In many industries, firms are striving to integrate material suppliers earlier into the new product/process development process. This involvement may range from simple consultation with suppliers on design ideas to making suppliers fully responsible for the design of components or systems they will supply. In this paper, we develop and test a conceptual model of the effect of elements of the supplier integration process on cost, quality, and new product development time, under conditions of technology uncertainty. Technology uncertainty is operationalized here, as the degree to which the product or process technologies employed in the project are new, complex, and/or rapidly changing. The results suggest that technology uncertainty have a negative impact on cost results, but no direct effect on quality or cycle time. The results also show that certain elements of the supplier integration process are more likely to be employed under conditions of technology uncertainty, leading to significant improvements in cost, quality, and cycle time objectives.
Firms in many industries face increasing global competition and markets that demand more frequent innovation and higher quality. These firms are looking for ways to decrease product development time and simultaneously, improve quality and features, and significantly reduce product (or service) cost. One approach many companies are taking to gain competitive advantage is to involve suppliers earlier in the design and development process (Ragatz et al., 1997). Supplier involvement may range from simple consultation on design ideas to making suppliers fully responsible for the design of components, systems, processes, or services they will supply. The result is often a better product design that is brought to market faster and ultimately, delivers greater value for the customer.
Using the knowledge and expertise of suppliers to complement internal capabilities may help reduce concept-to-customer cycle time, costs, quality problems, and improve the overall design effort. Reports in the popular press indicate that leading companies in a variety of industries have made successful efforts at involving suppliers in the new product development process, and that interest in such efforts is growing (see, for example, Raia, 1992, Raia, 1993a and Raia, 1993b).
References to supplier integration into new product development typically examine the outputs of the process Kamath and Liker, 1994 and Brown and Eisenhardt, 1995. However, such research only rarely examine the actual dynamics and factors influencing the process of supplier integration, such as timing of supplier involvement, degree of supplier design responsibility, and frequency of buyer/supplier communication (Hartley et al., 1997). Findings regarding the impact of supplier integration in new product development are mixed. If managers are to employ this strategy and justify the considerable effort and costs required, the processes and potential benefits of this approach must be better understood.
Over the past 3 years, a research team from The Global Procurement and Supply Chain Benchmarking Initiative at Michigan State University (MSU) has been studying strategies and best practices for integrating suppliers into new product development efforts. An initial survey was conducted of the member companies of MSU's Global Procurement and Supply Chain Electronic Benchmarking Network (GEBN). That survey was followed by in-depth field interviews with 18 leading-edge companies. This paper describes the model that emerged from the field studies, and utilizes the survey data to test the effects of supplier integration on cost, quality, and new product cycle time, with a set of structural equation models. Before introducing the model, we will provide a brief review of the literature on supplier integration into new product development.
The results obtained from this study clearly show the importance of supplier integration, and provide some guidance to product development managers with diverse sets of product development objectives. Managers seeking to reduce concept to customer development time while increasing quality should seek to make suppliers part of the team, through co-location or frequent participation on team meetings. In reducing new product development costs, the results suggest that integration of the supplier's technology roadmaps into the development cycle is critical to ensuring that target costs are met. The results also generate a set of new and interesting research questions. Some of the questions that emerge from our findings, but which are not specifically addressed, include the following:
□ How can engineering personnel establish realistic objectives for supplier-provided inputs and designs?
□ How can teams measure the level of performance on new product integration projects? What other variables are critical?
□ Do strategic tradeoffs exist between the objectives of reducing cycle time, improving quality, and/or reducing costs when integrating suppliers?
□ How can purchasing gain access to suppliers' technology roadmaps that are currently not within their industry?
□ How can companies influence suppliers' technology roadmaps, especially in conditions when they are not a major buyer in the industry?
□ At what point in the new product development process should suppliers be integrated, based on changing technologies?
These questions represent challenges for the next decade. We believe that these questions can benefit from prior insights derived from the literature on strategic alliances, purchasing management, engineering management, and marketing. In order to fully understand how supplier integration will unfold, we further believe that the focus should not be limited to single buying/supplying organizational units, but should extend both up and down the supply chain. This framework would better represent the vision of the future, wherein entire supply chains of customers and suppliers will compete against similarly aligned chains, with the objective of creating the maximum value up and down the chain.
