THE PURCHASING AND NEW PRODUCT DEVELOPMENT NOTES

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THE PURCHASING AND NEW PRODUCT DEVELOPMENT NOTES

4.1 Introduction
Many companies attempt to track down new technologies
and product through systematic market research. The results of this
research are usually translated by the marketing department into several
new products idea which are then discussed with research and development
and the engineering department. These discussions are often the starting
point for projects aimed at improving current products or the
developments of new ones.

4.2 The process of new product development


Depending on the nature of the product and the type of company the
development process, starting with conceptualization and ending with
introduction to the market will pass through several stages

Products development. In this phase the idea supplied by the marketing
department are translated into a few concrete, but still relatively
abstract. Functional design. Such designs describe the functions that
the product to be developed will have to fulfill for the user. From
these functional designs, the most promising design is selected to be
elaborated further.

Product design. In this phase the functional design is worked out in
detail – proposals are made about the materials to be used. The physical
properties that the product must satisfy. E t c. Often several products
designs are produced which meet the functional design and these can be
presented to potential clients at an early stage. In order to get the
first reaction and impressions concept testing. This information enables
the engineers to focus on the most promising design. Subsequently the
product design is elaborated in the form of prototype can also be
presented to potential buyers and users.

Production planning. The manufacturability of the product has already
been considered during the product design stage the production
requirements are taken into account. After the prototype has been
approved. Preparation for production can be started. If it concerns a
technically complex products this phase may take a lot of time and it
may be necessary to purchase new production equipment. The capacity
requirements of this new equipment will have to be determined based on.
Among other things, Market exploration and sale forecasts. Production
planning frequently ends with a number of production series

Start of the production. Products from the pre production series are
subjected to through examination: based on the result of this
examination the product design or the setting of the machines might be
adopted so as to limit future production and quality problems to a
minimum. One of the problems that might occur in this phase is changing
the specifications. Every change is documented in a change – order send
by the engineering department to the purchasing department in order to
discuss this with the supplier. This
phase means a lot of work for the purchaser involved in the project.

Every change in the specification has to be approved by the supplier,
the consequences for the total costs have to be analyzed, the change
product needs to be tested again, etc. This is one of the reason why it
takes so long for a new product to become available for customers. Only
when the problem have been taken care of, can actual production
commence. It goes without saying it is possible to refine this sequence
of steps, depending on the nature of the product and the type of
company. As the development process advances, the specifications become
more rigid and it becomes more difficult to introduce changes. The
consequence for purchasing is that its latitude decreases and the cost
of technical changes introduces at a later stage in the process become
higher.

Once a suitable material or construction has been found, tested and
approved, the willingness to consider any alternatives (in the form of a
different material, component or a substitute product from another
supplier) will be limited at a later stage. Any alternative will have to
be tested and approved again, which implies not only a lot of work but
also risks. This desire to reduce technical risk may result in specific
components being channeled in the direction of one particular supplier
because of positive experiences with this supplier in the past.

The buyer is put in a difficult situation since it is awkward to
negotiate with such suppliers. Based on his job perceptions, a buyer
will always attempt to have more than one supplier to fall back on. For
the buyer to go out into the market, the product preferably must be
described in terms of functional specifications rather than in terms of
supplier or brand specifications. There exists therefore, a kind of
natural conflicts in the way the engineers and buyers operate which can
only be solved by cross functional development teams.

4.3 Communications between buyers and first tier suppliers


Large manufacturers communicate with their first tier suppliers in
product development as follows:

  • Purchasing engineering. This is a specialist function to provide the
    liaison between the engineering department and the purchasing
    department. Purchasing engineers are
    members of the design teams, where they will evaluate designs
    against purchasing-specific criteria. It is their task to bring in
    specific supply market knowledge and new supplier at an early stage
    of design.
  • Early supplier involvement (ESI) suppliers who have proved in the
    past to be ‘best-in class’ are invited to participate in the
    company’s development projects at an early stage. In this way they
    are able to criticize future designs, suggest alternative materials,
    come up with ideas for more efficient manufacturing, etc as a stage
    where engineering changes can be made without severe cost consequences.
  • Residential engineering. A next step is to co-locate engineers from
    the suppler on a more or less permanent basis within the
    organization in order to work on design or.

4.4 Benefits of early supplier involvement


In accessing the benefits of early supplier involvement, companies need
to differentiate between short-term and long-term benefits (Van Echtelt,
2004). Short-term benefits may result from improved product quality,
reduction of product cost, reduction of development time and reduction
of development cost. These benefits result from the supplier’s in-depth
knowledge of components and technologies, which enables them to match
component designs better with their manufacturing capabilities.
Long-term benefits may consist of more efficient and effective
collaboration in future new product development projects, the alignment
of future technology strategies, a better access to the technology
resources of the supplier and the contribution of suppliers to product differentiation. Involving buyers in development processes at an early stage can result in contribution of new knowledge and better understanding of:

  • Construction
  • Suitable materials
  • Suppliers
  • Supplier knowledge

Involving the supplier in new product development can also result in
considerable savings. The following shows the degree of design
complexities with each of
product design stage.