The Role of Purchasing in the New Product Development Process – Part I

Market globalization and the rapid advancement of technologies require that companies differentiate themselves with innovative products and services to create competitive advantage. Increasingly, manufacturers face shortened product life cycles and increased pressure to shorten their time to market. These factors, in conjunction with the reality that companies are increasing their reliance on outsourcing (1), necessitate that organizations involve suppliers in the new product development process.

According to Handfield, et al, the “effective integration of suppliers into the product value / supply chain will be a key factor for manufacturers in achieving the improvements necessary to remain competitive (2).” Moreover, because purchasing specialists are usually a key liaison between the supplier and the buyer, an investigation of their role in the new product development process is worthwhile. That is exactly what some academic experts in the field of supply chain have started to do. In this article – the first of a two-part series – the role of purchasing in the new product development process is explored.

New Product Development
First, a general definition of the new product development process is in order. New product development (NPD) refers to all efforts focused on creating a new product, process or service. The five generic phases of a NPD process are as follows (2):

  • Idea generation: voice of the customer
  • Business / technical assessment (preliminary)
  • Product / process service concept development
  • Product / process service engineering and design
  • Prototype build, test and pilot / ramp-up for operations

Concept and design “lock in” as much as 80 percent of the total cost of a project (2). For this reason, it is crucial for firms to bring in as much product, process and technical expertise as possible early in the NPD process. The supplier often possesses much of this critical expertise. Purchasing specialists are frequently tasked with facilitating the transfer of supplier expertise (3).

So how can organizations get purchasing more involved? Researchers have identified two factors that appear to aid the involvement of purchasing in the NPD process: personnel and organization.

The Personnel Factor
The competencies and skills of purchasers are important determinants of successful NPD process contribution. Organizations should have personnel with the right education, skills, and experience. Researchers found that important competencies and skills include (4):

  • Type of previous experience
  • Type and level of training/education
  • Degree of technical expertise
  • Degree of proactiveness
  • Capabilities as perceived by others (credibility)

It is worthwhile to note that the above list bears a resemblance to an inventory of the most desired personnel attributes documented during a round table meeting at NC State on July 16, 2002. The meeting was funded by the Center for Advanced Purchasing Studies (CAPS), and its objective was to identify the training and education requirements of supply chain managers of the future. Supply chain managers from multiple industries acknowledged the following attributes as being very important:

  • The ability to cope with the increasingly strategic role of the supply chain function
  • Skills in project management
  • Finance and cost accounting
  • An understanding of cross-cultural issues in business
  • The ability to work in teams
  • Written and verbal communication, presentation and problem-solving skills.

The Organization Factor
Wynstra, et al, suggest that it is important for organizations to harbor an internal group that is able to support the communication and coordination required in NPD. The authors noted two particularly important aspects of organization: horizontal complexity and specialization within a department (4).
Horizontal complexity refers to the number of different units or groups with specific tasks within a department. For example, because operational purchasers are usually occupied with daily purchasing tasks, they find it difficult to devote time to developmental purchasing activities. Hence, researchers suggest that utilizing a purchasing department consisting of both an operational unit and a developmental unit may increase the overall ability of the department to perform initial, or product development-related, tasks (4).

The departmental specialization aspect of organization refers to the degree and principle of specialization within the department (4). Researchers note that when purchasers are narrowly specialized in a specific range of products or technologies, similar to the way development engineers are specialized, they may be better able to become involved in product development projects. The departmental specialization aspect of organization and the aforementioned personnel factor, then, appear to be linked to one another. Company examples will be presented in Part II.

References:

(1) Wynstra, F. Weggeman, M. van Weele, A. (January, 2003). Exploring purchasing integration in product development. Industrial Marketing Management.

(2) Handfield, R., Ragatz, G., Petersen, K., Monczka, R. (1999). Involving suppliers in new product development. California Management Review.

(3) Lakemond, N. Echtelt, F, and Wynstra, F. (Fall, 2001). A configuration typology for involving purchasing specialists in product development. The Journal of Supply Chain Management.

(4) Wynstra, F. Axelsson, B., and Van Weele, A. (2000). Driving and enabling factors for purchasing involvement in product development. European Journal of Purchasing and Supply Management.