The article below is written by Rick Boers on June 8, 2012
In her recent blog on innovation-driven procurement (Procurement Acting as a Wedding Planner), Kirsten Schipper outlines the importance of involving procurement in new product development (NPD) processes before suppliers. In this post, we will look at one of the most important advantages of this strategy: enhancing the speed of NPD processes. We will examine this advantage in the context of high tech companies, as the speed of NPD processes is of crucial importance in a high tech environment.
The importance of fast NPD processes in high tech industries High tech companies spend a significant portion of their revenues on R&D and cannot innovate successfully without paying close attention to the speed of their NPD projects. In fact, the speed of the development process has become one of the most important aspects of high tech companies’ NPD performance. Due to shortened product life cycles and fierce competition, even high tech companies that don’t pursue a first to market strategy need to maintain a fast NPD process.
Supplier involvement as a means to speed up NPD processes
It has become quite common for high tech OEMs to involve suppliers in their NPD processes. Among many other potential advantages, suppliers can play a role in speeding up their NPD processes. Because of the suppliers’ involvement, less mistakes may appear at the end of the NPD process, multidisciplinary knowledge may be combined, designs may be adjusted early on, and concurrent engineering may be eased, among many other things. What’s crucial to achieving these benefits is that suppliers are involved early on in the development process. Research has shown, however, that involving suppliers in NPD is by no means a panacea. Companies are still struggling to determine the correct way to involve suppliers and how this involvement should be managed.
Although there may be many ways to involve suppliers in NPD, we will look here at three general models of involvement: black box, gray box and white box development. Under black box development, the OEM sets overall requirements for a specific component or module and asks a supplier to design that item. This implies the OEM purchases a black box; it doesn’t know how the item itself functions. Here, the supplier is free to drive the design of the item, as long as the item will function well in the context of a larger product. Gray box development implies that the OEM and supplier physically co-develop the component or module as employees of both parties come together in collaboration. This strategy implies that both parties have approximately the same level of responsibility in the development of the product. Finally, under white box development, the supplier is mainly involved to provide advice. The supplier is not actively engaged in the OEM’s NPD process, but rather reviews a design that has been developed by the OEM on its own.
Procurement’s got a role to play
Procurement plays a vital role in supplier involvement within each of these three engagement models. Without the early involvement of procurement, supplier involvement in NPD will not lead to a reduced time to market and the other potential advantages noted above.
So, what is procurement’s role? First of all, procurement can play a role in scouting suitable suppliers to be involved in NPD processes. Using discretion in choosing which suppliers to involve may be beneficial in speeding up NPD processes and procurement knows the supply base well. In the case of white box development, procurement may scout for suppliers that can review designs and provide advice on how to speed up the development process.
Secondly, procurement can create conditions for managing the involvement of suppliers. As is shown in Capgemini’s 2010 CPO survey, open innovators give structure and clarity to the collaboration process and the roles involved. Procurement should fulfill this role. In the case of gray box development, it is extremely important that the collaboration process is designed with care. If this is not done, the involvement of suppliers won’t lead to faster NPD processes.
Lastly, as high tech products often consist of several modules, procurement can play the important role of aligning the different modules. As procurement has the overview of which suppliers are involved and what modules they are developing, procurement can keep an eye on the alignment of the different modules and make sure they work in conjunction with each other. This is especially important in the case of black or gray box development. Moreover, the procurement function can play a role in sticking to the plan and aligning the moments the different modules are ready, in order to prevent potential delays.
A change in mindset is needed
Finally, it is important to note that if procurement wants to be successful in this new role, it needs to change its mindset and operating model. Traditionally, procurement has been mainly focused on cost management and risk reduction. An innovation-driven procurement function, however, connects customer demand with supply market capabilities and actively manages the involvement of suppliers in NPD. By making this change, procurement will become a true value creator. Only if this new mindset is incorporated in the procurement processes, organization and culture will procurement really be able to contribute to faster NPD.