Business Process Management JournalDeveloping a business process for product developmentTrevor Cadden Stephen John Downes

Article information:To cite this document:Trevor Cadden Stephen John Downes, (2013),"Developing a business process for product development",Business Process Management Journal, Vol. 19 Iss 4 pp. 715 - 736Permanent link to this document:http://dx.doi.org/10.1108/BPMJ-Jan-2012-0006

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Developing a business processfor product development

Trevor CaddenDepartment of Management and Leadership, University of Ulster,

Newtownabbey, UK, and

Stephen John DownesUniversity of Ulster, Newtownabbey, UK

Abstract

Purpose – Organizations are identifying strategic supply chain relationships as a major source forcompetitive advantage. Interest in the concept is becoming prevalent in many industries, includingnew product development within the engineering sector. Collaborative supplier relationships are beingused in new product development as a tool to share the development burden and reduce thedevelopment life cycle. The purpose of this paper is to develop a business process to act as a roadmapfor optimum supplier integration.

Design/methodology/approach – An Engineering case organisation (Genco Inc.) is explored toprovide an understanding of the extent and timing of supplier involvement, within new productdevelopment. Subsequently a high level business process is developed to govern early supplierintegration, within a product development phase gate model.

Findings – The findings suggest and the business model strives to create a more holistic view ofsupplier integration; extending the scope beyond the individual firm-centric factors, the paperdevelops the importance of supplier collaboration, design for supply chain and consideration of theoverall value network. The business process creates a move towards defining supplier commoditytypes pre-project launch, strategically timing and managing the extent of supplier integration.

Practical implications – The business process can be used to govern supplier integration bycategorising commodity type. Each supplier classification can be phased into the development projectto maximise the efficiency of development collaboration. The resulting process also acts to shareaccountability to create future roadmaps and accountability for future competitive advantage.

Originality/value – Currently, to the best of the authors’ knowledge, an individual case organisationhas not been documented with regards the extent of supplier involvement or timing, nor has an earlysupplier involvement (ESI) business process been developed.

Keywords Business process management, Performance management, Supply chain management,Product development

Paper type Research paper

1. IntroductionIn an increasingly competitive and rapidly changing global marketplace, wherebyproduct life cycles are reducing and technological change is the new constant,organizations have identified strategic supply chain relationships as a major source forcompetitive advantage (Chen and Paulraj, 2004; Dyer, 2000). Interest in the concept ofsupply chain relationships is becoming more and more prevalent, with companiesbecoming more aware of the opportunities and benefits of collaborative relationships,both within their own organizations and beyond (Soosay et al., 2008). In the last decade,research has revealed that effective supply chain relationships can create value

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1463-7154.htm

Received 12 January 2012Revised 11 October 2012

12 December 201224 January 2013

Accepted 29 January 2013

Business Process ManagementJournal

Vol. 19 No. 4, 2013pp. 715-736

q Emerald Group Publishing Limited1463-7154

DOI 10.1108/BPMJ-Jan-2012-0006

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by combining resources, sharing knowledge and increasing speed to market (Barringerand Harrison, 2000; Doz and Hamel, 1998).

A rationalisation of the supply base is occurring with increasing focus on developingstrategic supply chain relationships with fewer suppliers. Characteristics such aslong-term relationships, two way communication, cross-functional teams and highlevels of trust are correlated with key characteristics of competitive advantage, such asflexibility, joint cost reduction, decreased time to market and increased responsivenessto customer demand (Chen and Paulraj, 2004; Phillips et al., 2006; Soosay et al., 2008).This new relationship dynamic has dramatically changed the competitive landscapeand has paved the way for organisations to engage more meaningfully andcollaboratively as supply chain partners who can collectively remove transactionalwaste and sustain joint competitive advantage. One key initiative that organisations arebeginning to reap real benefits from is that of early supplier involvement (ESI) within thenew product development (NPD) process (Cousins et al., 2007; Humphreys et al., 2007).However, whilst early research has shown ESI within the NPD process to positivelyinfluence cost, service and quality within the supply chain, limited empirical studieshave been conducted (McIvor et al., 2006; Tam et al., 2003).

The paper conducts an exploratory case study into ESI within NPD within Genco.The central objective is to provide a better understanding of ESI within NPD byinvestigating its key influencing factors. Moreover, the degree of ESI that existsbetween a multinational organisation and its key suppliers in terms of timing andextend of integration is studied.

This paper provides unique empirical insights into a division of a world leadingengineering firms “centre of excellence”, who specialise in the design and manufactureof diesel and natural gas powered electrical generators (known as Genco. throughoutthis study for anonymity). In addition, this is one of the first papers known to develop abusiness process for ESI utilising continuous improvement methodologies within theNPD process. Yet, the use of such methodologies is increasingly been called for Bhattand Troutt (2005), Chakraborty and Tan (2012) and Schroeder et al. (2008) with limitedand mixed empirical findings into the influence of ESI within NPD, this study assessesthe key benefits and impediments to a successful implementation of ESI within NPD.

2. Literature reviewA considerable amount has been written documenting the benefits, pitfalls and processof early integration of suppliers within the NPD process. Handfield et al. (2000) proposecontinuous long-term improvements of supplier performance is only achieved by:

. identifying where value is created in the supply chain;

. positioning the buyer strategically in line with value creation; and

. implementing an integrated supply-chain management strategy to maximiseinternal and external capabilities, throughout the supply chain.

Today supply-chain strategies are moving in a clear direction to transform buyersupplier relations, away from the traditional adversarial relationship, to morecollaborative relationships (Cousins, 1999; Cox, 1997; Kraljic, 1983).

Recent developments in sourcing strategies need to be understood. Adopting supplierrationalisation and categorisation approach as an integral part of a company’s sourcingstrategy is deemed vital (McIvor et al., 2006). The move towards increased supplier

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integration in the 1990s spawned a spreading strategy known as supply baserationalisation. The underlying rational of this approach builds on the idea that a firmonly has a limited amount of resource; working more closely with fewer suppliers, allowsa firm to focus on its people. This strategy also generated benefits in terms of supplierleverage and use of supplier skills resulting in significant cost savings. It is believed thisstrategy normally only realises short-term cost savings and in order to sustain thisadvantages they require principals such as lean manufacturing and production systemsto extend the benefits (Cousins et al., 2007). The term supply base rationalisation is in facta misnomer, while firms have indeed reduced the number of direct or strategic suppliers;in a majority of cases the actual number of suppliers within the overall network remainsthe same as some suppliers become indirect. Therefore, as well as production systemsthe product development team should have a strong connection with the supply portfolioand should develop suppliers to increase value addition throughout direct and indirectsuppliers. Handfield et al. (2000) highlights important steps in order to develop strategicsuppliers. Key steps include:

(1) identifying critical commodities;

(2) identifying critical suppliers; and

(3) forming a cross-functional team.

This team should establish a supply-chain strategy and define rules of procurement soas business objectives are clear. The chosen method to identify supplier value andcreate purchasing strategies is the commodity portfolio matrix (Kraljic, 1983).

2.1 Kraljic positioning & category spendThe Kraljic matrix itself forces companies to consider categories of spend for eachsupplier based on their level of supply market exposure, internal risk and cost. Itshould be pointed out that the matrix does not allow for supplier selection throughpositioning but rather spend categories:

. routine;

. bottleneck;

. leverage; and

. critical in which supplier groups can be placed.

Strategic sourcing models such as single source, tiered sourcing or delegated supplycan be applied and a supplier relationship can be defined to yield the best deal for thefirm. The central objective is to provide a better understanding of ESI within NPD byinvestigating its key influencing factors. Understanding the timing, scope andcharacteristics of each of the four spend categories will be central to our investigation.

2.2 Involving suppliers in NPDVon Corswant and Tunalv (2002), highlight that firms need to realise that productdevelopment and supplier collaboration is more complex and multifaceted thanpreviously illustrated. The suppliers’ internal organisation of product developmentand production and their cooperation with other manufacturers and suppliers werefound to be of crucial importance.

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Involving suppliers at an early stage is therefore vitally important because it allowsthe buying firm to openly innovate within a learning culture rich in the search fortechnology and consumer behavioural product enhancements. The Boston ConsultingGroup indicates some OEM’s are looking beyond cost saving by involving theirsuppliers long before the concept stage, in fact with increasing frequency suppliers arebeing asked to participate in concept definition (Maurer et al., 2004). Thus, involvementof suppliers in NPD has become commonplace in many firms. For example, theChrysler Cirrus and Dodge Stratus automobile, product development pre-sourced95 per cent of parts required for production before the parts were even designed. Indeedmanaging technology outsourcing has become a core competency of the modernmanufacturing organisation. In North America, it is not unusual for firms to outsourcearound 30 per cent of their R&D budget and purchased materials account for over50 per cent of the cost of goods sold (Handfield et al., 1999). Various terms have beenused to describe these initiatives such as ESI and supplier integration in NPD. Resentstudies have reported that supplier involvement particularly early in the life cycle haveproven to be beneficial in various industries, such as the electronics industry(McIvor and Humphreys, 2004) and the automotive industry (Handfield et al., 1999).

Research suggests suppliers should be involved in the NPD process. Throughoutthis study, a number of questions are considered in support of our central objective:

. when in the NPD cycle should suppliers be involved;

. to what extent should they be involved;

. what are the key impediements to effective ESI between the company and its keysuppliers; and

. what are the key lessons learned from the research organisation in relation toESI.

2.3 NPD processIn business and engineering, NPD is the term used to describe the complete process ofbringing a new product or service to market. Handfield and Lawson (2007) describehow suppliers could be involved in the NPD process in five different phases (Figure 1).

This aligns with the case company under study (Genco, Inc., 2008) who also have aproduct development process made up of five distinct process steps: strategy, concept,development, pilot and production, akin to Handfield and Lawson (2007). For example,Phase 1 within Genco includes idea generation with customer involvement, through tophase 5 where piloting and prototyping leads to full volume production (Figure 2).

Closer inspection shows the Genco model expands on the five process steps to align theSix-Sigma methodology which is applied to a new process or product: define, measure,explore, develop, and improve (DMEDI). Some interesting studies which use Six Sigma, towork closer with suppliers were conducted by Rakesh and Nonika (2006). Albeit in an

Figure 1.NPD Handfield andLawson (2007) model

1 2 3 4 5

Idea Generation:Voice of theCustomer

Business/Technical

Assessment(Preliminary)

Product/Process/ServiceConcept

Development

Product/Process/Service

Engineeringand Design

PrototypeBuild, Testand Pilot/

Ramp-Up forOperations

Full ScaleProduction/Operations

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outsourcing context, their findings demonstrated the usefulness of Six Sigmamethodology in processes which involve integrating partners, much like the NPDprocess. Finally, the Genco model applies a gateway governance process made up of aLaunch review and gateways (GW) 1 to 7 which allow stakeholders to ensure thedevelopment process is within control. Therefore, this staging of the NPD process mimicsthe stage gate process (Cooper, 1990, 2008; Zellner, 2011) with quality gate decisions beingmade through a structured fact based six sigma processes. The outcome is a five phaseprocess, which is defined by the eight stage gateway reviews, launch (L) to GW7. For thepurpose of this study the literature will be aligned to the Genco NPD process and the fivephase, eight gate model will be used to position supplier integration timing.

2.4 The timing of supplier involvementOnce the supplier or multiple suppliers have been selected, the buyer and the productdevelopment team face the decision, of when to involve the supplier. In practice, the actualprocess is a concurrent and somewhat fuzzy process. At Genco, the process differs fromproduct to product, depending on the percentage of new product content and percentage ofnew or risky technology. For each NPD project the process stages will vary in length,therefore, the stage durations and fuzzy process logic is defined at the launch review andgoverned through the gateway governance process. The chevron diagram gives a goodgeneral representation of the process and the timing points of supplier integration.

For a specific supplier involved in NPD, integration can occur anywhere from pre launchup to GW6. At GW6, products are in full production and are being shipped to the customer.Between GW6 and GW7 NPD is deemed to be over as the product is entering a maintenancestage and a feedback loop, which validates and appraises the NPD process. Once GW7 isapproved the product is deemed to be free to approach product maturity. For ease of claritywe will use the gateways launch to six to define points of supplier integration for exampleSupplier X is integrated by Launch review or by GW1, GW2, GW3. . . and so on.

Genco follows the general rule that decisions made early in the design processgreatly improve quality, cycle time and cost of the final product and project (Haque andPawar, 2003). Concept and design engineering tasks incur only 5-8 per cent of the totalproduct development cost, however these two activities “lock in” or commit 80 per centof the total product cost (Ragatz et al., 1997). This is true as from the moment an NPDproject is launched, engineering change becomes more difficult and expensive to makeas illustrated in the model (Pahl and Beitz, 1984) (Figure 3).

It can be seen that at the outset of the project there is a large scope to explore alternativepossibilities with accompanying choice to source alternatives. As the design progresses,decisions on materials, technology and product specification are made, resulting in anyengineering change costing money and increasing the time to market. Effective productmanagement means involving all parties early, and reaching agreement to take a chosendirection to market. Thus, the following general rule applies. If the supplier design

Figure 2.NPD Chevronprocess model

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expertise is strong and their potential impact on the product is high, then they should beintegrated early for enhanced performance outcomes (McIvor et al., 2006).

2.5 Extent of supplier involvementThe buyer also faces the decision of the appropriate level of involvement. Typically, thegreater the level of complexity of component or the greater the level of responsibilitygiven to the supplier, then the earlier these suppliers should be integrated into theprocess (i.e. the Black box suppliers). These suppliers should be seen as key integralpartners and have a greater level of responsibility (Handfield and Lawson, 2007).Managers should recognise human connections within the black box supplierrelationship are vitally important.

The diagram below elaborates on this theory and showing the classifications ofsupplier responsibility with an explanation of each category to follow (Figure 4):

. No supplier involvement. A traditional approach to tendering may be used in thissituation with the buyer providing set specifications to the supplier (routinestandard components the nuts and bolts.

. White box involvement. The least complex of the approaches to supplierinvolvement. Suppliers are involved in a relatively ad hoc manner with the buyerconsulting the supplier on their final designs.

. Gray box involvement.Perhaps the most interesting yet almost the most difficult tomanage gray box design has the formal integration of the supplier into the buyersNPD. The supplier and buyers undertake joint design prototype manufacture andtesting. Consequently, high level of trust is required along with co-location ofpersonnel.

Figure 3.Ease and cost of NPDdesign change

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. Black box involvement. This is a highly effective approach to productdevelopment when used effectively. The Japanese automakers have used theapproach to shift design responsibility to a trusted supplier. In this situation thebuyer has little involvement in the activities of the supplier.

The process associated with “best practice” in supplier integration in NPD has oftenbeen characterised as a “black box”. Recent research has shown that product platformmodularisation has increased information sharing and collaboration to produce more“gray box” collaboration (Lindquist et al., 2008). While Von Corswant and Tunalv(2002) highlight the complexity of supplier integration required to effectively acheievegray box collaboration in which yields successful performance outcomes.

2.6 Literature summaryStrategic supply categories have been outlined, utilising the Kraljic positioning matrixto classify suppliers allowing the buying firm to create an appropriate strategicsourcing vision and generate competitive advantage. This vision can help align theproduct development engineer and the purchasing buyer whilst minimising risk andcost exposure to the firm. We have also discussed the niche, yet rapidly emerging areaof supplier involvement in NPD.

The majority of firms involve suppliers to some extent yet with little knowledge of thekey issues for consideration and the most effective best practices. As earlier outlined, thecentral objective of this exploratory case study is to provide a better understanding ofESI within NPD by investigating its key influencing factors. Moreover, the degree of ESIthat exists between a multinational organisation and its key suppliers in terms of timingand the extend of integration. The methodology of study will be outlined with the intentto create an “early supplier integration model” for Genco. Inc.

3. The case organisationThe case organisation (Genco.) is a division of world leading engineering firm, whospecialise in the design and manufacture of diesel and natural gas powered electricalgenerators. The UK division is respected as a “engineering centre of excellence”whereby research design and development excellence is married with manufacturing

Figure 4.Extent of supplier

involvement

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expertise to allow a seamless transition from concept to design to manufacture.Collaboration and cross-functional team working (internally and externally) is slowlyforming part of the fabric and culture of the organisation, but change is taking time.Over 2,000 people are employed at this facility with over 90 per cent of its outputexported across the world.

Traditionally NPD engineers in Genco’s power division would design product formultiple brands, geographical regions, production facilities and dual source supply.

The design activities would traditionally occur within a departmental silo withlimited internal linkages cross-functions and limited linkages with the external supplychain. Continuous business transformation philosophies have started to breakdown silobarriers and have begun changing the design process. The design process now occurswithin concurrent product and process development (CPPD) teams made up of a matrixof functional disciplines with growing involvement from third party supplier engineers.

A further transformation has occurred within Genco which has created productplatforms, which align with distinct manufacturing value/supply chains. A process ofintegrating and aligning the product development system and production systems isnow standard practice. This transformation has simplified the design scope and creatednumerous opportunities for engineers to engage with the customer, the product, theprocess and the suppliers of distinct value chains, creating a renewed search for marketsustainable competitive advantages.

A core strategy for collaborative product platform development is to involvesuppliers earlier in the development cycle (Lindquist et al., 2008). As the value chaincomplexity of each product platform has been simplified, early supplier integration (ESI)has been highlighted as a possible source of process differentiation. Now that eachproduct platform within the electric power division has a clear product brand,production facility, and a dedicated source of supply, product development moves fromthe traditional silo function to a lean collaborative innovative process this processchange has become easier to leverage. Effective integration of suppliers into the productvalue/supply chain will be a key factor for manufacturer in achieving the improvementsnecessary to remain competitive (Handfield et al., 1999). The highly respected Toyotaproduct development system is an example of such gains. Toyota has simplified productdevelopment to consist of 13 leanprinciples, with number eight being “to fully integratesuppliers into the product development team”.

At Toyota, suppliers are valued for their technical expertise; and are involved from theearliest stages in concept development of a product (Morgan and Liker, 2007). Questions inthis field which arise include, which suppliers should be fully integrated? What degree ofresponsibility should be delegated? At what time should suppliers be involved in thedevelopment process, and should suppliers be members of the project teams?

As suppliers have a large and direct impact on cost, quality, technology, speed andresponsiveness of the buying companies. (Ragatz et al., 1997). Initially, thisinvestigation will look at the commodity sourcing strategies of Genco. by building amodel of the supply base. Second, the current level and timing of supplier integrationwill be defined and correlated against the sourcing strategies.

4. MethodologyTo perform this study the case study method of investigation was chosen for a number ofreasons (Yin, 1984). First, there is a growing number of academic publications utilising

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the supplier development models, such as the purchasing portfolio within the literature,however, little is known about their actual use in practice (Gelderman and van Weele,2002). Second, the case method will provide rich insights into the NPD business unit.

The structured methodological approach adopted was the continuous improvementapproach (DMAIC). This approach is gaining momentum in industry, but limedresearch, particularly empirical has been conducted utilising this methodology (Haqueand Pawar, 2003; Linderman et al., 2003; Schroeder et al., 2008). This approach willallow an ESI model to be created for the case organisation and will provide an insightpossible future large-scale surveys and in-depth study of specific hypothesis.

4.1 Team formationGenco is currently undergoing a major transformation which in turn is breaking downdepartment silos. It was therefore deemed paramount that the correct selection ofparticipants was a key element for an effective team formation. A number of experiencedand respected employees were selected to form a cross-functional matrix team includingrepresentatives from the NPD product group, the commercial product definition group,purchasing and supply chain management. To further optimise the effectiveness of theteam only six members including the project leader were selected, which correlates witheffective team theories of 5/7 members – being the ideal size (Tuckman, 1972).A representative from the Genco project management office was also approached to act as aconsulting facilitator who would also create and control the project plan. This would allowthe team to concentrate on the exploration of the nature of supplier timing and involvmentin Genco and the creation of a best fit ESI business model. The team discussed the mainelement of project execution, agreeing at a high-level the breakdown of work could becategorised into four sections to be referred to as measure, explore, develop and implement:

(1) Measure. The measurement phase would require a detailed breakdown of allrequired fields of supplier data to allow purchasing to run ERP system reports,gathering suppliers information such as their contact details, average annualspend, etc.

(2) Explore. A focus workshop could filter, sort and arrange the data in a structuredform to allow the measurement of Kraljic positioning (through internal andexternal risk measurement) and ESI timing and responsibility to be defined andprepared for analysis.

(3) Develop. The explore data would be pivoted and graphically displayed toanalysis trends and indicators with respect to Kraljic class and ESI processattributes. This would highlight managerial recommendations and form a basisto develop a model for future new product introductions.

(4) Implement. The implementation phase would remain part of this project butwas ruled out of the study as it requires process capability studies a pilot projecttest and business approval. The findings from the measure, explore and developphases of this study will provide insights and information for the Genco seniormanagement team in advance of the implement phase of the ESI model.

4.2 MeasureLists of attributes were formed to provide a foundation for the analysis (Table I). First,supplier data fields would be defined to allow initial MRP reports to be generated;

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second, required Kraljic positioning would be categorised for each supplier, and finallycurrent ESI timing and responsibility attributes would be listed.

The supplier data would all come straight from the MRP database using theNorth American facility code. The team felt that North American manufacture and theassociated supply chain would best fit an ESI investigation. The majority of the Kraljicand ESI data would be collected during a two day exploration workshop as some of themeasurement and categorisation would be qualitative, therefore cross-functionalagreement would be required to ensure validity.

An initial ERP report was created to gather the supplier data. A total of 260 supplierswhere present in the North American value chain. As this number was relatively high,a sample would be required to allow the data analysis to be completed in a two daytimeframe. Templates for ABC analysis and value analysis through quality functionaldeployment (QFD) were created to facilitate the explore workshop. Once all tools andpreparation and initial MRP reports gathered, the workshop could take place over atwo-day period. This event would make use of cross-functional knowledge and shouldincrease ownership (Doolen et al., 2008).

4.3 ExploreThe explore workshop took an emergent approach in which the implementation of anintegrated supply-chain management strategy and ESI principals would develop in arelatively unplanned way. First, the team explored the full list of 260 suppliers anddiscussed if the full breakdown could be rationalised to a representative sample.A sample would allow full team focus and cross-functional discussion during thedefinition of Kraljic positioning and ESI characteristics.

As the supplier data fields from the measure phase contained information oncomponent group and sub-system type the team were able to categorise the data in orderto evaluate a purposive sample in which certain members of the population would bechosen.

On exploring Figure 5 it was observed the general operations category containedsuppliers of large-scale capital factory equipment. The team agreed this should beremoved from the supplier list reducing the total number of suppliers by 30 to become acount of 230. The team deemed this still to be a large population so the next logical stepwas to employ a judgmental sample. The team noted the smallest group ofsuppliers existed in the generator system sub-assembly with a total of 5. If a judgmentsample selected one of these suppliers and similar percentage of reduction was appliedto each sub group the population could be reduced to a 20 per cent sample size.As the population had already been reduced using a purposive sample from 260 to 230

Measure attributesSupplier data fields Kraljic positioning data ESI timing and responsibility

Vendor code ABC analysis of supplier spend ESI timing – perceivedSupplier no QFD value score ESI responsibility – perceivedSupplier name ABC analysis of value scoreComponent/component GP Internal risk – function of spend/valueSub-system External risk – perceivedAverage supplier spend Kraljic position

Table I.Measure field selections

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a judgmental sample would further reduce the supplier count to 47, allowing forefficient categorisation and analysis using Kraljic positioning, and ESI parameters.

4.4 Kraljic positioningUsing the rationalised supplier list, Kraljic categories for each supplier, were definedpositioning each supplier in a Kraljic grid based on the impact to the business or internalbusiness risk (x-axis) and supply risk from external suppler issues ( y-axis). Internalbusiness risk would need to be defined through the combination of a number ofmeasures. First, an ABC analysis of the average suppliers spend and the averagesupplied component cost was easily defined as both parameters were quantified duringthe measure phase. It was therefore easy to sort the suppliers in descending order ofmagnitude and apply supplier category A to the highest 20 per cent spend, category B tothe next 30 per cent and the final lowest spend a category C. This gave the team an ideawhere in the value chain internal business financial risk existed. To gain a full picture ofinternal business risk, customer value would need to also be positioned beside thisfinancial risk. A value analysis or QFD analysis was used to define supplied customervalue. This method allows value to be quanitivly defined through a weight and rate factbased analysis.

The output of the QFD was sorted in descending magnitude of value addition beforeperforming an ABC analysis on customer value. A quick sanity check on the listconfirmed its validity. As it was observed the top five value components were:

(1) engine;

(2) alternator;

(3) engine components;

(4) radiator; and

(5) control panel.

The team agreed the output was valid as the core product components of a generatorfeatured with highest value scores with a decreasing order of magnitude towardscomponents such as fixings graphics and other nonessential operating components. Thecorresponding value score was listed against each of the 47 suppliers to perform a finalABC analysis. A combination of the ABC categories, i.e. business financial risk and

Figure 5.Suppliers categorization

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customer value were inspected for each supplier to deduce a combined cost/risk impacton the business.

To position each supplier on the Kraljic 2 £ 2 matrix a final study of externalsupply risk ( y-axis) was required. This measure is more qualitative that the internalbusiness impacts and could only be derived from a categorisation of Porter’s five forcesassigning a measure through discussion and debating of each supplier. Critical inputwas collected from the full purchasing team consulting with each respectivecomponent buyer. The combined measures both quantitative and qualitative of impactto the business and supply risk allowed each supplier to be categorised as:

. routine;

. bottleneck;

. leverage; and

. critical.

4.5 ESI timing and responsibilityThe final explore step contained the evaluation of ESI timing and responsibility. Thisdata gathering was fully perceptive and qualitative, however was deemed to be arepresentative measure as the cross-functional team debated each of the 47 suppliersand discussed with engineering personnel from outside the RIW team to evaluate theoverall perception of the measure.

4.6 Development phaseNumerous trends and correlations were explored with three graphical measures stoodout as being the most significant representation of the combination of measured data(Figures 6-8):

(1) The percentage of suppliers positioned in each of the four Kraljic strategies, andgives an insight into the level of supply risk and power of the supplier.

(2) The spread of supplier timing correlated with the four sourcing strategies.

(3) The spread of supplier responsibility correlated with the four sourcing strategies.

Figure 6.Commodity positioning

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4.7 Commodity positioningThe commodity positioning of suppliers allowed the team to analyse which sourcingstrategies apply to each of the 47 suppliers and the categories listed in the pie chart inFigure 6. Some suppliers were predictable, such as engines being critical and nuts andbolts being routine. Therefore, the leverage and bottleneck positions were of significantinterest. An example of supplier positioning has been outlined below:

. Routine. Electrical cable, enclosure fixings, graphics, printing and general metalfabrications.

. Bottleneck. Air cleaner, batteries, sensors and jacket water heaters.

. Leverage. Guards group, battery chargers and engine interface components.

. Critical. Radiator, control panels, vibration & isolation, exhaust and engines.

Figure 7.Supplier timing and

supply strategies

Figure 8.Supplier responsibilityand supply strategies

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Critical and leverage suppliers make up 32 and 6 per cent, respectively, with Bottleneckand routine suppliers making up 17 and 45 per cent, respectively.

This spread of suppliers represents a relatively low risk combination; 77 per cent ofthe supply base are in the critical and routine positions, which reflects a relativelyeffective and easy to manage the supply chain. With respect to these suppliers,(approximately 80 per cent) the critical suppliers require early collaborative relationswith joint responsibility, i.e. gray box design. This, in theory, will unite the valuenetwork by creating economies of scale and synergies in an integrated industry. Withrespect to the routine suppliers as long as good communications and robust purchasingprocesses are in place, transactional costs can be effectively managed. Therefore, thisapproximately 80 per cent of suppliers should operate efficiently allowing the remaining20 per cent leverage and bottleneck suppliers to gain business focus to becoming paretoefficient.

The discussions of both supplier timing and responsibility will investigate the totalsupplier portfolio before investigating the “as is” case of two distinct groups, that ofcritical and routine (80 per cent) and the group of bottleneck and leverage (20 per cent).Recommendations of change will be outlined in the creation of an ESI model and the“to be” change.

4.8 Supplier timingFrom inspecting the supplier timing data, it can be noted the distribution of datarepresents the form of a normal distribution or Gaussian curve. Therefore, theapproximation of the mean or average value can be observed for the total spread oftiming or for each of the commodity positions/purchasing strategies:

. Total spread. The mean position in the NPI process for supplier integration iscurrently at GW4. This indicates if suppliers are requesting design changes, upto 50 per cent of these changes will occur when the cost of change is at thehighest point and project flexibility at the lowest point in the design cycle. Also,as GW 5 is the end of the detailed design/develop phase with progression toprocess validation any non routine suppliers being integrated will not have anopportunity to explore cost reduction, waste removal or value increases.

. Critical and routine. The critical and routine components have mean timings ofGW3 and GW5, respectively. It was the team’s impression a GW5 mean for routinecomponents is acceptable and these could be ruled out of any close investigation.There, however, was a concern with a GW3 mean for critical components, as wefirmly believe all critical components suppliers should be integrated by GW3 andpreferably these suppliers should be continuously integrated and become aware ofnew product introductions pre-launch. On examination we found two criticalsuppliers were being integrated in GW4 and GW5, These critical suppliers aremajor sources of competitive advantage assuming collaborations can improvedesigns within the stated regulations.

. Bottleneck and leverage. Both these commodity positions have a mean integrationpoint of GW4, however both types differ in terms of spread. Leverage componentshave a tighter spread positioned to the later stages of a project whereas bottlenecksuppliers are continually integrated gradually throughout a project. This is arelatively good fit as bottleneck components can greatly affect a project timeframe

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and deliverables whereas leverage components are about getting the best deal.However, it would be preferable to integrate these suppliers earlier to give moreopportunity to maximise value and make design changes when cost is low andflexibility high.

4.9 Supplier responsibilitySupplier responsibility does not fit a clear distribution as with supplier timing howeverthe most predominate type of responsibility can be observed for the same groups ofdata, i.e. critical and routine (80 per cent) and the group of bottleneck and leverage(20 per cent):

. Total spread. The highest-ranking responsibility is that of black box supplierresponsibility. We can also note the best form of responsibility gray box is thelowest ranking with a third of the total black box count. This is slightly alarmingas it indicates suppliers are designing components in isolation throughdesign briefs and component specification. Therefore, it is evident that thequality link and customer value is being communicated through documentation oris being perceived by the supplier. It is possible that components are onlychanging through time in a reactive manor rather than a proactive search forcompetitiveness.

. Critical and routine. An almost equal spread of critical supplier has black, grayand white box responsibility. The team was glad to observe that the gray boxresponsibility was almost 100 per cent made up of critical suppliers indicating thelittle gray box responsibility which was being utilised was that of the criticalnature, however white box responsibly for critical component was concerning assupplier knowledge is not being utilised for this commodity type whichcould be considered as a waste of talent. Routine components appeared in allthree-responsibility type except gray, which is satisfactory, as collaborativeefforts are not being focused on lower value components.

. Bottleneck and leverage. The combined trend of both commodity types showedsuppliers in all four responsibility types with the majority appearing in blackbox, therefore any leverage may be hampered as aspects such as should cost,true net plant costs and variables such as labour, material and operational costare possibly unknown. This may hamper the ability to achieve true supplierleverage and minimise supply bottlenecks as game theory and a lack of gray boxcollaboration could become detrimental to a common interest to grow the firmcollectively.

5. Discussion of resultsThe central objective of this study was to provide a better understanding of ESI withinNPD by investigating its key influencing factors. Moreover, the degree of ESI thatexists between a multinational organisation and its key suppliers in terms of timingand extend of integration is studied. Investigation of ESI within NPD was conductedthrough a Six Sigma methodology adopting contemporary supply managementprinciples and practices, such as Kraljic’s portfolio.

Initial findings suggested the presence of the characteristics of ESI. For example, thefindings indicate the presence of a number of the characteristics of ESI consistent with

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the literature including supplier involvement at the concept stage of design,cross-functional involvement and high levels of information sharing (Ragatz et al., 1997).

5.1 Critical suppliers timingHowever, in some cases the rhetoric in this context had moved well ahead of the reality.In relation to the level of supplier involvement in design there were inconsistencies in itsapproach to those set out in the literature (Primo and Amundson, 2002). For example, insome instances suppliers were heavily involved and selected at the development stagewith not all critical suppliers being partners. That is, critical suppliers had a gatewaypositioned at GW4 of the NPD process. This should be moved to an earlier phase withinproduct development so individual component development becomes more proactivewith respect to customer value and critical customer requirements. An integration meanof GW4 will create excess product features or defect which will be unacceptable to thecustomer. Moving the mean to pre GW3 will help remove any unacceptable productattributes.

5.2 Critical suppliers responsibilityIf timing is shifted to an earlier stage in the NPI process it should become easier tocompliment this recommendation with gray box design. Product collaboration willcollectively create features, which are more acceptable in the market place allowingproduct enhancement to be locked in before flexibility of change becomes low and cost tochange becomes high. Gray box design could be adopted through the adoption ofsupplier design reviews offer up feedback, which can reduce product cost, increaseproduct feature and utilise the expertise of both the buying and supplying firm. If criticalcustomer requirements are communicated better in such design reviews a united visioncan be created and product can be innovative and more often “right first time”

5.3 Leverage and bottleneck suppliersThese suppliers are often unrecognised in the supply chain; as a secondaryrecommendation product design engineers require an understanding of the sourcingstrategies and techniques which can be used to minimise business risk and throughmaximising supply chain value and minimise component cost. To become Paretoefficient a breakdown of existing product suppliers could identify these commodities toallow appropriate sourcing strategies such as tiered source or delegated supply.Bottleneck supplier identification could identify opportunities to redesign componentsincorporating a move towards leverage supply where cost management techniques suchas “should cost modelling” could be adopted for all leverage suppliers to gain anunderstanding of feature optimisation and management of variable costs such asmaterial process optimisation and price leverage. As a further enhancement the teambelieved that technology alignment with these suppliers could identify technologyroadmaps, which should create of the shelf component enhancements, which could beappraised and selected pre concept generation removing the current quality and failurereactive product changes in place of competitive advantage creation.

5.4 Existing product classificationsFrom the above recommendation it became evident that purchasing representativeshould present the product group with a breakdown of suppliers and Kraljic position

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of those suppliers for each mature product, which is being made obsolete by a newproduct introduction. Also in terms of multiple source supply the purchasing repsshould indicate preferred suppliers through a selection process and possible strategicchanges such as bottleneck to leverage for all new product introductions. In order toimplement this recommendation the team highlighted a managerial implication. Therewas a strong belief that the purchasing and cost accountant disciplines should play agreater part in product gateway reviews and have an increased responsibility in NPDprocess capability measures such as the process conformance index (PCI scoring)system in Genco Inc. This emergent change helped set the scene for the development ofthe early supplier integration model, which concluded the rapid improvementworkshop.

5.5 Adopt the ESI modelThe early supplier integration model took the form of a set of deliverable or taskswhich should be measured and confirmed at each NPD gateway. This model wascreated with close reference to each of the project objectives (Figure 9).

To identify where value is created in the supply chain purchasing agents shouldbreakdown each supplier for the existing product and categorise each with respect to thefour Kraljic positions. The team believe this would create ownership and responsibility

Figure 9.ESI Model

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for this functional area and position the buyer and the product group strategically in linewith value creation. In documenting leverage and bottleneck suppliers and proposingpreferred suppliers a collective supply-chain management strategy could be adopted.This would allow each of the four strategic commodity groups to be integrated in orderof business risk into each NPI. The gateway procedure would govern the timing ofsupplier involvement and allow early supplier integration, which would promote a movetoward gray box design. The implementation of these steps will attain all five-projectobjectives; however as an added benefit each of the study’s recommendations was alsoadded to the ESI model. For example, technology roadmaps were placed in the model asan ongoing initiative, which should start from project launch or preferably as an ongoingeffort for the benefit of all NPI projects. Finally as a control measure purchasing repsshould document the supplier list and Kraljic position at the need of each project as acontrol mechanism and allow the categorization for the next NPI to occur pre launch.This shows that the next NPI will benefit from better ESI modelling and change theprocess steps and timings as a continual business improvement creating an ESI model,which is a dynamic working document and process.

5.6 SummaryIn fact, throughout the process of investigation, a number of key lessons andimpediments to establishing and managing the ESI process in this context wererevealed. Each of these need to be investigated in turn. For example, in some instances,the company is still playing suppliers off against one another in the design process inorder to extract more favourable terms. Currently, there is a lack of clarity andinconsistencies in the policy guidelines for the level of supplier involvement and thetime of supplier selection in design. Influences from corporate level can be detrimentalto the management of ESI at local level. Design personnel resistant to increasing thelevel of involvement of suppliers in the design process. Some suppliers may not havebeen confident enough of the accuracy of their costing structures to share them withtheir customers. There is not enough dedicated resource in the company to jointly workwith key suppliers to achieve fully the benefits of ESI. The exercise of power by thecustomer in the relationship can be detrimental to effective ESI. The culture of “people”in both the company and suppliers is a considerable barrier to the principles of ESIsuch as supply base reduction, cost information sharing and resource commitmentfrom top management.

6. ConclusionThe study has highlighted a number of key lessons for organisations that areconsidering the adoption of ESI:

(1) The changes to achieve effective ESI often drive change to the core of anorganisation and have implications for the way in which an organisation isstructured, individual roles, responsibilities, reward systems, reportingrelationships and cultural identity of the firm. The changes are systemic inthat modification to structural arrangements for example, automatically has aknock-on effect upon individual roles, responsibilities, reward systems andreporting relationships. It is essential to ensure the adoption of a holisticapproach to managing the entire process.

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(2) ESI requires a cultural change within the buyer and supplier organisationwhere there is enhanced understanding of the concept of collaboration. It isacknowledged that effecting culture change is often regarded as being amammoth task, which is made even more difficult by the deeply embeddedculture that has evolved over a long-period of time. This problem is furtherexacerbated when trying to achieve cultural alignment among the supply chainmembers. A culture in both the buyer and supplier organisation must exist inorder to facilitate and encourage joint problem solving and decision makingacross intra organisational boundaries.

The findings have stressed the need for a culture that breaks down the internal barriersthat exist within the traditional functional view of the firm. It is not enough to changethe attitudes of the purchasing personnel but the attitudes of the other businessfunctions and senior management must also be changed in the pursuit of collaborativebuyer-supplier relations. It requires a culture permeating the organisation hierarchythat encourages and values collaboration.

Senior management has a critical role to play in facilitating ESI. Within theorganisation at the core of this paper, strategy has been formulated by a small team ofsenior managers, more or less in isolation from those whose support is a vitalingredient for implementation.

Furthermore, it has been formulated by a team who are often perceived to makedecisions which display a lack of knowledge and understanding of working processes,practices and relationships throughout the organisation, or of the implications of theirdecisions in terms support structures necessary to facilitate implementation. Thus,considering the inter- and intra-organisational implications of ESI, it is essential thatorganisations pursue a much more participative approach to the strategy making process.At the same time, senior management need to exercise what Brown and Eisenhardt (1995)describe as subtle control. This term refers to the ability of senior management to have thevision necessary to develop and communicate a distinctive, coherent concept of theproduct. In the case of product development, this means meshing firm competencies andstrategies with the needs of the market to create an effective product idea.

When pursuing ESI it is essential to assess the impact that this will have upon thosewho will be most affected by it. Effective collaboration between individuals and groupsplaces a new found emphasis upon skills that were not so necessary when engaging inthe more traditional adversarial relationship. In particular, assessing the impact onthose most affected by new developments is likely to reveal a need for training topermit skill acquisition and development in a variety of areas including team working,problem solving, negotiation and conflict management.

6.1 Future research directionsThis study adopted a case study approach. Whilst this promotes useful insights and isinternally reliable, future studies could apply these learning’s through a large-scalesurvey approach to further enhance external validity. Further, this study gainedinformation from the buyer’s perspective. More dyadic or supply chain studies on ESIincluding the supply chain participants would revile useful insights.

Future studies could adopt a longitudinal approach to follow the NPD process fromconcept to implementation and evaluation. His approach would reveal rich insights

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to the entire NPD process, and could develop and understanding of specific hypothesis.This study could in tern provide both external validity and help to enhance the Gencodeveloped ESI model.

Post early supplier integration model development, as a closing exercise the authorsinitiated a brainstorming exercise to evaluate if there were any areas of furtherresearch or investigation that were prominent. The project team came up with anumber of significant areas, which could improve the ESI model and create focusdifferentiation. The majority of suggestions posed related to the execution of newprocess, which was recommended, for the purchasing function within the ESI. It wassuggested the team should investigate the procedure in which to generate SAP reportsfor specific products rather than the full facility, which was executed for this report,other key facilities were identified. It was also noted that it would be beneficial toinvestigate if specific supplier fields could be placed in SAP to indicate the Kraljiccommodity position for each supplier.

A further improvement area to facilitate the development of the supply chainstrategies was the implementation of a supplier selection procedure to the productgroup to further build on the relationship with the product group and the purchasingfunction. The whole team agreed the rapid improvement workshop or Kaizen eventestablished a collective learning experience in terms of strategic sourcing andcategorization of suppliers. Most of the participants had not previously conducted aQFD analysis, which gave a good insight into how value is determined.

As a concluding thought this study found it is common practice in NPD that anumber of factors are important to the creation of successful new products. Thesefactors traditionally have been firm-centric factors, which include design for qualityand design for manufacturability. If we extend this scope beyond the individual firmwe must recognise the importance of design for supply chain and the overall valuenetwork (Petersen et al., 2003).

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Further reading

Cadden, T., Marshall, D. and Cao, G. (2012), “Opposites attract: inter-organisational cultural fitand supply chain performance”, Supply Chain Management: An International Journal,May, online publication.

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Corresponding authorTrevor Cadden can be contacted at: t.cadden@ulster.ac.uk

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