So You Want to Involve Suppliers in New Product Development?

Congratulations! You’ve reengineered your product development process and manufacturing’s inputs are finally integrated early enough to make a difference. Quality is up and products are launching faster.

But that doesn’t mean you’re in the clear. Traps await. Here, briefly, are some caveats.

Forgetting your customers is one trap. In research performed by the Supply Chain Resource Consortium at NC State University, it was found found that customer integration is too often limited to using the results of a survey to identify “market niches” where the company could gain a foothold in a potential new market. An over-reliance on market surveys can be misleading because such surveys don’t always depict accurately what the customer really wants. In some cases, customers do not know what they want, and the NPD team must try to understand the “latent” need that is present.

As GM product development czar Robert Lutz wrote in a memo to his employees, “A good planning process can be an excellent baseline tool, a means of generating solid data. But it cannot robotically create a good future portfolio. It will generate bunts, singles, walks, and the occasional double. But triples and homeruns come from people who say, “Hey, I’ve got an idea!! Listen to this!” Steven Spielberg does not research in moviegoer needs segments. Needs -segment analysis can find a “small minivan” niche. It can’t find a PT Cruiser, or a new BMW Mini, or an H2!”

Another danger in neglecting customer involvement is internalizing the design process with an excessive focus on manufacturability. The development team must constantly run the design up against the original set of customer requirements in order to ensure that these requirements are not being sacrificed at the expense of manufacturability. Quality Function Deployment is an especially useful tool for this.

Lutz has something to say about this as well: “Complexity-reduction is a noble goal, but it is not an overriding corporate goal. Standardizing options for the sake of simplifying the BOM, engineering and releasing effort, pricing, dealer stocks, etc. is very worthwhile. But it can be counterproductive if it reduces vehicle margins, i.e., the net revenue loss is greater than the demonstrated savings in the enabling disciplines. A good rule of thumb is that, in the case of an option with a significant cost, where the freestanding “take” is less than 70-75%, the incorporation as standard will cost money. If “priced for,” then a large proportion of customers are being asked to pay for something they don’t really want. If it’s “eaten” and not priced, we are reducing margins without enhancing value to those who don’t care for the option. My experience is that options running at 25-40% should remain options (perhaps grouped into packages); options running at over 75% should be incorporated as standard. The area between 40-75% requires judgment in each individual case, and a good dialog between affected parties.”

Then there’s the effective integration of suppliers. Purchasing personnel are often able to identify appropriate suppliers and, as with the integration of manufacturing, involving the purchasing function and supplier representatives early can mean a smoother, less expensive, and speedier development process.

This is true for the most part. However, the hidden danger here is ascertaining whether a supplier selected for integration has the available capacity, can ramp up production in time, and that the supplier’s suppliers are also capable of doing so. Tales abound of companies that thoroughly qualified a first-tier supplier, only to encounter a design or capacity problem with a second or third tier supplier.”

To prevent this, purchasing must be an integral part of the team, and bring to bear the full extent of their supply market intelligence in the decision. This may involve visiting the supplier, conducting detailed audits, and speaking with other firms with whom the supplier has worked on previous occasions. It may also involve a detailed audit of a few second-tier suppliers that provide critical components or technologies to the supplier in question.

In the long run, competitiveness is the result of an ability to nurture and develop, at a lower cost and faster than competitors, the core competencies that result in unanticipated, innovative products. These competencies include a firm’s collective learning, especially its ability to coordinate diverse production skills and integrate multiple streams of technology across multiple enterprises in the supply chain.

In many cases, this will require that supply chain partners work together to align their individual technology roadmaps in order to create innovative new products that combine their individual core strengths in a new and exciting way.

Consider the example of one computer company that shares technology roadmaps with specific suppliers, based on non-disclosure agreements that are part of a broad general agreement with the supplier. Suppliers also share their technology roadmaps, and both parties may change their designs based on future roadmap directions. A chip supplier, for instance, may include specific features for unique customers in what may become a future standard chip design. Only trusted suppliers who currently supply significant volumes are provided with general information on future products.

The Supply Chain Resource Consortium is conducting research into supplier integration, and working with the Center for Innovation Management Studies on a roundtable project sponsored by Xerox to conduct further research on the subject. A roundtable was held in November 2002, and further research is scheduled for later this year.