Assessing the Supplier's Technology Roadmap
Even after the new product/commodity team has carried out a detailed performance assessment prior to selection of a supplier, it must carry out a second type of assessment. This second assessment ensures the short-term and long-term alignment of the objectives and the technology plans of the buying company and the supplier. To obtain maximum strategic benefit from the integration of the supplier, companies must share objectives and have complementary future technology plans. This is commonly described in terms of a convergence of the partners' technology roadmaps (see Figure 64), which describe the performance, cost, and technology characteristics of future products each company plans to develop and introduce over some specified time horizon.
Figure 64 Managing Product and Technology Development
The specific approaches companies use to assess and achieve alignment of technology roadmaps with suppliers vary considerably. Regardless of the approach, sharing information is a critical element of the process. A second important element is providing some incentive or motivation for suppliers to work toward technology alignment with the buying company.
As organizations seek to improve the technological capabilities of their supply base, they will need to first build stronger relationships with suppliers, which involves sharing future product plans and alignment of technology roadmaps. In turn, suppliers may need to alter their technological plans to more closely align them with those of major customers. As this exchange of information takes place, industry standards may be influenced. This will not only require an intimate understanding of current suppliers' capabilities, but also a commitment and willingness to trust the other party.
At the same time, buying companies must maintain a competitive edge, and must be aware of potential new suppliers and technologies. Organizations may need to create separate groups responsible for advanced technology development and expertise. These groups will need to continuously monitor competitors' products, processes, and supply bases, and to suggest modifications to current sourcing strategies. In some cases, joint technology development with suppliers may yield substantive results, providing that appropriate targets can be set. Companies must conduct this activity on a global basis, scouring the world for the best suppliers. This study showed that geographical proximity was one of the least important factors influencing the choice of supplier for integration.
Many companies attempt to manage and obtain the best technologies for application by developing a "bookshelf" of current and emerging technologies and suppliers of those technologies. These companies monitor the development of new technologies and, for those that appear to have promising applications, manage their introduction in new product applications so as to balance the benefits of "first mover" status with the risks of utilizing new technology. The objective is to maintain a selection of promising and accessible technologies and suppliers on the "bookshelf," ready for the company to use in a new product application.
At one company studied, an engineer in the buying company initiated the company's most successful supplier integration project. The engineer recognized synergies between the capabilities of his company and a supplier and began talking informally with a counterpart in the supplier company. This led to a high-level meeting between executives from the two companies. At this meeting, supplier executives shared technology plans and roadmaps, and identified common research streams in a very broad category of materials. A "top four" list of projects was targeted directly to future product needs. This relationship has now solidified, with the two companies meeting periodically to share their technology roadmaps and update their project list.
A different type of technology roadmap sharing is done by one electronics company that isn't sure where needed technology developments are most likely to occur. In some cases, internal development groups will share early information about future technology roadmaps. For instance, in one commodity, the manager has established a technology roadmap with performance curves and expected targets by date. The target area is shared with multiple suppliers. Suppliers are told that if they can't hit the target by a specified date, they won't get the business. This concept varies somewhat from conventional early involvement wisdom. Due to the volatility of this industry, the company does not have the time or the need to form alliances and go through an early involvement program. Rather, the company's strategy is to make sure the technology is available by openly sharing technology roadmaps with any qualified supplier, and to move its business when necessary to take advantage of performance at the target price.
Assessing the Rate of Technological Change
Assuming that the buying company can establish that the supplier's technology roadmap is aligned with its own, another important factor it must consider is the rate of change in product technology. The current rate of technological change is challenging many companies' capabilities, and they are seeking the help of suppliers with the development and application of critical but non-core technologies in their new products. For instance, the product life cycle of some products such as personal computers is less than three months. One computer manufacturer in the U.S. mentioned that the need to quickly bring new products to market is the single most important reason for integrating suppliers. Because of this need, this manufacturer skips the prototype stage and goes directly from development to full production!
Although supplier integration is useful for managing the quick pace of technological change, it also represents a double-edged sword. If a particular technology is changing rapidly, then involving the supplier early has potential pitfalls: the buying company may become "locked into" a particular design or technology, release the product, and discover that the technology has become obsolete or has been replaced by a technology with improved performance characteristics.
Timing of Supplier Integration
Companies should consider two major factors when deciding when to integrate the supplier into the product development process: the rate of change of the technology, and the level of supplier expertise in the given technology. Generally speaking, if the technology is undergoing a significant amount of technological change, it should be delayed in the product development cycle. On the other hand, if a supplier's design expertise is significant and its technology experts can provide insights instrumental to crafting the new product, that supplier should be included earlier in the process (see Figure 65).6
Figure 65 Integrate Suppliers at Different Stages
Field studies suggest that certain types of suppliers are more likely to be integrated earlier. For instance, at a Japanese computer manufacturer, the extent of interaction between product development engineers and suppliers appears to depend on the volatility of the commodity technology. Suppliers of critical non-standard commodities are involved much earlier in the product development initiative. These suppliers have regular, face-to-face discussions with engineers. On the other hand, suppliers of non-critical, standard items are not integrated until the final stages of the development cycle, and communication appears to occur more frequently by means of information systems (i.e., CAD is used with non-critical items such as PCBs, keyboards, and chassis). In general, face-to-face discussions are quicker, and information can be exchanged more effectively. However, because suppliers are located within a day's travel to the operating divisions, co-location is often unnecessary.
At a U.S. electronics manufacturer, the supplier's level of involvement may vary. To get a good quote, the supplier must be brought in early and sit in on the customer negotiation meeting. This company typically relies on suppliers for their process technology, not their product technology: suppliers are involved in bringing in new processes that are not internal areas of expertise. Suppliers often understand the total design, and how they can influence the design, earlier than internal personnel. In this case, the functional specifications are defined, and suppliers work with the company to jointly ensure they are met.
The Future of Supplier Integration
The companies in this study had a median of six years' experience integrating suppliers into new product development. They expect to increase their use of supplier integration in the future, and to involve suppliers earlier in the development process than they do now. Respondents were asked to characterize the success of the specific supplier integration effort, as well as the success of the overall development project in which the supplier was involved. On average, the respondents considered both the supplier integration effort and the overall development project to have been fairly successful.
Not surprisingly, results also indicated large variation in companies' level of satisfaction with their supplier integration efforts. In fact, only 20 percent of respondents agreed with the statement "We are currently satisfied with the results of our supplier integration efforts." More than 45 percent disagreed with the above statement. Despite these mixed results, respondents are committed to supplier integration for the future and their expectations are that supplier integration will continue to be important. This is indicated by the fact that more than 70 percent of respondents agreed "Expectations about the results to be achieved from supplier integration will increase significantly." Together, these results seem to indicate that many companies realize the importance of supplier integration, but have not yet perfected the process to successfully implement it.