Driving and Enabling Factors for Purchasing Involvement in Product Development.

Transcription

1 Driving and Enabling Factors for Purchasing Involvement in Product Development. Finn Wynstra, Arjan van Weele, Eindhoven University oftechonolgy Bjorn Axeisson, Thnk~ping International Business School ISBM Report Institute for the Study of Business Markets The Pennsylvania State University 402 Business Administration Building University Park, PA (814) or (814) Fax

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3 Driving and Enabling Factors for Purchasing Involvement in Product Development Finn Wynstraa*, Bj6rn Axelssonb, Arjan van Weelea aeindhoven Centre for Innovation Studies/Institute for Purchasing & Supply Development, Eindhoven University of Technology, P0 Box MB Eindhoven, Netherlands Tel , Fax bj6nk6ping International Business School, P0 Box J6nk6ping, Sweden Tel Fax *: Corresponding author

4 Driving and Enabling Factors for Purchasing Involvement in Product Development Abstract This article is the second in a series of two focusing on the involvement of purchasing and suppliers in product development. The first article has introduced a framework defining purchasing involvement in product development in terms of a series of specific activities across four different management areas. These activities range from operational activities concerning the actual design of a new product to strategic activities, like the formulation of policies for supplier involvement in development projects. This second article investigates the driving and enabling factors that influence the need for and the ability of firms to carry out the various activities from our framework. In that way, it provides indications in which situations certain activities are more important than others and suggestions as to how to enable an organisation to perform purchasing involvement in product development in an effective and efficient way. 1. A Framework for Purchasing Involvement in Product Development Previously, we introduced a framework that defines purchasing involvement in product development in terms of a series of specific activities across four different management areas (Wynstra et al. (1999), see Table 1). The framework has been developed on the basis of a large number of exploratory case studies in the Netherlands and Sweden, across a broad range of industries. 2

5 Qlace Table I here The starting point for constructing such a framework has been the conclusion that existing literature has not yet produced a complete and coherent definition of what purchasing s contribution and involvement in product development actually is. This lack of a clear and complete definition exists because previous research in this area is mainly limited to the involvement of suppliers in individual product development projects (Burt and Soukup, 1985; Clark, 1989; Dowlatshahi, 1992; Birou, 1994; Hartley, 1994; Kamath and Liker, 1994; Ragatz et al., 1997). However, research in other areas such as interorganisational relationships (Bergman and Johanson, 1978; Axelsson, 1987; Bonaccorsi, 1992; H~kansson and Eriksson, 1993) and strategic management (Ford and Farmer, 1986; Pralahad and Hamel, 1990; Wheelwright and Clark, 1992; Quinn and Hilmer, 1994) indicates that there are many purchasing related activities within the context of product development processes, which are not directly connected to managing supplier involvement in single development projects. These insights have been tested and developed further in our empirical research, resulting in the framework presented above, The framework is first of all a descriptive tool to summarise, in a systematic way, the different activities that constitute purchasing involvement in product development, as they in fact occurred in our (explorative) case studies. It is, however, also meant to be used as a prescriptive toot to implement, improve or audit purchasing involvement in product development. The aim of this second article is to discuss a number of factors that affect the need for and the ability of firms to perform the various purchasing involvement activities in product development processes. The framework has been developed by combining elements from existing research and specific examples of activities from two series of exploratory case studies. We did not find 3

6 the complete range of activities in each of the companies of the two series of (exploratory) case studies; we identified different activities in different situations. Taking a contingencybased view, it is therefore likely that of this complete set of activities, not all are equally necessary or important in all situations. In other words, particular antecedents or driving factors of the different activities may or may not be present. It is also possible that specific activities are important, but not or less possible to be carried out due to a lack of enabling factors within the firm. The three indepth, explanatory case studies reported here seek to identify some of these driving and enabling factors. This is done by explaining (part of) the product development problems and successes of the three firms in terms of the extent and form (i.e. pattern) of purchasing involvement. This purchasing involvement activity pattern, in its turn, is explained by the driving and enabling factors in that specific situation (see Figure 1). Insights regarding these factors provide prescriptive indications when to carry out specific activities from the framework, and the requirements for performing them. place Ficiure I here Section 2 introduces these driving and enabling factors, and section 3 presents the three case studies and their major findings. Section 4 discusses the actual role and impact of the driving and enabling factors in the three cases, and section 5, finally, sums up the conclusions and implications. 2. Driving and Enabling Factors 4

7 Our assumption is that variations between firms in terms of the actual pattern of purchasing involvement in productdevelopment may be explained by two groups of factors: conditions or antecedents that drive the need for such involvement (i.e. driving factors), and conditions that affect the ability for such involvement (i.e. enabling factors). Prior research, to our knowledge, has scarcely investigated the impact of driving factors on the extent of purchasing involvement in product development. Hartley (1994), as one of the exceptions, focuses on managing suppliers project involvement, which according to our framework is only one part of purchasing involvement. Because of that, the author only deals with driving factors specific to individual development projects. Our interest, however, lies with the more permanentdriving factors related to the manufacturing company as a whole, since many of the activities concerning purchasing involvement are not limited to a specific project. Previous research also provides little information on the impact of enabling factors on purchasing involvement. Peter (1996: 5971) and Birou (1994: 7481) deal with enabling factors to some extent, but again only with regard to their impact on supplier involvement in product development. Because of this lack of prior research on (permanent) driving factors and enabling factors, the factors have been identified primarily on the basis of preliminary notions from our exploratory case studies reported in the previous article (Wynstra et al., 1999). Concerning factors driving the need for purchasing involvement, the exploratory cases resulted in identifying the following four factors: company size, measured in terms of turnover; production type or technology; the overall dependence/reliance on suppliers measured as purchasing share in turnover; and the importance of product development, measured as R&D expenditure related to turnover. 5

8 Regarding factors enabling the involvement of purchasing in product development, the exploratory cases pointed to three main elements: the presence of an internal organisation that is able to support the required communication and coordination in product development; the quality of the exchange and recording of information relevant to the product development process and its management, possibly supported by information technology; and the quality of human resources in terms of personnel with the right education, skills and experience. If in developing new products, a company is experiencing problems related to purchasing and supplier aspects (such as delays due to suppliers not delivering prototypes in time, problems in meeting costtargets due to the use of expensive customised components) we argue that this may be primarily explained in terms of those driving and enabling factors. The problems are a sign that there is a gap between the actual and the desirable pattern of purchasing involvement; either the company has not realised it needs to have a certain degree and form of purchasing involvement, or it does realise this but is not able to achieve it. 2.1 Driving factors Company size has been identified as the first possible driving factor, primarily as an indicator of overall organisational complexity. In the exploratory cases, we found that the larger companies often had more extensive programmes on purchasing and supplier involvement than the smaller ones. The more complex the organisation, the more important it seems to become to develop and communicate guidelines for supplier involvement. If an organisation is small, the few people 6

9 concerned may simply agree on doing things a certain way, without (formally) labelling and communicating it as guidelines or policies. Production type has been identified as a second possible driving factor. In the explorative case studies, companies from large series assembly industries, for example, seemed in greater need of Project and Product Management activities. When performing assembly operations, it is likely that many different parts with a relatively high degree of complexity (fe. subassemblies) are involved. This emphasises the importance of coordinating development activities between different suppliers. The third possible driving factor regards the overall dependence/reliance on suppliers. The more dependent a company is on suppliers for producing its final product, the more likely it is to be dependent on suppliers for developing that product. One way to measure this dependence is by purchasing share in turnover (purchasing ratio). In the explorative case studies, the success of development projects at companies with high purchasing ratio s seemed much more dependent on supplier efforts than at those with lower purchasing ratio s. However, purchasing ratio is only a simplified proxy for supplier dependence, as it does not provide information on how important supplier products are technically speaking. Even if a manufacturer has a purchasing ratio of 80 %, the items bought may well be standard parts with no technological collaboration taking place. The fourth and final driving factor regards the importance of product development, reflected in the relative level of research & development expenditure. Although there is not a onetoone relationship between R&D expenditure and productdevelopment (some expenses may be related to basic research or process innovation), it is reasonable to assume that the higher the expenses on R&D, the more likely product development is to take place. Other things being equal, more product development means more need for purchasing involvement1. In the 1 One potential drawback of the level of R&D expenditure is that higher (internal) expenses may indicate a reliance on inhouse development, implying less supplier involvement and, consequently, less (need for) purchasing 7

10 explorative case studies, companies with high R&D expenditure seemed very focused on carefully managing the product development process and the possible involvement of suppliers in that process. 2.2 Enabling factors The first enabling factor, identified on the basis of the explorative case studies, involves an internal organisation that supports effective and efficient purchasing involvement in product development. For this organisation factor, it is possible to distinguish two aspects: (1) the organisation of the purchasing department, in particular in relation to the development and/or engineering department, and (2) the organisation of the product development team. Regarding the organisation of the purchasing department, two aspects are of importance. In the first place, the degree and principle of specialisation within the department may be of influence. The degree of specialisation determines to some extent the knowledge a purchaser has (can achieve) about suppliers and specific products. When a purchaser is responsible for a broad range of products and suppliers, it is difficult to know every detail of individual suppliers and products. The principle of specialisation is also important. For example, while purchasers may be specialised in terms of suppliers that produce different products, engineers may be specialised on the basis of technologies (plastics, ceramics, etc.). In the explorative case studies, we have seen that this makes the communication between the two departments more complex than when both purchasers and engineers are specialised according to the same dimension. In the second place, the horizontal complexity of the purchasing department may be involvement. However, H~kansson (1989:100101) found (for a group of 120 small and medium sized Swedish manufacturing companies) that the relative propensity to cooperate with external partners slightly rises with an 8

11 an influencing factor, Horizontal complexity refers to the number of different units or groups with specific tasks within a department (Daft, 1986:18). In the explorative cases, it seemed that when a purchasing department is divided into a unit that performs the operational purchasing tasks and a unit that performs the initial purchasing tasks, this may increase the overall ability of that department to perform those initial, product development related tasks. On the other hand, however, a very high degree of complexity may make it more difficult to coordinate various activities within the purchasing department itself. Regarding the organisation of the product development team, there are three important aspects: structure, composition and location. The teams can be structured in different ways. At the one extreme, there are team structures that consist of people that are still very closely connected (in terms of task performance control and career paths) to the functional organisation of their firm, and where no strong project manager role exists. At the other extreme, there are autonomous team structures, where individuals from different functional areas are fully dedicated to the project team and where the project leader has a very strong position, for example in task performance evaluation (Wheelwright and Clark, 1992). Apart from the structure of the development team, the composition of the team is also a major decision variable. The participation of the purchasing function may benefit the performance of the activities from our framework. In the first place, participation means that purchasing representatives are likely to be better informed about the project which enables them to better tailor some of their activities to the needs of the project. In the second place, purchasing may be able to influence certain decisions to its own interest; for example, selecting a supplier that is already a preferred partner to develop a specificcomponent. increase in total investment in technological development. 9

12 The third aspect of the organisation of product development teams regards their physical location. For the complex communication involved in product development to evolve rapidly and effectively, close physical location of development team members is often argued to be of great importance (Wheelwright and Clark, 1992: 20)2. Sometimes, fulltime location of purchasers at one development team may not be possible or desirable, for example when other tasks require close communication with other purchasing colleagues or other departments. One solution would then be that they are colocated : maintaining two offices, one in the purchasing department and one in the engineering or development team area. In the explorative case studies, the formal participation of purchasing in a strong development team seemed to lead to a more substantial and structured consideration of the various purchasing related activities in the product development project. The second enabling factor regarding purchasing involvement in productdevelopment is the exchange and recording of information. Product development is a highly informationintensive process, and many of the activities distinguished in our framework have an information aspect to them. When information is readily available and accessible to those that need it (fe, supplier, purchaser and engineer), this may facilitate their mutual communication and the performance of other tasks. Effective and efficient exchange and recording of information would involve tools like a list of preferred suppliers with information concerning their specific technical capabilities to support supplier selection decisions. Other populartools are overviews of standard components with indications on availability and costs to support certain engineering decisions (Burt and Soukup, 1985). The registration of and access to these various types of information can be 2 However, in a survey based on 325 buyers from a broad crosssection of industries in the US, the buyers ability (as rated by his supervisor) to obtain consideration by development engineers of the purchasing implications of alternative designs did not seem to be affected significantly by the colocation approach alone (Anklesaria and Burt, 1987). The researchers argue that the buyer s experience and performance in that setting probably has a more important impact. 10

13 facilitated by information technology (IT) (Erens and Van Stekelenborg, 1993). For instance, component overviews or recommended parts lists can be registered in databases that can be accessed by different people and searched by using different terms. In general, the more complex a development project in terms of number of participating departments, suppliers and number of parts, the more relevant the availability of information and the use of IT. In the explorative cases, part of the success and efficiency of purchasing involvement often seemed to rely on the availability of uptodate information on aspects like component specifications and supplier capabilities. The third factor bearing on the ability to perform the various purchasing related activities in product development are human resources. Prior research has in fact given some attention to the role of human resources as enabling factor for purchasing involvement. In doing so, it has focused primarily on the attributes of buying personnel, assuming that these make more difference than the personal attributes of development engineers or other members of the organisation. Several attributes are usually distinguished (Anklesaria and Burt, 1987; Guy and Dale, 1993; AtuaheneGima, 1995; Dobler and Burt, 1996): kind of previous experience; kind and level of training/education; degree of technical expertise; degree of proactiveness; and capabilities as perceived by others (credibility). Previous experience that purchasers have had in other functions within the firm, primarily the technical functions such as product development, may enhance not only their technical expertise but also their understanding of how they can contribute to the product development process. 11

14 The kind and level of education purchasers have is the second aspect that may affect their involvement in product development. Research has found that purchasing managers with a university education are more likely to be involved in the product development process than those without. These first two aspects are closely related to the third aspect: degree of technical expertise. In fact, the first two are argued to contribute to this technical expertise, which enables the purchaser to speak the engineer s language. The fourth aspect concerns the degree ofproactiveness of buyers. Proactiveness refers to the willingness and aggressiveness of purchasers to participate in activities related to product development. Purchasers that are content to focus on routine tasks such as filling out ordering forms will be more reluctant to participate in more uncertain processes such as product development. The final aspect of human resources concerns the overall capabilities, as they are perceived by others. No matter how technically skilled and proactive purchasers are, if their counterparts in the productdevelopment process primarily, development engineers do not perceive purchasers as being capable of adding value to the process, the involvement of purchasers will be not very effective. In the companies studied in the explorative cases, buyers that were proactive and who had a considerable amount of technical expertise often seemed more extensively and earlier involved in product development than those who did not; even within the same firm. These three factors or elements organisation, information and human resources constitute the organisation s ability for performing the different activities or tasks, and performing them in an efficient and effective way. Efficient meaning that the efforts spent on carrying out the activities is optimised, and effective meaning that the activities are carried out successfully. For example, the activity of providing information on new products and technologies is carried out efficiently 12

15 when the efforts involved in collecting and disseminating this information are relatively limited, for instance by using output of available supplier market research and putting this regularly on an intranet site. This is carried out effectively when the right information is provided, i.e. the information that is actually useful in the development of a new product, and to the right people. This may be enabled, for example, by the technical knowledge of the purchaser involved. 3. Case studies: Ericsson, Food For Thought and Philips Medical Systems As indicated in Figure 1, the case studies have sought to explain the relations between driving and enabling factors, the extent and pattern of purchasing involvement, and problems and successes in product development. In order to be able to generalise the findings with regard to these relations, we have chosen to conduct multiplecases. In multiplecase studies, the cases should be selected to predict either similar results (literal replication) or contrasting results but for predictable reasons (theoretical replication) (Yin, 1994). Our case studies have used theoretical replication: in other words, the case studies differ in terms of the key variables. The choice has been made to select the cases based on a variety in driving factors. The first company, Ericsson, is a major global player in the telecommunication industry. It has some 100,000 employees and turnover in 1996 amounted to 15 billion Euro. Its production is characterised by large series, it spends a large amount of resources on R&D (1214 % of turnover) and has a high purchasing ratio. The second company, Food For Thought, is an international company active in the development, production and marketing of longlife food products, with a focus on consumer products. Turnover is around 2 billion Euro and the company employs some 8,300 people (figures 1996). Production is characterised by a 13

16 combination of process and large series production, R&D expenses are limited and the purchasing ratio is relatively low. The third and final company, Philips Medical Systems (PMS), is one of the world s four leading medical equipment producers. It delivers diagnostic image producing and processing equipment, related therapeutic equipment and complementary services to hospitals. It has about 9500 employees but in terms of turnover, it is smaller than Ericsson and Food For Thought. Production is characterised by small series, R&D expenses are moderate and the purchasing ratio is relatively high. The company characteristics in terms of these driving factors are briefly summarised in Table 2. In fact, we studied one specific business unit within each of these three companies, but the company characteristics hold equally well for the respective business units. The only obvious exception is company size; comparing the total number of employees would overestimate the organisational complexity of the business units we have been studying. Instead, we compare for each case the total headcount of the purchasing and the development department together, as these two departments have been the central study objects in each of the three cases. Measured by this headcount, Ericsson is the biggest firm (roughly 500), followed by Philips Medical Systems (about 40), and Food For Thought is the smallest (15). Place Table 2 here All three case companies have been studied for a period extending over two years (roughly ). The case studies have been conducted in slightly different manners, and have used different (combinations of) sources of evidence. All three cases have involved (on average a dozen) interviews with company representatives from purchasing and product development functions. At FFT, interviews have also been conducted with a number of suppliers. The cases of Ericsson and PMS have been complemented with the work of students, acting as research 14

17 associates (Parkkinen, 1995; Kanon, 1997; Sie, 1996). In all three cases, various forms of documentation have been studied such as handbooks, presentations, internal memo s, external communication etc. These multiple sources of evidence have enabled data triangulation, improving the construct validity of the cases (Yin, 1994: 92). For Ericsson, the analysis for a business unit producing radio base stations for mobile telecommunication found that in: Development Management, Purchasing has developed some policies and guidelines but these have not been integrated with product development procedures and are not wellknown at other departments; Project Management, initial and operational purchasing tasks are carried out by (physically) separate groups, and lack of information often leads to problems in the coordination of production startup; and Product Management, a separate department maintains a library of standard components for development purposes, but the lists are hard to access and often contain outdated or incomplete information 3. Ericsson has a number of corporate policies, principles and instruments to promote and support supplier involvement in product development, also indicating what the role of purchasing should be in that respect. Hence, the company appears to have organised purchasing and supplier involvement to some degree. Most problems concentrate around operational issues in communication and coordination. This is partly due to temporary factors such as the large amount of people new to the organisation, but also to more structural factors such as a complex organisation with different departments having closely related responsibilities. 15

18 At Food For Thought, we found that: Development Management is largely absent, since developorbuy is not an issue, and policies and guidelines regarding internal and external involvement in product development are virtually nonexistent; Supplier Interface Management and Project Management are carried out by everyone, hindered by a lack of communication and coordination structures, saved by improvisation, flexibility and personal relations; Product Management is carried out mainly by the development department, often limiting the purchasing department in its possibilities to bring their commercial and market knowledge to bear on the project. FFT is made up of independent business units, some of which are involved in the production of food products (PUs), while commercial units are responsible for marketing and sales (CBUs). The PUs are also responsible for purchasing raw materials and packaging. Within the corporate business unit Research and Development, there is a group Packaging Development, acting as an independent profit centre. Efficient collaboration in productdevelopment at Food For Thought, both internally and externally with suppliers, is hampered by this extremely decentralised organisation. Additionally, it is hindered by (perceived) differences in terms of background and attitude between marketers on the one hand and purchasers on the other, and a lack of a good infrastructure for the recording and exchange of information related to product development. At Philips Medical Systems (PMS), recent costreduction efforts at PMS have led to increasing discussions on what should be (remain) the corecompetencies of the company and what should be outsourced. As a consequence, the involvement of suppliers in product development and the On Supplier Interface Management, the case contains insufficient information. 16

19 concomitant role of the purchasing function have become an important issue for the company. However, it seems that within the business unit Xray Diagnostics (XRD), responsible for the marketing, development and production of Xray systems: Development Management is not sufficiently performed; the lack of guidelines for supplier involvement leads to obscurity internally and externally, reducing suppliers ability and willingness to collaborate; Supplier Interface Management is an area with new demands, since PMS is trying to change its interface with suppliers by giving them more complex products to develop and to manufacture, requiring more emphasis on market research; Project Management seems the most problematic area, with many activities being performed on the basis of personal insights and adhoc considerations; and Product Management tasks are hardly carried out; engineers see these as the responsibility of purchasers, but the latter are involved too late in the development project and have too little market insight. At PMS, the internal organisation seems quite suitable for crossfunctional collaboration in product development, with purchasing represented in the development team and special supplier selection subteams. However, this formal structure does not guarantee actual and efficient collaboration, partly because the teams are established rather late. Another complicating factor may be the development department s feelings regarding the company s strive for increased supplier involvement, which it perceives as partly threatening to its own work. The findings regarding the actual performance of the three companies in the different areas of purchasing involvement is briefly summarised in Table 3. 17

20 Place Table 3 here 4. Discussion: driving and enabling factors 4.1 Driving factors First, we discuss the impact the four driving factors previously identified have on the necessity for the three respective firms to perform certain activities or rather areas of purchasing involvement in product development. Company size The management area most affected by company size seems to be Development Management. Ericsson, more than the two other companies, has developed a set of policies and guidelines for the responsibilities of the purchasing department regarding activities in product development. The problem is, however, that these policies have not (yet) been fully communicated to the development engineers. Since Ericsson is such a large and complex organisation, this leads to a situation where many engineers do not know whom to turn to for purchasing related issues. At FFT, there is a complete lack of policies and guidelines, but since it is a relatively small organisation it can compensate for this lack of guidelines through personal relations and improvisation. In a large organisation such as Ericsson, especially when there are many new people, this kind of compensation may only partly help. Also in the case of PMS, the lack of policies for supplier and purchasing involvement is one of the causes behind the lack of internal coordination in Project Execution activities. However, this is strongly connected to its efforts to increase supplier responsibilities in product development. If there would not be such a change, 18

21 the organisation seems small enough to compensate for the lack of guidelines by personal communication and improvisation. Other activities do not seem to become more important with company size. This may be explained by the fact that Development Management is the only area that is focusing on the whole organisation as such, while the other areas primarily focus either on suppliers and supplier relations (Supplier Interface Management) or on development projects (Project and Product Management). Only when, for example, the number or diversity of suppliers grows, or the complexity of the project increases would activities in these other areas become more relevant, not when the size of the firm grows. Production type The kind of production type being employed by the manufacturer indeed seems to have an effect on the importance of the areas of Project and Product Management. As noted before, the indepth case studies have involved one company with large series production (Ericsson), one with a combination of large series and process production (FFT), and one with small series production (PMS). Specific problems in the Ericsson case regarded the frequent miscommunication in releasing components for production orders and the large number of requests for approval of using a component from the standard list, which often led to delays. These problems, involving Project and Product Management activities, are induced and augmented by the large number of components involved. At PMS, which applies small series production, the products also consist of a large number of different components, making Project and Product Management problematic areas. Finally, also at FFT, many of the problems are also associated with Project Management tasks, while its products usually consist of not more than 510 different components; far less than the products of either Ericsson or PMS. Indeed, 19

22 Ericsson and PMS seem to perform Project and Product Management activities to a greater extent than FFT. The fact that all three companies experience problems in these areas, therefore, indicates that the two firms with large respectively small series production (assembly processes) have a higher need for Project and Product Management activities than the firm with process production. Purchasing ratio Of the four areas, Supplier Interface Management seems to be driven most by purchasing ratio. Activities such as monitoring supplier markets, exploiting suppliers technical capabilities and supplier performance rating seem to become more important as the manufacturer becomes more dependent on suppliers. However, we need to look a little bit further. Of the three companies in the case studies, FFT has a lower purchasing ratio than the two other companies. At FFT, Supplier Interface Management is an area in which various departments (marketing, development and purchasing) are active, each on its own and without any real coordination. Based on the company s low purchasing ratio, one could argue that Supplier Interface Management is not so important, and that the situation is therefore not problematic. However, it does form a problem, since the products FFT buys packaging are the most important part of the final product in terms of product development. In otherwords, in terms of costs, purchased goods may not be very important, but in terms of development they are. The low purchasing ratio underestimates the actual importance of the supplier inputs, and Supplier Interface Management is still very important. At PMS, we have seen that Supplier Interface Management is an increasingly important area because of the increasing responsibilities of suppliers. In other words, the goal of relying more on suppliers, which is to be reflected in a higher purchasing ratio and more intensive relations 20

23 with suppliers, puts special emphasis on Supplier Interface Management. For Ericsson, we have, unfortunately, little information on this area. R&D intensity In the three indepth case studies, Ericsson is the company with the highest level of R&D expenditure and also PMS spends more on R&D than FFT. Of the three companies, Ericsson seems the most active in Development Management, as reflected in its set of policies and guidelines for the responsibilities of the purchasing department regarding product development. The problem is~ however, that these policies have not (yet) been fully communicated to the development engineers. Earlier, we have argued that Ericsson s focus on Development Management may be related to its size. It can now also be argued that it is at least partly driven by its high level of R&D expenditure. High expenditure puts the productdevelopment process at the centre of attention for top management, those who are primarily responsible for Development Management activities. 4.2 Discussion: enabling factors After the discussion of the driving factors, this section analyses the impact of the three enabling factors on the abilities of the three respective companies to perform the various tasks related to purchasing involvement. Organisation Organisation of the purchasing department 21

24 At Ericsson, the purchasers in the business unit s Procurement department are specialised on the basis of products. With several development projects going on at the same time, a purchaser may have to contribute to different projects simultaneously. Some engineers, therefore, argued it would be better to have purchasers specialised according to projects. In that case, purchasers would be fulltime allocated to a specific project and deal with a range of different components. However, this may create other problems because the current product specialisation of the BU Procurement department matches that of the operational purchasers at the factory level, which facilitates their communication and coordination. In the new structure, with several projects going on at the same time, factory purchasers would need to deal with different initial purchasers. The purchasing organisation at Ericsson can be said to rather complex, since there are three different units involved in initial purchasing tasks: Procurement, Prototype Procurement (part of the Product Development department) and Component Technology (a separate department responsible for standard parts management). On the one hand, this means that purchasers can focus on a limited number of tasks. On the other hand, it carries the risk that the various purchasing related activities in product development become very fragmented. Many of the engineers found the division of responsibilities between the three rather confusing, and did not always know whom to turn to for specific issues. At Food For Thought (EFT), the purchasers are also specialised according to products. As there are only two purchasers for packaging, they have to deal with a broad range of packaging materials and a variety of suppliers. The limited size of the department also means that there is no high degree of complexity in its organisation. Apart from the operational, more logistical purchasing tasks related to ordering and delivery, which are officially delegated to the production departments, each of the purchasers is responsible for all kinds of purchasing activities for his specific range of products and suppliers. The purchasers are still very much occupied with short22

25 term firefighting, partly due to the production departments still asking for their assistance, partly due to their own priorities. Consequently, the purchasers spend little time on product development issues. Finally, at the business unit XRD of Philips Medical Systems (PMS), the purchasing department, at least the Initial Purchasing group, is primarily organised on the basis of internal customers: there is one group for the product group Cardiovascular diagnostics, and one for Remote Control and Surgery. This means that the development departments of these respective product groups are faced with their own initial purchasing group. The advantage of organising the department in this way is that the interface with the product development departments is relatively simple. The disadvantage may be that for those products or technologies that are common to both groups, the current organisation entails a duplication of knowledge and resources. PMS has tried to compensate for this disadvantage by establishing Competence Teams for different technologies, across the two initial purchasing groups. In terms of complexity, the purchasing department at PMS consists of four groups: the two initial purchasing groups, a Supplier Quality Assurance group, and Operational Purchasing. This structure would seem to enable the different purchasing groups to focus on its respective tasks but, just as in the case of Ericsson, the negative effect seems to be that some activities are difficult to handle exactly because of this separation of responsibilities. Structure, composition and location of the product development team Broadly speaking, the team structures and form of purchasing participation at Ericsson and Philips Medical Systems are quite similar. At Food For Thought, however, the situation is rather different. In the case of Ericsson, product development projects are carried out by a crossfunctional team in which the purchasing department participates by means of a Procurement Project Coordinator. This coordinator is responsible for all purchasing related issues within the 23

26 project, and should ensure that the appropriate purchasing product specialist is involved in an early stage when it comes to specific parts or components. Although the Procurement Project Coordinator sits in at the project team meetings, most of the purchasing issues in the development project we studied were referred to separate Component Meetings. In the case of that specific project, the Component Meetings were organised by the Component Technology group. In the eyes of Procurement, this resulted in too much emphasis on issues regarding standard components, while problems with the more customised components were relatively neglected. This underscores that formal participation of the purchasing department in the project team does not automatically guarantee that purchasing issues are given the amount and kind of attention at the team level that the department finds desirable. One of the indications that the attention at the project team level for purchasing and supplier related issues was indeed too little, is that when purchasing issues were discussed, they often had been brought up by manufacturing. In those instances, manufacturing would warn the other project members that components had become critical with respect to the project timetable, often because no definite choice for a supplier or a design had been made. For Food For Thought (FFT), it has already been argued that the internal organisation does not facilitate crossfunctional collaboration in product development. Additionally, the collaboration is complicated by the virtual absence of a common product development procedure. The marketing department (commercial business unit), which is responsible for starting and managing development projects, may have a procedure on its own, but the role of other departments is hardly discussed. Neither are there any common guidelines on the composition of development teams. In fact, the development teams have such a loose structure and the participants (other than the project leader from marketing) usually spend so little time on any individual project, that one can hardly speak of a true team structure. Because of the lack of procedures and explicit 24

27 team structures, much of the communication and collaboration in the development projects at FFT takes place through informal and adhoc contacts. As a consequence, the involvement of purchasing is usually limited during the initial stages, varies from project to project, and is very much dependent on factors such as the personal motives and attitude of the project leader, At Philips Medical Systems (PMS), purchasing is represented in the development team by an initial purchaser who is assigned to the project (parttime or fulltime). In addition to the development team, there is a Purchasing Release Team (PRT), responsible for supplier selection decisions, which consists of development engineers, the project leader and the same initial purchaser. However, its formal participation in both teams does not guarantee the actual involvement of purchasing in various purchasing and supplier related decisions in the development project. In the first place, most developorbuy decisions are usually taken before the formal establishment of the development team and consequently, purchasing is often not involved in those decisions. In the second place, the PRT starts to operate only in the Detail Engineering phase of the project when, for long leadtime items, engineers have already been contacting suppliers to discuss specifications. In that way, supplier selection for long leadtime items has in fact already taken place before the PRT is established and before purchasing has become involved. The case of PMS demonstrates that it is not only membership of the development team (and subteams) that impacts purchasing s abilities to participate in product development, it is also the moment of establishment of these teams. In none of the three case studies, purchasers and engineers are actually physically colocated. In the case of Ericsson, development engineers felt it would be good to have (some) purchasers colocated at their own offices. Although Procurement did reserve some offices, this was only meant as an emergency solution. In the case of Food For Thought and Philips Medical Systems, 25

28 the distance between the development and purchasing departments is not more than a few hundred metres, so the need for colocation is not perceived as very urgent. Additionally, at these two companies, the level of involvement in and time spent on an individual project by the purchasers concerned is limited. Therefore, the physical colocation of purchasers with the development team may have been regarded as not beneficial to their other tasks. Information At Ericsson, standard component lists form an important information support tool. Their actual use, however, has been rather problematic. The lists are difficult to access and are quickly outdated since they are distributed manually (on paper). The lists do not contain all the necessary actual data, for example regarding the supply situation (market shortage, leadtime, etc.). Development engineers, on the other hand, do not always inform those responsible for maintaining the lists that they have selected a particular component. Sometimes, this becomes very problematic in a later stage, when the component turns out to be not an offtheshelf component. The Preferred Part Lists and Preferred Supplier Lists, which are specific to each development project and also meantto promote standardisation, seem to be hardly known by engineers and are seldom used. This illustrates that the mere existence of certain information is not sufficient: it has to be updated, accessible and complete, and its existence has to be known. Since the development project involved a large number of different components, the problematic registration of and access to information has caused considerable difficulties. At Food For Thought (FFT), there are no such things as standard component lists or preferred supplier lists that can be accessed by the different departments involved in product development. If the marketing, purchasing and development department maintain records, for example, with regard to the capabilities of various suppliers, these are not structurally shared. In addition, there is hardly any shared project documentation. Information Technology is not used 26

29 at all. To some extent, one can say that this lack of information is not very dramatic as the development projects at FET are usually not that complex in terms of the number of internal participants, suppliers and new parts. On the other hand, important decisions such as supplier selection, which are de facto often taken by marketing or development, are not always based on important information such as the supplier s current performance (fe. regarding the quality and delivery of other products). At Philips Medical Systems (PMS), finally, there is an online standard component database, maintained by the purchasing department. However, because it is not integrated with other systems, its actual value is rather limited. IT is not a strong enabling factor at PMS. Human resources At Ericsson, the engineers argued that, more than detailed technical expertise, the purchaser s communication abilities and attitude determine whether an engineer is likely to contact him in the productdevelopment process. Purchasers also stated that it was mainly their own initiative that had led to their early involvement in the project. This points to the importance of proactiveness. At the same time, however, many engineers (often external consultants that were new to the organisation) did not know the exact tasks of purchasing in product development. In that respect, the department could have spent more time and effort on communicating its tasks and policies (as described in its internal manual and guidelines) throughout the rest of the organisation. At Food For Thought, one of the most important observations regarding human resources concerns the differences in age and kind and level of education between the people in marketing (young, highly educated) and those in purchasing and development (older, less educated). These differences often hinder effective communication and collaboration. The purchasers are 27

30 also frequently occupied with firefighting, i.e. the more operational tasks, which leaves less time for activities regarding product development. In that perspective, the purchasers do not seem to be highly proactive: at least, many marketing people do not perceive them to be that way. Although all purchasers have worked for the company for a considerable time and seem to have a fair degree of technical knowledge, marketing tends to contact the development department first when it wants to have information on new packaging alternatives or a potential supplier. This can be attributed to a large extent to the knowledge the development manager has of the supplier market, on top of the department s technical expertise. No job rotation takes place at FFT, and the purchasers have no experience in departments such as marketing or product development. At Philips Medical Systems, finally, many development engineers think that the purchasers have too little technical knowledge, which effectively hampers their contribution to the development process. On the other hand, purchasers often argue that engineers have too little insight into cost issues, and leave too little room for their involvement in product development by contacting suppliers directly. These mutual perceptions do not facilitate the collaboration between the two departments. There is no job rotation programme, although the purchasing department hired a former development engineer whose tasks involved improving the contacts with development. PMS has also increasingly been hiring university graduates, while previously most purchasers had lower levels of education. Obviously, the company thinks such an educational background would benefit the performance of the department s tasks in product development. 5. Conclusions 28

31 In each of the three case studies, the problems experienced in product development with regard to purchasing and supplier involvement can be related to one or more of the management areas from our framework. Part of these problems is related to the firms not giving sufficient attention to specific management areas as determined by the driving factors: company size, production type, R&D intensity and purchasing ratio. In addition, the case studies show that most of the problems can be traced to a lack of enabling factors, the most important of which are: functionallyoriented, fragmented internal organisations; lack of (access to) information; and insufficient competencies and differences in personal attitudes between departments. Based on the format of Figure 1, we have summarised for each of the three case companies the product development performance, the purchasing involvement pattern and the company context in terms of driving and enabling factors in Figure 2. Place FiQure 2 here The findings regarding the driving factors behind the different management areas can be used as indications in which situations (specific parts of) the framework of activities is (are) relevant or particularly important. These indications can serve as guidelines when to use the framework of activities, and more specifically which management areas to focus on, for implementing and improving purchasing involvement in product development. Based on the investigation of four potential driving factors, the framework of activities seems to be largely applicable to firms with different sizes, different production types, different purchasing ratio s and different levels of R&D expenditure. As far as can be concluded from the case studies, it is only with respect to individual management areas that different firms seem to require different degrees of involvement. Company size specifically seems to affect the need for 29

32 Development Management, especially the formulation and communication of supplier and purchasing involvement policies. Regarding production type, it is not so much the distinction between large series, small series, unit and process production that matters, but rather the distinction between assembly processes and process production. This distinction regards, among others, a difference in the number and variety of parts incorporated in the final product, and those factors are driving factors in the need for activities in the areas of Project Management (planning and execution) and Product Management. The third driving factor, R&D expenditure, bears mainly on Development Management, while the fourth and final driving factor, purchasing ratio, has an impact on Supplier Interface Management. The insights regarding the enabling factors behind the different management areas highlight the critical success factors for implementing and improving purchasing involvement in product development. These insights can be used for trying to establish or improve an internal environment beneficialfor performing the various activities, or even performing them (more) efficiently and effectively. In this article, that environment has been defined in terms of: the organisation of the purchasing department and the development team; the exchange and recording of information; and the quality of human resources. In principal, the insights on these enabling factors would apply to all types of firms. However, it is clear that those firms facing high demands on their involvement of the purchasing function in product development (f.e. large assemblyprocess firms, with a high purchasing ratio and high R&D expenditure) will have a greater need for enabling mechanisms. Specifically with regard to the organisation of the purchasing department and the development team, the contingency theory of organisational development tells us that not every firm needs the same form of organisation, as they are facing different contexts (Burns and Stalker, 1961). 30

33 Finding different organisational designs is therefore natural. In the case studies, Ericsson and PMS seem to have largely effective organisations: relatively large purchasing departments, with specialised initial purchasers, and quite autonomous development teams with a strong involvement from purchasing. FFT, however, seems to have an organisation that does not fit very well with the context it is facing. Crossfunctional collaboration in development projects at FFT is rather problematic, indicating that a more substantial, elaborate form of lateral relations between the different departments during product development would be required (Galbraith, 1973). All three companies seem to have a deficit in terms of the availability of and access to information, which is again more critical in some cases than in others. When it is not possible or not easy to register or access information in a complex project, this will lead to more frequent problems (miscommunication, misunderstanding) than in the case of a relatively simple project. The third and final enabling factor regards human resources, where we distinguish between experience, education, technical expertise, proactiveness and credibility. In the case studies, all three companies have some problems in terms of their human resources. One important conclusion of the case studies is that the capabilities and attitudes of other people than purchasers, such as development engineers and marketers, also seems to have an impact on the involvement of purchasing in product development. Even when purchasing s human resources are optimal for performing product development related tasks, their actual involvement is also affected by, for example, the perceptions and attitudes of marketers and of engineers regarding the need for and effectiveness of this involvement. In order to support the development of human resources, there are several areas in which possible measures can be taken. In the area of recruitment and training, emphasis may be given to the education and technical experience of potential employees, and their perception of the tasks of purchasing. By means of job or employee rotation, engineers could be brought into the purchasing department, 31

34 and purchasers assigned to the development department, which would create a better mutual understanding of the links between engineering and purchasing. Finally, communication with other departments about the possible support purchasing can (and should) offer could create a more positive perception of the actual capabilities of purchasers. As indicated in the beginning, we have only considered a limited number of driving and enabling factors in this article and in our empirical studies. Especially with regard to the driving factors, other closely related aspects that possibly have an impact on the need to perform different activities have been neglected. Based on the case of FFT, for example, it has been argued that it is not only the purely quantitative purchasing ratio that drives the need for Supplier Interface Management, but that the kind of purchased items matters even more. The case of FFT suggests that the degree of customisation of purchased inputs or, more broadly, the degree to which the purchased inputs carry innovations in the final product is an important driving factor too. This also points to the possible impact that differences in innovation patterns may have. For example, in sectors where many innovations are driven by suppliers, manufacturers may need to spend more time and effort on Supplier Interface Management in order to stay tuned to these innovations. Further research should spend more attention to the driving impact of these sectoral differences in innovation patterns (see fe. Pavitt, 1984). Another possible driving factor deserving further research may be the degree of product innovation. Projects involving radical innovations, for example, may be less suitable for rational Project Management activities than projects involving incremental innovations (see Eisenhardt and Tabrizi, 1995). Our case studies could not analyse this aspect, since all three only involve incremental innovations. Regarding the enabling factors, one possible factor for further study may be company culture or history. Some companies, like Ericsson for example, have a very strong engineering tradition, 32

35 which may make it somewhat difficult to overcome the not invented here syndrome and introduce a more commercially/ market oriented perspective to the product development process as represented by purchasing involvement. Further research may identify and further specify such additional driving and enabling factors, thereby increasing our knowledge regarding the driving and enabling conditions for purchasing involvement in product development. Acknowledgements This research has been funded in part by the research council of the Dutch Association for Purchasing Management (NEVI), and in Sweden the National Board for Industrial and Technical Development (NUTEK) and Marketing Technology Centre (MTC). Helpful comments from colleagues at the Centre for Research in Strategic Purchasing and Supply (University of Bath) are gratefully acknowledged. 33

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39 Table 1: Integrated framework of activities Development Management Determining which technologies to keepldevelop inhouse and which ones to outsource to suppliers Formulating policies for the involvement of suppliers Formulatina policies for purchasing related activities of internal departments 3dures am products Management Determining specific DeveloporBuy solutions Selecting suppliers for involvement in the development project Determining the extent ( workload ) of supplier involvement Determining the moment of supplier involvement Execution: Coordinating development activities between suppliers and manufacturer Coordinating development activities between different first tier suppliers Coordinating development activities between first tier suppliers and second tier suppliers 37

40 Driving Factors Figure 1: 38 Purchasing Involvement Problems and Activity Pattern Product Development Explanatory variables Successes in

41 .1

42 p.

43 company size production type R&D intensity purchasing ratio Table 2: Case companies Ericsson Food For Thought large small large series process/large series high low high low PMS medium small series moderate high 39

44 Management rrojecr tasks spreaa across different groups, lack of coordination Pro4uct Mailagement standerdis~tion effortsjilndered by outdated information Management 40 guidelines tor supplier involvement not extensively no cooraination across different departments; improvisation mainly ~yr&d dept, ~ttle use of commercial knowled~e performed on the basis of personal and adhoc considerations hardly carried out

45 Ii large company I large series high R&D exp. high purchasing ratio DM not fully deployed PJM not coordinated communication and PDM problematic complex organisation; coordination problems lead time problems P formal part DT Ericsson information outdated proactive purchasers small company process/large series low R&D exp. low purchasing ratio DM largely absent decentral organisation; no formal DT 4 proactive company small series moderate R&D exp. * Food For Thought medium sized inefficiencies commercial purchasers not very PDM communication and coordination problems consideration little documentented information SIM fragmented PJM fragmented without complex organisation; P formal part DT but late information not easily accessible purchasers little t~r.hn knowledge DM: no guidelines SIM not fully deployed PJM adhoc PDM hardly carried out 4 suppliers uncertain about their role internal tensions between P and D regarding respective tasks Philips Medical Systems DM: Development Management; SIM: Supplier Interface Management; PJM: Project Management; POM: Product Management; P: Purchasing (dept); 0; Development (dept); DT: Development Team. Figure 2: Case studies compared 41

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