relations with suppliers in such a way that they contribute in an optimal way to the technological position and product development capabilities of the firm. The tasks associated with building and maintaining such relations with suppliers have to be carried out not only during development projects but also, 4
and perhaps especially, in between projects. The area of ‘Suppliers has received most emphasis from research dominated by the lndust~al Marketing & Purchasing Group, who have traditionally focused at the more long-term interaction between customers and suppliers. This school of research is more (Continental) European in its origins, and approaches the issue from different (cross-) functional perspectives such as purchasing, marketing and product development (see Table 1). The area of ‘Technologies’ regards the division of work between the manufacturer and its suppliers regarding the development and maintenance of specifictechnological knowledge and competencies. This relates to what usually is referred to as the ‘make or buy’ issue or, when it relates to product innovation, the ‘Develop-or-Buy’ issue. This area of ‘Technologies’ can be recognised as the third area of purchasing involvement in product development, based on research both in the area of strategic management and product development and in the area of strategic purchasing management or outsourcing (see Table 1). place Table I here Each of the three areas has a different time-horizon, and each of them involves different kinds of activities. The three are, however, closely related to each other. Certain suppliers may be the source of a particular technology for the manufacturer. Likewise, individual development projects involve collaboration with specific suppliers. The distinction between these different areas merely acknowledges that any activity regarding purchasing involvement in product development may be focused primarily at one of three different areas or objects: a project (a specific set of development activities in a specific period in time), a supplier (a permanent relation with the supplier, rather than a specific development project) or a technology (a combination of knowledge and physical objects in a specific technological discipline, f.e. ceramics). After this first ‘conceptualisation’ of purchasing involvement in product development, a number of empirical case studies have been carried out to develop a more specific framework of management areas and specific activities.
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4. Research methodology The framework has been developed on the basis of two series of case studies that have been carried out in two European countries, The Netherlands and Sweden, and across a number of different industries. In these case studies, we have identified different activities belonging to purchasing involvement in product development and these activities have been grouped into different management areas. The two series of case studies are clearly exploratory, being aimed at shaping an understanding and definition of purchasing involvement in product development. In subsequent research, reported in a following article, the framework has been tested in a number of ‘explanatory’ case studies (Wynstra et al., 1999). The first series of case studies comprises nine manufacturer-supplier relations, based on interviews with 18 suppliers and manufacturers in five industries. Table 2 lists the companies interviewed2. The five industries studied have been selected to reflect a variety in the type of production being employed by the manufacturer. The selection includes two manufacturers with large-series production, two with process production (to some extent in combination with largeseries production), and one unit production industry. Of the 18 companies interviewed, 10 are located in Sweden (6 manufacturers and 4 suppliers), 6 in the Netherlands (3 manufacturers and 3 suppliers) and one each in Germany (D) and the UK (both suppliers)3. The choice to carry out case studies of both Dutch and Swedish companies has been made not so much as to enable comparisons between the two countries, but rather in order to broaden the empirical basis of the research and to enable intra-industry comparisons. Within one country, it can be quite difficult to find more than one suitable manufacturer in the industries that were selected. Dlace Table 2 here The second series of empirical studies has consisted of (coincidentally) also nine ‘mini’ case studies. Purchasing managers from different companies have been invited to a working group of researchers and practitioners to present a short case study of their respective companies, which have then been analysed to identify the major issues in new product development from the Interviewees mainly included marketing or sales managers from the supplier side, and purchasing directors/managers from the manufacturer’s side. In some cases, (additional) interviews have been conducted with general managers, R&D managers or senior purchasers responsible for individual suppliers. Interviews, roughly 40 in total, have typically lasted 2-3 hours. 2
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perspective of the purchasing function. Despite additional interviews and students’ thesis projects that have been carried out at some of them, these companies have not been studied as intensively as the first series of case studies. Hence, the label ‘mini-cases’. The companies are listed in Table 3. Place Table 3 here
5. Developing the framework As the main building blocks for the framework, we propose that four different management areas can be distinguished within purchasing involvement in product development: • Development Management; • Supplier Interface Management; • Project Management; and • Product Management. This set of four management areas is in fact a revision of the three areas of purchasing involvement introduced in section 3, based on our empirical findings. One of the central conclusions resulting from the second series of case studies was that activities related to purchasing involvement in product development appear to be performed at different levels in the organisation: •
•
•
Buyers and development engineers may discuss the design of a new product, and jointly monitor the progress a supplier is making in developing a specific component for that product; Purchasing managers and R&D-specialists may periodically meet with important suppliers to evaluate ongoing business and discuss potential developments in terms of new technologies; Purchasing directors may develop guidelines, which may provide some guidance for their department’s role in product development projects; and
We have tried to select, as often as possible, a supplier in the same country as the manufacturer. Due to different practical problems (company access, etc.), this was not always possible.
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•
General management may considerdecisions to outsource future research and development regarding a specific technology to suppliers.
This notion of different levels of responsibility appears to be present in many of the companies, which have been investigated. For this reason we suggest, when studying purchasing involvement in product development, to differentiate between four management areas. These four management areas are more or less identical to the three areas that have been identified based on our investigation of current literature. However, we felt it necessary to split one of these areas in two. Moreover, we labelled the areas in a different way. Just like the area of Technologies, Development Managementis concerned with the division of work between the manufacturer and its suppliers in developing and maintaining technological knowledge. However, it also comprises the formulation of basic principles and guidelines for collaborating with suppliers, and can therefore be seen as the most strategic area of purchasing
involvement in product development. The area of Supplier Interface Management deals with managing supplier relationships as a permanent and ongoing activity, which is basically the same as the previous Suppliers area. After careful analysis of our case studies we propose to differentiate between Project Management and Product Management. The activities of both areas are carried out during a specific development project, and have therefore a more limited time frame than the activities within Supplier Interface Management and Development Management. The difference is that Project Management entails all those activities aimed at managing the actual development project(s), whereas Product Management relates to all activities that contribute to the actual design and the determining of the specifications of the product to be developed. It encompasses decisions on how to structure the design what technical norms and standards to use, what materials to consider, etcetera. As we have observed from the case studies, these four management areas are complementary to each other although in practice there may be some overlap. For example, the division of responsibilities between the suppliers and the manufacturer regarding the development and maintenance of technological knowledge and competencies (Development Management) relies to a large extent on the opportunities offered by the individual supplier relationships (Supplier Interface Management). Similarly, Project Management is closely related to the more permanent Supplier Interface Management regarding supplier relationships, since development projects can be seen as ‘episodes’ in those relationships. In many respects, Supplier Interface Management is 8
the critical link between the long-term strategically oriented activities in the area of Development Management and the more short-term oriented activities in Project and Product Management (see Figure 1). The following section takes a closer look at the different activities involved in each of the four areas. olace Figure 1 here
6. The four areas of purchasing involvement in product development Within each of the four areas, specific activities have been distinguished on the basis of either the first or the second series of exploratory case studies. As an overview, Table 4 presents the framework with the four different areas of purchasing involvement in product development each with its specific activities. 6.1 Development Management The first activity within Development Management concerns determining which technologies to keep/develop in-house and which ones to outsource to suppliers. The resulting ‘Develop-or-Buy’ decisions may indicate for different technologies (for example, plastics injection moulding) what the level of the manufacturer’s involvement in technological development will be. Obviously, there are more options than ‘totally buy’ or ‘totally develop’ a certain technology. An example can be found at DAF Trucks, which still maintains a broad, basic expertise in injection systems while it relies heavily on the specialist knowledge of supplier Robert Bosch. One of the most difficult issues in the area of Development Management is to determine how much knowledge the manufacturer wants to keep in-house in order to be able to evaluate suppliers’ technological competencies and their design suggestions. The activity of ‘determining’ which technologies to keepldevelop in-house and which ones to outsource sounds rather decisive, but actually encompasses other related, more continuous activities as well such as identifying the technologies relevant to the firm, and analysing their relative ‘value’. The value (to the manufacturer) of a given technology can be assessed in terms of the availability of the technology, its stability and the level of dependence (Thomas, 1994). The higher the level of availability and stability, and the lower the level of dependence, the greater possibilities to ‘buy’ the technology, i.e. leave the development to suppliers. Analysing the availability of technologies in the supplier market may form one of the core purchasing activities. 9
In the case studies it was found that many companies have determined their Develop-or-Buy policy only to a very limited extent. This often leads to lengthy discussions at the beginning of (or even during) development projects, especially between purchasers and development engineers, as clear guidelines what to outsource and what not are missing. By determining beforehand which technologies to keep or develop in-house and which ones to leave to suppliers, and to which degree, a manufacturer may save time and effort at the start of a specific development project. It should be noted, however, that a clear Develop-or-Buy policy does not mean an inflexible policy. Apart from technologies that should always be bought and technologies that should always be developed internally, the policy could indicate certain areas where a decision should be based primarily on the specific context of a particular project. Apart from Develop-or-Buy issues Development Management involves determining guidelines for supplier involvement and the purchasing related activities of internal departments within product development. These guidelines can indicate what the manufacturer expects from suppliers and what suppliers may expect from the manufacturer regarding product development, for example in terms of communication, documentation and compensation. The guidelines may also indicate the responsibilities and activities of different internal departments regarding purchasing related activities in productdevelopment, since the different activities need not be the domain of the purchasing department. Some activities can be carried out by people from the R&D or Engineering department, depending on their expertise and experience. Finally, without effectively communicating these guidelines, it may be difficult to create understanding and acceptance for the role and involvement of suppliers and the different departments in product development. Guidelines can provide a constructive basis for discussing problems in the development process, and serve as a reference in possible competence conflicts. Suppliers also benefit from clear guidelines with regard to their responsibilities and those of the departments at the manufacturer: they can adapt their strategy and ways of working to the demands of the manufacturer, and know whom to turn to with specific problems. One of the mini-case companies, Oc&van der Grinten, has developed a policy for supplier involvement in the form of a portfolio approach in distinguishing and managing different supplier roles in product development (cf. Kraljic, 1983). This policy also provides guidelines regarding the responsibilities and tasks of departments such as purchasing and product development. Dlace Table 4 here
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6.2 Supplier Interface Management The first activity in the area of Supplier Interface Management relates to monitoring supplier markets with regard to technoiogical developments, including the abilities of specific suppliers. This type of market research targeted at technological aspects excludes research aiming to find a more competitive supplier for an existing standard product, and ad-hoc research in the frame of a specific development project, like a quick scan that seeks to identify an alternative supplier for a specific new component. It does include pro-active, continuous research with the aim of identifying suppliers and/or technologies that may be relevant for the development of new products. Within the case studies, we have actually seen few clear examples of such monitoring of supplier markets. Only Rank Xerox and Oc&van der Grinten explicitly indicate this as one of the purchasing responsibilities within product development. Many of the case companies agree it is an important issue, but most market research seems to be done in the ad-hoc mode without a clear plan. The second activity in building and maintaining collaborative supplier relationships concerns preselecting collaboration partners. The first series of case studies provide some clear examples. DAF Trucks has targeted Bosch as a collaboration partner because injection systems are such an important component in its trucks, and Bosch is a leading company in that field. Perstorp has targeted ICI as a collaboration partner, primarily because it assumes this supplier is more interested in co-operating with a plastics component producer than Perstorp’s other suppliers. The latter collaborate more with Perstorp’s customers, the car and truck assembly firms. This targeting of collaboration partners is not the same as deciding which suppliers are going to be involved in a specific development project. In the first place, the kind of collaboration that the manufacturer wants to maintain with these suppliers may not be related to a specific internal development project. A great deal of technological collaboration takes place outside the framework of a specific project, and has a more permanent character. Examples are the different collaborations that Scania and DAF Trucks have with suppliers that are more focused on basic research than on the development of a specific truck or part model. In the second place, manufacturers may want to maintain relationships with a greater number of innovative suppliers for a specific product than they are going to involve in a development project. They may want to have several suppliers in their supplier base to choose from for a specific development project. In that way, they do not become as dependent as they would when always collaborating with one specific supplier. 11
When targeting suppliers for technological collaboration, major aspects to consider are the suppliers technological and organisational capabilities (see Ardon and Van Weele, 1994, p. 7376). But apart from the capabilities of the supplier, it is important to consider the supplier’s willingness or interest in collaboration, as in the case of ICI-Perstorp. The potential for mobilising a supplier is one of the key issues in establishing a collaboration that produces results and is efficient in terms of benefits vs. resources invested. This brings us to the third activity: motivating or getting suppliers interested in developing (parts of) products that the customer firm needs or wants. To get a supplier interested primarily implies mobilising his resources: in listening and adapting to the manufacturer’s needs and wants, the supplier has to consume some of its resources. One possibility for the manufacturer to mobilise the suppliers resources is to become attractive for the supplier, based on business volume involved, its image, possible new product ideas, access to production technologies, etc. (see H~kansson and Eriksson, 1993). In the case of DAF Trucks, for example, it is able to mobilise Bosch: not so much on the basis of the business volume involved, but rather on the basis of its openness and swiftness in sharing information and technical feedback. Ericsson Radio Systems’ leading position in the field of mobile telephone systems is a strong mobilising factor in the collaboration with Ericsson Components. Stork W~rtsil~ Diesel’s experience with high poweroutputs made it an attractive partner to Holec Projects, since it expected to benefit from this experience in future projects with other customers. The importance of motivating a supplier to participate in technological collaboration is often underestimated because manufacturers are usually seen as being more powerful than suppliers, thus being able to ‘demand’ or even force their suppliers to collaborate (f.e. by threatening to withdraw business). This is not always the case, and even if it would be possible for manufacturers to force their suppliers to collaborate, it is questionable whether this is a more productive avenue then the motivation approach, especially in the long run. Exploiting the technological competencies of suppliers is the fourth activity in Supplier Interface Management. Instead of having the supplier develop products the manufacturer needs, exploiting’ refers to letting the manufacturer adapt to the capabilities of its suppliers. The customer does not ask its suppliers to develop certain products which it needs for its new end products, but it closely watches and analyses the capabilities of suppliers, and adapts to that by building a new product around the component or material developed by a supplier. This way of exploiting opportunities and technological capabilities by a ‘reversing of roles’ can be especially effective when a customer is faced by large, powerful or very innovative suppliers. In one 12
instance, a Dutch fruit juice producer was able to enter a completely new distribution channel after a supplier had introduced it to a radically new form of packaging. In the case studies, an example comes from beer brewery Pripps exploiting packaging supplier Munksj6s existing capabilities in making corrugated board from 100 % recycled fibre. Pripps has been using this board to promote its own ‘green’ image. The fifth and final Supplier Interface Management activity concerns evaluating supplier performance with regard to product development. Having an up-to-date base of suppliers for different products and technologies that can perform development activities for the manufacturer makes the selection of suppliers to collaborate with in a specific project more efficient by reducing the need for searching and rating suppliers. Periodical assessments may take place mainly at the level of the development process at the supplier for example in terms of adherence to deadlines, reliability and quality in communication and documentation. To some extent, the assessment can also take place at a product level for example by reviewing the quality and cost of previously developed parts compared to the original objectives. The assessments may involve a combination of objective methods such as vendor-rating on quantitatively measurable aspects and more subjective methods such as personal assessments by engineers and purchasers (see Van Weele, 1994, p. 228-229). Assessment methods specifically targeted at product development performance, however, seem to be developed only recently and the case companies provide just a few illustrations of this. Ericsson includes aspects such as supplier profitability and number of training hours per employee in its assessment of suppliers, since it argues these have a positive effect on the supplier’s investment possibilities and innovative performance. 6.3 Project Management Within the area of Project Management, two specific sub-areas may be distinguished: Project Planning and Project Execution. Planning activities are performed at the start of a development project, while execution activities are performed during a project. The first Project Planning activity regards project-specific develop-or-buy decisions. These have already been discussed under the heading of Development Management as a long-term activity, but need to be considered also in the context of specific projects. Philips Medical Systems, for example, have a general Develop-or-Buy policy, but this does not always automatically imply 13
which decisions should be taken at the project level. This occurs, for instance, when the component involved incorporates a totally new technology not yet considered, or when the project needs to meet a tough deadline which means that the manufacturer cannot undertake all development work it usually undertakes. The second activity, selecting suppliers for involvement in the development project, is similar to the Supplier Interface Management activity of pre-selecting or targeting suppliers for collaborative productdevelopment, be it now in the context of a specific project. Again, the choice has to be based on the supplier’s capabilities and willingness to collaborate. The selection at project level, however, also requires timing. When a supplier has a lot of other things going on, it may be very difficult to involve it in (substantial) collaboration, because the resources that companies control are generally limited. On the other hand, if the manufacturer manages to pick the right moment a supplier may be especially keen on collaborating. FDF’s desire to develop a new can for one of its dairy products, for example, coincided nicely with TDV’s efforts to preclude any further substitutions of their products by other packaging forms. The issue of which supplier to involve in a project becomes especially relevant when the manufacturer has several suppliers for a specific product. Even within a specific project, however, it is not a given fact that only one supplier will be involved for each part or component. Especially in the automotive industry, it seems common practice in a development project to involve two or three suppliers in the form of a ‘Design Contest’, the losing supplier becoming, for example, a secondary (or back-up) supplier for that model (Dyer and Ouchi, 1993, p. 57). In the case studies, the manufacturers were not co-operating with an alternative supplier directly in parallel to the collaboration we studied. This may reflect, among otherthings, these manufacturers’ limited resources for doing so. Since technological collaboration takes resources, manufacturers have to balance the costs and benefits of involving more than one supplier (Bonaccorsi and Lipparini, 1994). The third activity, determining the extent (‘workload’) of supplier involvement, is closely related to the first two activities in Project Planning. It is related to decisions on Develop-or-Buy issues; these decisions will not only involve ‘totally buy’ or ‘totally develop’ options, but also intermediate solutions, and thus give a general indication of the required extent of supplier involvement. It is also closely related to the process of selecting the supplier; the kind of workload that the manufacturer wants to give to a supplier will influence the criteria used in supplier selection. Conversely, the kind of supplier that is available, and ultimately gets selected may limit the 14
workload a manufacturer can give to the supplier. The fourth and final activity in Project Planning involves determining the moment of supplier involvement. Determining this moment, or more precisely: differentiating between different moments for different suppliers contributes to using the manufacturer’s resources for managing this supplier involvement as efficiently as possible and to supporting the development process’ progress. While the Project Planning activities are primarily carried out during the initial phase of a development project, or even prior to that, Project Execution involves activities during the project. The first Project Execution activity concerns the co-ordination of development activities of suppliers with those of internal departments of the manufacturer. However, this need for coordination is not always very strong. In the collaboration between Ericsson Radio and Ericsson Components, for instance, there was no real ‘joint’ development taking place. In the collaboration between DAF Trucks and Bosch, on the other hand, there seemed to be much more coordination taking place between the development activities of both companies. This is because DAF itself also spends a lot of efforts on R&D regarding injection systems and their interaction with other parts of the truck engine. The second activity concerns horizontally co-ordinating development activities of different suppliers. Horizontal co-ordination, for example between the development activities of a mechanical parts supplier and an electronics supplier, is quite common; almost every product contains parts supplied by more than one supplier, and innovations in the product often affect more than one part. The collaboration between Pripps and Munksj6 on the development of a new corrugated board transportation packaging involved close co-ordination with an equipment supplier. Also in the new packaging development projects at FDF, several suppliers are usually involved for example, a bottle supplier, a cap supplier, a supplier of crates and their efforts needed to be co-ordinated closely. The third activity concerns vertically co-ordinating development activities of different suppliers, as practised by manufacturers in the electronics and auto industries vis-~-vis their first and second tier suppliers (Kamath and Liker, 1994; Hines, 1994). In the case of plastic components producer Perstorp, its customers (automobile manufacturers) often have direct technological collaboration with second tier suppliers of raw material such as granulates and resins regarding temperature resistance and colours. This occurs in parallel with the collaboration these customers have with Perstorp regarding the actual design of the component. One of the mini-case companies, ASM Lithography, a Dutch producer of wafer-steppers (used in producing microchips), actively works with different tiers of suppliers in product development. In the development of lenses for example, -
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discussions not only involve Carl Zeiss, the supplier of the lenses, but also Zeiss’ supplier of glass, Schott, and Schotts supplier of special chemicals. It is important to observe that it is not always and exclusively the manufacturer that carries out this horizontal and vertical co-ordination of development activities; suppliers may carry out this co-ordination (partly) by themselves too. Horizontally, suppliers may co-ordinate their efforts directly with each other, with only limited (‘arms length’) involvement of the manufacturer. This happens especially when the suppliers know each other well, for example through operating in the same kind of ‘consortia~ vis-~-vis a manufacturer. Bosch, for example, collaborates directly with other engine component suppliers (see also Millen-Porter, 1996). But also in vertical coordination, the manufacturer may leave it to its first tier supplier to co-ordinate its development activities with those of second tier suppliers (cf. Nishiguschi, 1987; Hines, 1994). When a manufacturer does chose to deal directly with second or even lower tier suppliers, it is usually because it regards a crucial producttechnologically or financially speaking, or because suppliers do not have the skills to undertake this co-ordination. In the case of ASM Lithography, lenses are such a critical part in the stepper that ASM wants to have direct contacts with second and third tier suppliers. The fourth and final activity concerns co-ordinating prototyping and production start-up. The coordination of the design and delivery of prototypes is very important for a successful development project, and a good performance of suppliers in this context is often crucial (Wheelwright and Clark, 1992; Kamath and Liker, 1994). 6.4 Product Management With regard to actually assisting in the development of the new product, i.e. directly contributing to the specifications of the new product, activities can be categorised into ‘extending’ and restrictive’ contributions to the new product development process. Restrictive activities are aimed at limiting the number of alternative specifications, while extending activities are aimed at increasing the number of alternatives (Erens and Van Stekelenborg, 1993; see also Dowlatshahi, 1992).
In the first place, Product Management involves providing information on new products and technologies that are available or being developed in the supplier market. This is an activity that is especially relevant in the first phases of a development project. Somewhat later during the project, after the first options have been reviewed, Product Management involves suggesting 16
alternative suppliers, product and technologies in order to achieve a higher product quality. Both these ‘extending activities are closely connected to the activities in the area of Supplier Interface Management, especially the monitoring of supplier markets. Suggesting alternatives is closely related to the third activity: evaluating productdesigns in terms of availability makeability, lead-time, quality, and costs. This involves informing internal departments about various suppliers’ (in) abilities to meet specifications, giving information about costs, performance, market availability, quality and reliability of particular components (Burt and Soukup, 1985). Finally, Product Management includes finding and proposing other parts that have more common specifications, in order to gain efficiency and purchasing leverage. Part standardisation and simplification can reduce costs, the number of suppliers needed, and the time and cost of designing and producing the final product (Wheelwright and Clark, 1992; Kamath and Liker, 1994). Hollandse Signaalapparaten, one of the mini-case companies, provides a good example of these extending and restrictive Product Management activities. For some 20 groups of components, the company employs teams of purchasers and development engineers, so-called Article Specialists. The specialists have to give their permission to development engineers that want to design a new component, by signing a request for the introduction of a purchase item. Based on their experience, technical expertise and market information, the Article Specialists may agree on the specifications and propose the appropriate supplier, or suggest a different design so that available suppliers can meet the specifications. Alternatively, the Specialists may reject the request and refer the engineer to the company’s list of standard purchase parts if they think the costs of designing and producing a new part outweigh the benefits, while an existing component can do the job too. Going back that what has been said in section 2 on the limits of existing research, the identification of four management areas with their different activities provides a distinct conception of the involvement of purchasing being not limited to managing supplier involvement in single development projects. Arguably, distinguishing these different management areas will also make it easier for firms to implement, improve and audit purchasing involvement in product development since it provides a transparent break-down of the different tasks and activities involved.
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7. Conclusions: applications and recommendations As mentioned in the beginning, the framework of activities can be used as an instrument by business professionals such as Zetor’s purchasing manager, for three purposes: implementing, improving and auditing purchasing involvement in productdevelopment. For companies that are just starting to increase their collaboration with suppliers in product development, the framework can serve as a reference list for the kind of activities, decisions and processes that should be considered. The framework can also be of help to companies aiming for a structured organisation of purchasing tasks related to product development. As it is a list of quite generic activities, it can only guide this implementation in terms of which activities to consider, rather than give clear directives on how to implement specific activities. The second, closely related purpose of the framework is to guide improvements in a situation where, for example, supplier involvement in product development is rather chaotic and ill managed, leading to problems in terms of communication and co-ordination. Alternatively, it can be used when purchasing involvement in development projects is effective in itself but very ad-hoc and costly, which makes management feel that a structured, long-term approach is necessary. As the framework of activities provides a comprehensive coverage of purchasing involvement by distinguishing different, tightly linked management areas, it may point business professionals to important tasks previously ignored. The third purpose involves auditing. The framework can be used as a checklist of activities, for which to identify the current level or state of involvement, which then may be compared to benchmarks based on previous situations, future goals or other business units or companies. An internal or external expert could perform the audit as a qualitative assessment, or as a survey among purchasers, engineers and other employees concerned (marketing, product management). Apart from the possible contributions the research may have, a number of limitations can be identified. The first limitation regards the level of detail for the activities listed in the framework. Although the case studies, from which the framework of activities has been derived, provide specific illustrations of the different activities, the framework describes the activities in quite general terms. In that perspective, the framework of activities is rather generic. The second limitation concerns the rational nature of the framework. The description and the wording of the various activities are rather ‘mechanistic’, while in reality these tasks and processes may be much more complex and implicit. Rather than managing these activities, manufacturers may be forced to ‘coping’ with them, incrementally trying to influence the 18
processes going on between them and their suppliers. Ford (1998, p. 4), for example, argues that strategy in complex business markets is essentially an interactive process of ‘coping, reacting to the actions of significant others’. However, the framework does provide a basic lead for which activities should be considered and places therefore more emphasis on the kind of activities rather than how they could or should be realised. In that sense, it is related to the first limitation of the activities being described in rather generic terms. However, in a third series of explanatory case studies reported in a forthcoming article (Wynstra et al., 1999), the research has looked at how the different companies execute the activities in different ways, and the (dis) advantages of the different alternatives. Based on these limitations or limits at least and the results of the study, some -
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recommendations may be given for future research. In the first place, it would be interesting to carry out investigations regarding the actual impact of performing the activities listed in the framework. This could be done in the form of longitudinal case studies, studying comparable product development projects within a specific firm that has carried out an implementation or improvement project by using the framework of activities as a guideline. Such longitudinal case studies would produce, in our opinion, more useful insights than cross-sectional comparisons of the effects of purchasing involvement (as in Birou, 1994; Hartley, 1994). It is quite difficult to get objective and reliable cross-sectional (quantitative) data regarding the effects of purchasing involvement in product development because of two reasons. Firstly, development projects across different industries are hard to compare because of their often unique character (Peter, 1996, p. 143-147; Meyer, 1993, p. 232). Secondly, different companies may have different prior experience with regard to purchasing involvement in product development. This notion of ‘learning effects’ ties in with the second recommendation for future research, which is to investigate the long-term effects of purchasing and supplier involvement in product development more closely. These long-term effects have been largely ignored in prior research, which may result in underestimating the potential benefits of involving purchasing and suppliers in product development.
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Acknowledgements This research has been funded in part by the research council of the Dutch Association for Purchasing Management (NEVI), the Swedish National Board for Industrial and Technical Development (NUTEK), and Marketing Technology Centre (MTC).
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References Ardon, A.J., Van Weele, A.J., 1994. Samen Werken aan Technologische Vernieuwing: Een handboek over technologische samenwerking. Ministry of Economic Affairs, The Hague (‘Co-operating for Technological Renewal: A Handbook on technological collaboration’). Axeisson, B., 1987. Supplier Management and Technological Development. In: H~kansson, H. (Ed.), Industrial Technological Development. Croom Helm, London, pp. 128-176. Bergman, B., Johanson, J., 1978. lnk6p och Produktutveckling. In: H~kansson, H., Melin, L. (Eds.), lnkbp. Norstedts, Stockholm, pp. 39-53 (‘Purchasing and Product development’). Birou, LM., 1994. The Role of the Buyer-Supplier Linkage in an Integrated Product Development Environment. Unpublished doctoral thesis, Michigan State University. Bonaccorsi, A., 1992. A Framework for Integrating Technology and Procurement Strategy. Conference Proceedings of the 8th IMP Conference, September 3-5, Lyon, pp. 33-41. Bonaccorsi, A., 1997. The External and Internal Integration of Resources: Evidence from a survey on procurement practices of medium and large manufacturing firms. In: Raffa, M., Capaldo, G. (Eds.), Proceedings of the 6th IPSERA Annual Conference. schia, 24-26 March, pp. T311-20. Bonaccorsi, A., Lipparini, A., 1994. Strategic Partnerships in New Product Development: an Italian Case Study. Journal of Product Innovation Management 11(7), 134-145. Burt, D.N., Soukup, W.R., 1985. Purchasing’s role in new product development. Harvard Business Review, September/October, 90-97. Clark, K.B., 1989. Project Scope and project performance: the effects of parts strategy and supplier involvement on product development. Management Science 35(10), 1247-1 263. Clark, KB., Fujimoto, T., 1991. Product Development Performance: Strategy, Organization and Management in the World Auto Industry. Harvard Business School Press, Boston. Dowlatshahi, 5.1992. Purchasing’s Role in a Concurrent Engineering Environment. International Journal of Purchasing and Materials Management 7(7), 21-25. Dyer, J.H., Ouchi, W.G., 1993. Japanese-Style partnerships: Giving Companies a Competitive Edge. Sloan Management Review 7(7), 51-63.
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Erens, F.J., Van Stekelenborg, R.H.A., 1993. DFP: Design for Purchasing!. CAPE Congrespapers. Samsom, Aiphen aan de Rijn. Ford, D., 1998. Purchasing and Strategy in Complex Markets. Paper presented at the 2nd World-wide Research Symposium on Purchasing and Supply Management, 1-3 April, London. Ford, D., Farmer, D., 1986. Make or Buy A Key Strategic Issue. Long Range Planning 19 (5), 54-62. -
Hartley, J.L., 1994. Understanding supplier involvement in their customer’s product development. Unpublished doctoral thesis, University of Cincinnati. Hines, P., 1994. Creating World-Class Suppliers: Unlocking Mutual Competitive Advantage. Financial Times I Pitman Publishing, London. H~kansson, H., Eriksson, AK., 1993. Getting Innovations Out of Supplier Networks. Journal of Business-to-Business Marketing 1 (3), 3-34. Kamath, R.R., Liker, J.K., 1994. A Second Look at Japanese Product Development. Harvard Business Review, October-November, 154-170. Kraljic, P., 1983. Purchasing Must Become Supply Management. Harvard Business Review, September-October, 109-117. Lamming, R., 1986. For Better or For Worse: Technical Change and Buyer-Supplier Relationships. International Journal of Operations & Production Management 6 (5), 20-29. Lamming, R., 1993. Beyond partnership, strategies for innovation and lean supply. Prentice Hall, London. McLean, H.E., 1964. Technical Procurement: Martin/Denver uses a balanced combination of engineering know-how and highly skilled purchasing to do the job. Purchasing, 21 September, 70-75. Mendez, E.G., Pearson, J.N., 1994. Purchasing’s Role in Product Development: The Case for Time-Based Strategies. International Journal of Purchasing and Materials Management, Winter, 3-12. Meyer, C., 1993. Fast Cycle Time: How to Align Purpose, Strategy, and Structure for Speed. The Free Press, New York. Millen-Porter, A., 1996. At Cat They’re Driving Supplier Integration into the Design Process. Purchasing, 7 March, 3642.
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Table 1: Research strands and areas of purchasing involvement area of purchasing involvement /authors emphasis Projects 0
Burt and Soukup, 1985
S
Clark, 1989 Dowlatshahi, 1992
• Birou, 1994
• tasks of purchasing departments in new product development projects • effects of supplier involvement on the scope and performance of new automobile projects • purchasing tasks within development projects, differences between development and purchasing functions • influence of supplier involvement on project performance (cost, quality, product performance,
development time)
• Hartley, 1994 • Kamath and Liker, 1994 • Ragatzeta/., 1997 Suppliers • Bergman and Johanson, 1978
•
manufacturer-supplier interaction in product
• Axelsson, 1987
•
development long-term access to supplier knowledge, joint development of new capabilities
• Bonaccorsi, 1992
•
• H~kansson and Eriksson, 1993
•
Technologies • Pralahad and Hamel, 1990
24
• quantification of benefits of supplier involvement and the identification of effective management techniques at the level of individual projects • different roles suppliers may have in development projects in terms of moment and intensity of involvement • most and least successful cases of supplier involvement with regard to project outcomes, manaqerial instruments used at Drolect level
•
structuring and managing supplier involvement in the long run underlying managerial processes involved in getting product innovations out of suppliers core competencies, resource allocation and outsourcing technology planning and strategy, external acquisition of technological capabilities (long term)
• Wheelwright and Clark, 1992
•
• Ford and Farmer, 1986
•
contribution of materials function to make-or-buy decisions
• Quinn and Hilmer, 1994
•
core competencies and range of outsourcing options
Table 2. Overview case companies industry
manufacturer
supplier
trucks
Scania truck producer, S
Valeo Engine Cooling oil cooler supplier, S
DAF Trucks truck producer NL Ericsson Radio Systems mobile telecom system producer, S
Robert Bosch inlection system supplier, D Ericsson Components electronics supplier, S
plastic components
Ericsson Radio Kumla’ printed circuit board producer, S Perstorp Components plastic components producer, S
rinted circuit board su her, NL Cl Polyurethanes chemicals supplier, UK
food & beverages
Pripps beer & beverage producer, S
Munksj6 corrugated board supplier, S
power plants
Friesland Dairy Foods (FDF) dairy producer, NL ABB Stal turbine/power plant producer, S
Thomassen & Drijver-Verblifa (TDV) tinplate cans supplier, NL ABB Installation electrical installation supplier, S
Stork W~rtsil~ Diesel Projects diesel power plant producer, NL
Holec Projects electrical installation supplier, NL
telecommunication hardware
25
Company name 1. 2. 3. 4. 5. 6. 7. 8. 9.
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Table 3: Mini.case companies producer of
Philips Medical Systems FokkerAircraft 0c6-van der Grinten Rank Xerox Manufacturing (Nederland) ASM Lithography Fluke Industrial Hollandse Signaalapparaten Philips CE Hasselt DAF Trucks
medical equipment; aircraft; copiers and drawing roomequipment;
copiers; wafer steppers; test and measuring instruments; radar systems; laser-optic modules; and trucks.
Table 4: Integrated framework of activities A~eas~
A~tM • Determining which technologies to keep/develop in-house and which ones to outsource to suppliers • Formulating policies for the involvement of suppliers • Formulatina oolicies for purchasing related activities of internal departments • Commu m~,IIv -
Development Management
--
Management
• • • •
Determining specific Develop-or-Buy solutions Selecting suppliers for involvement in the development project Determining the extent (workload’) of supplier involvement Determining the moment of supplier involvement
Execution:
PIb~iuct
• Co-ordinating development activities between suppliers and manufacturer • Co-ordinating development activities between different first tier suppliers • Co-ordinating development activities between first tier suppliers and second tier suppliers • Ordering and chasing proto-types ‘~
Management
Extending activities: • Providing informaUon~ on new products and already available in supplier markets • Suggesting alternative supplier% products s a higher quality of the final product
Restrictive activities:
-
• Evaluating product designs in terms of part a’ quality, and costs • Promotina standardisation and simplification ot
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Figure 1: Relations between the four management areas
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