Early supplier integration: the dual

role of purchasing in new product

development
Holger Schiele
University of Twente, School of Management and Governance, Capitool 15, 7500 AE Enschede,
The Netherlands. h.schiele@utwente.nl
Interest in early supplier integration in new product development (NPD) has increased as an
open innovation approach has become more common in rms. To support supplier integration,
the purchasing function of a rm can assume a new dual role: contributing to NPD while also
managing overall costs. Previous research has offered few insights into how the purchasing
function should best be organised so that it will full this dual role. This paper reports on the
results of a consortial benchmarking study in which an industryacademic consortium visited
and analysed six best-practice rms. The ndings describe how innovative rms organise their
purchasing function, distinguishing between advanced sourcing and life-cycle sourcing units.
The results include the tools that these rms use, such as regular innovation meetings with
suppliers and technology roadmaps linking rm strategy, innovation strategy and sourcing
strategies. The paper also recommends that researchers shift from a narrow focus on a single
project to a broader consideration of supplier and organisational issues in NPD.
1. Introduction: rounding out the new
product development (NPD) team to
include purchasing
I
n the last decade, NPD has increasingly relied
on external resources. While only 20% of the
most technology-intensive companies were rely-
ing heavily on external sources of technology in
1992, the number had increased to 85% by 2000
(Roberts, 2001). Outsourced research and devel-
opment (R&D) is growing twice as fast as the
growth rate for in-house development (Howells,
2008). Conceptually, the increasing relevance of
external sources of innovation has been reected
in the open innovation paradigm (Chesbrough
and Crowther, 2006; Gassmann, 2006). Accord-
ing to this model, rms commercialise internal
and external ideas using outside and inside path-
ways to the market. Four main reasons have
contributed to the switch from a closed (rm-
centred) innovation model to an open (network-
embedded) innovation model: the increasing mo-
bility of workers, the advent of venture capital,
external options for ideas sitting on the shelf and
the increasing capability of suppliers, which is of
particular importance for this paper (Ches-
brough, 2006). Several studies have shown that
in an open innovation environment, suppliers are
knowledge sources that are almost as important
as customers (Stones, 2001; Enkel et al., 2009).
This importance sharply contrasts with the lack of
attention that the upstream portion of open
innovation usually gets in research. Because of
this phenomenon it becomes an issue to integrate
suppliers and hence discuss purchasing profes-
sionals role in NPD, as this paper does. The
relatively recent changes in the process of innova-
tion generation may also explain why this area
still lacks in-depth investigation so far.
Several models for external technology sour-
cing have appeared, including joint ventures,
alliances, licensing, venture capital investments
R&D Management 40, 2, 2010. r 2010 The Authors. Journal compilation r 2010 Blackwell Publishing Ltd, 138
9600 Garsington Road, Oxford, OX4 2DQ, UK and 350 Main St, Malden, MA, 02148, USA
and an orientation towards buyersupplier rela-
tionships (van de Vrande et al., 2006). In this
paper, the focus is on the last model: the growing
importance of early supplier integration in NPD.
Our research-identied practices that allow the
purchasing function to efciently contribute to
early supplier inclusion in open innovation pro-
cesses.
The role of purchasing has been largely ignored
in the main body of research on early supplier
inclusion, presumably with the implicit assump-
tion that other functions will full purchasing
tasks (see Table 1). Extensive discussion about
the importance of the marketing and R&D inter-
faces (Grifn and Hauser, 1996) contrasts with
the dearth of attention paid to functions like
production, logistics and purchasing in NPD
(Tracey, 2004). This paper helps to ll this gap
by explicitly analysing the contribution of pur-
chasing to NPD.
Participating in NPD at an early stage requires
that purchasing use new tools and possibly new
structures and processes. For purchasing to adapt
successfully to a new and amplied role, the
following research questions must be answered:
How should the purchasing function be orga-
nised in order to best support NPD?
How can it a) full its role in a particular
development project and b) simultaneously
take responsibility for the company-wide pool-
ing of demand?
Are there any enabling tools rms can use in
order to fully benet from their suppliers
power of innovation?
To answer these questions, we conducted a con-
sortial benchmarking study, visiting six best-
practice rms. A consortial benchmark study
can be interpreted as a series of replicated case
studies (Yin, 2003). A consortial benchmarking
project is research driven by companies and con-
ducted by a mixed research consortium comprised
of practitioners and academics.
The ndings, from a managerial perspective,
highlighted the need to establish advanced sour-
cing departments as a distinct organisational unit.
Supportive tools, such as innovation meetings,
are necessary to this process, as are technology
roadmaps that help to link the procurement
strategy with the innovation strategy of a rm.
From a research perspective, the results of our
study emphasised the need to redirect research on
NPD so that instead of being primarily project
focused, it espouses an organisational- and a
supplier-focussed perspective. The ndings also
highlighted the need to design a sustainable
internal organisational structure that supports
cross-functional and inter-organisational devel-
opment processes. Additional research that fo-
cuses more on organisational issues is needed.
The paper is organised as follows. After a brief
conceptual review, we present a framework for
analysis and then discuss the benchmarking re-
sults, followed by conclusions and recommenda-
tions.
While we recognise that innovation also in-
cludes process innovations, the focus here is on
product innovations as the result of NPD.
2. Research on including purchasing in
NPD: a dual innovation- and cost-
oriented role
Several studies have demonstrated the positive
effects of including purchasing as part of a NPD
team early on (McGinnis and Vallopra, 1999,
2001; Nijssen et al., 2002; Tracey, 2004). The
probability that suppliers are involved in early
stages of NPD is likely to increase when purcha-
sers are part of the NPD team (Hillebrand and
Biemans, 2004; Tracey, 2004). This is important
because including purchasing early on is as ben-
ecial as including suppliers at an early stage
(Dro ge et al., 2004).
There is extensive research on the benets of
early supplier inclusion. Integrating supplier per-
sonnel into NPD processes, for example, allows
quicker responses to market changes, which may
explain why some studies found that supplier
inclusion reduces costs (Clark, 1989; Hartley
et al., 1997a; Ragatz et al., 1997; Handeld
et al., 1999). Further, supplier inclusion can im-
prove the manufacturability of a product by
limiting its complexity and reducing the danger
of over-engineering (Clark, 1989; Birou and Faw-
cett, 1994). Other benets of supplier inclusion
are higher quality, improved design (Ragatz et al.,
1997; Wasti and Liker, 1997; Primo and Amund-
son, 2002) and, often implicitly assumed, more
innovation (Tracey, 2004).
Despite these benets, rms seem to have only
a limited understanding of how to include suppli-
ers in NPD (Lakemond et al., 2006). There are
many reports of suppliers incompetence and even
project obstruction when unsuitable suppliers
were selected (Hartley et al., 1997b; Flynn et al.,
2000; Petroni and Panciroli, 2002; Primo and
Amundson, 2002; Zsidisin and Smith, 2005). To
Purchasing in new product development
r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
R&D Management 40, 2, 2010 139
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Holger Schiele
140 R&D Management 40, 2, 2010 r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
avoid these risks, suppliers must be chosen and
managed with care. These are responsibilities at
the core of the purchasing function.
The life-cycle perspective of purchasing differs
in key aspects from a purely R&D-oriented view
of NPD. Purchasing professionals are expected to
take a total cost-of-ownership perspective that
extends throughout the products life cycle
(Handeld and Pannesi, 1994; Ellram, 1995;
Rigby, 1996; Birou et al., 1997). NPD is only
the rst stage of the life cycle, which then moves
into the production phase and then often into
a post-production phase when spare parts
are needed. R&D also performs some post-
production tasks, but their core activities take
place during the early stages. The best supplier in
the development phase may not necessarily be the
best for the rest of the life cycle. In order to
incorporate supplier innovations into the rm
while at the same time ensuring the commercial
viability, purchasing professionals should be in-
cluded in development processes and NPD teams.
The importance of getting purchasers involved is
further underscored by a recent study with a
Siemens company, which unveiled that suppliers
were willing to offer cost reductions on existing
products, in order to get involved in the develop-
ment of the next generation of products
(Schumacher et al., 2008). In order to reap such
cost benets, supplier inclusion in NPD cannot be
analysed in isolation from the rest of the sourcing
process.
The broad range of empirical research on early
supplier involvement and on early purchasing
involvement includes some studies analysing the
role of purchasing as well as factors that lead to
purchasing becoming part of NPD teams, such as
the skill level of the purchasers and top manage-
ment commitment (Atuahene-Gima, 1995; Nijs-
sen et al., 2002). However, it is not enough to
select project participants, assemble a team and
apply project management techniques. Another
inuential factor concerns the permanent organi-
sational structure that houses the team members.
The usual research design focuses on single pro-
jects and thus by its very nature cannot generate
insights about which permanent organisational
structures support purchasing in its dual role. To
provide an objective view on purchasing inclusion
and to generate recommendations on the change
process required for inclusion, we need a thor-
ough analysis of an optimal organisational setting
for purchasing (see Table 1, which reviews the
main body of quantitative research as it contri-
butes to our research questions). Research on
early supplier inclusion typically does not make
any reference to function. Usually the buyer is
integrating a supplier. We can only speculate
from the respondents proles which function
within the rm is assigned to this task. Only a
few papers refer to function, and even in these
instances, the role of purchasing is given little
attention. The literature on early supplier inclu-
sion largely ignores purchasing. Finally, it is
worth noting that these studies have little interest
in the organisational structure of the purchasing
department.
It is clear that purchasing managers who want
to increase their departments contribution to
NPD teams without neglecting company-wide
obligations to control costs lack a model for this
kind of orientation. In these cases, useful insights
must be derived either from theoretical and con-
ceptual reections or from solutions already ap-
plied by leading-edge rms. This paper takes the
second approach, reporting on visits to best-
practice rms. Our insights resulted from apply-
ing a novel method of analysis called consortial
benchmarking.
3. Framework for analysis: NPD in an
organisational context
3.1. Method: consortial benchmarking
visits to six best-practice rms
A growing concern in management research is the
search for relevance and methods that overcome
the academicpractitioner divide (Brennan and
Ankers, 2004; Rynes, 2007). The UK Industry
Academic Links Report analysed reasons for the
still acute academicpractitioner divide. It nds
that . . . users believe that research can benet
them but do not regard many research topics as
focusing upon key issues of relevance (Starkey
and Madan, 2001, p. S3). Research that is prac-
tical and relevant can best be carried out in some
form of industrialacademic collaboration to ad-
dress this limitation, according to critics (Hatch-
uel, 2001; Starkey and Madan, 2001; Traneld
et al., 2004; Vermeulen, 2007). Consortial bench-
marking is a form of industryacademic colla-
boration that involves practitioners in agenda
setting and thus inherently focuses on the rele-
vancy of research.
The empirical research approach in this paper
can best be described as a collective case study that
examines the research question across several rms
(cases). A sponsoring consortium, made up of
Purchasing in new product development
r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
R&D Management 40, 2, 2010 141
members of rms interested in this topic,
and researchers visited best-practice rms. This
method has become known as consortial bench-
marking (Schweikert, 2000; Fahrni et al., 2002;
Schiele and Krummaker, 2010). The industrial
academic consortium dened the research ques-
tions, selected the rms to be visited and discussed
the benchmarking results. With consortial bench-
marking, the consortium rms did not benchmark
each other, but instead compared the visited rms
and attempt to derive transferrable lessons.
This method is considered best suited to inno-
vative topics with high practical relevance where
no fully developed theories exist. It is intriguing to
ask whether consortial benchmarking might also
help revitalise exhausted or stagnating elds of
research. NPD could be such a eld, considering
the frustratingly slow improvement in NPD suc-
cess (Grifn, 1997; Wind and Mahajan, 1997;
Cooper, 1999) because . . . over a period of nearly
thirty years, the results of empirical NPD research
have remained fairly constant (Ernst, 2002,
p. 32). Consortial benchmarking has the potential
to introduce new ideas that arise from academi-
cally moderated, practitioner-to-practitioner dis-
cussions within the consortium and during on-site
visits, being open to primitive principles ab-
sorbed . . . by renewed contact with the earth of
common sense (Schwab, 1960, p. 12). Because
this research is driven by companies, it has the
potential to uncover issues that are relevant and
may have been neglected in academic research.
From a practical perspective, the method can be
divided into four distinct phases (Illustration 1):
academic preparation of the research issue and
consortium formation, kick-off workshop, visits to
best-practice rms and a lessons-learned meeting.
In our case, the research consortium consisted
of the following rms: BMW, Dra ger Medical,
Heidelberger Druck, Siemens Automation &
Drives, Siemens Global Procurement and Logis-
tics (central function), Siemens Logistics & As-
sembly Systems and Unilever. The consortium
also relied upon the support of the German
purchasing association, BME (Bundesverband
Materialwirtschaft, Einkauf und Logistik e.V.)
and of h&z business consulting.The six best-
practice rms were selected based on 42 outside-
in studies in addition to suggestions from the
consortium rms delegates. These outside-in stu-
dies collected publically available information on
the potential target rms and summarised them in
a standardised way, paying special attention to
the topic at hand. Often, the pre-selected rms
had gained prices for their outstanding achieve-
ments, which would provide a rst indication for
being a best-practice rm. During the kick-off
meeting of the research project, the proposed
rms were presented one by one and then ranked
by voting. This method is comparable to selection
mechanisms for identifying best-practice cases
described in the literature (Petersen et al., 2005).
Following the idea of theoretical sampling, visits
and analysis of cases continued until we achieved
Source: own elaboration
Steps in consortial benchmarking
Lessons learned
Workshop summarising findings of all visits
Subsequent preparation of final report
Visits
Realisation of the visits to selected best practice
firms
Immediate comparison of notes and compiling of
observations
Kick-off
Introduction to the topic and alignment of all
participants
Relevance check of academic propositions
Adoption of research agenda and interview
guideline
Selection of target benchmarking firms
Academic foundation of the research question
Acquisition of sponsoring consortium members
Preparation
Quantitative
empirical hypothesis
testing
New research
questions arising
Illustration 1. Four steps of a consortial benchmarking research project.
Holger Schiele
142 R&D Management 40, 2, 2010 r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
theoretical saturation, i.e., until additional visits
did not appear to contribute new insights (Locke,
2005).
The rms visited are all in the manufacturing
sector: Deckel Maho Gildemeister (machine tool
manufacturing, Bielefeld, Germany); BMW (mo-
tor vehicle manufacturing, Munich, Germany,
which decided to join the consortium after being
visited as a best-practice example); Leica Geosys-
tems (manufacturer of precision measuring in-
struments, Heerbrugg, Switzerland); Magna
Steyr (automotive contract manufacturing and
contract development, Graz, Austria); B/S/H
Bosch Siemens Haushaltsgera te, Electronics,
Drives & Systems Unit (producer of components
for household appliances, Regensburg, Ger-
many); and Cherry (producer of computer input
devices, switches and controls and automotive
supply, Auerbach, Germany).
Each visit lasted 1.5 days. The consortium rms
were represented by their heads of purchasing and
R&D. The best-practice rms were usually repre-
sented by their R&D and purchasing heads as well
as their CEOs and other executives involved, includ-
ing at times the heads of innovation or advanced
sourcing or supplier development departments. The
single informant bias, a typical problem in NPD
research, was thus avoided (Ernst and Teichert,
1998). A particular feature of the method is that
immediately after each visit, still on site, all con-
sortium members met without the representatives of
the visited rm and reected upon the ndings. For
each research question, the observations of the
group were collected and conclusions were drawn.
If consensus was achieved, then these lessons learned
became part of the research report, which as pre-
pared immediately after each visit. The present paper
draws upon these reports and further feedback by
consortium members and by the visited rms.
From a content perspective, the benchmark was
guided by a framework adopted from the classical
model of Cooper and Kleinschmidt, which has
been widely used in analysing NPD (Cooper and
Kleinschmidt, 1995; Ernst, 2002). This framework
specically addresses organisational issues.
Furthermore, because our research tried to opti-
mise the contribution of purchasing to NPD, it
made sense to take as a starting point those issues
relevant for successful NPD. The novelty is that we
applied this seminal model in a NPD context but
with a purchasing perspective. The framework for
analysis can be subdivided into
a rms strategy and commitment to innova-
tion;
the structural organisation of the purchasing
division;
the process organisation of NPD and suppor-
tive tools;
the companys corporate culture.
The framework for analysis of the consortial
benchmarking was originally derived from an
academic theoretical basis and was then rened
in a kick-off meeting with the consortium mem-
bers. The inclusion of practitioners in agenda
setting was an explicit part of this method and
was used as a way to avoid white spots in the
research. This is a unique benet of the consortial
benchmarking method. The next sections, there-
fore, include both academic and practitioner in-
puts in the framework used to analyse best-
practice rms.
3.2. Strategy: linking a dedicated NPD
strategy to sourcing strategies
Several kinds of strategies can be differentiated in
the formulation process, such as the rm strategy,
functional strategies and supplier-sourcing strate-
gies. One of the rms sub-strategies is the innova-
tion strategy, commonly understood to describe an
organisations attitude towards new product and
market development plans (Adams et al., 2006).
Analysing the success factors for NPD success,
previous research has identied the existence of an
explicitly documented strategy for innovation as
one differentiating factor (Cooper and Kleinsch-
midt, 1995; Grifn, 1997). An innovation strategy
entails resource allocation and risk management
functions and is an articulation of a rms commit-
ment to developing innovative products (Adams et
al., 2006). Furthermore, while all rms need to
dene their knowledge boundaries, in particular,
rms operating in an open innovation environment
need a clear innovation strategy in order to deline-
ate their internal technological core competencies
and the competencies that have to be sourced
externally (Howells et al., 2003). The implementa-
tion of technology planning along with having a
dedicated strategy for innovation were found to
correlate with purchasings inclusion in NPD teams
(Johnson et al., 2002; Nijssen et al., 2002).
Question 1 asked by the research consortium:
How can links among different levels of strat-
egy be established, in particular, how can the
rms innovation strategy be linked to sourcing
strategies for particular suppliers?
Purchasing in new product development
r 2010 The Authors
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R&D Management 40, 2, 2010 143
3.3. Structural organisation: a dilemma in
the setup of the purchasing
department
Those few studies that considered the impact of
structural organisation on purchasings inclusion
in NPD presented mixed results (Johnson et al.,
1998, 2002). Except for cross-functional teaming,
organisational design has received limited atten-
tion from supply management researchers
(Trent, 2004, p. 4). The same is true when we
approach the issue from an R&D perspective.
Enquiries have focussed on inter-rm relation-
ships almost to the exclusion of intrarm orga-
nization (Argyres and Silverman, 2004, p. 929,
italics in original).
This lack of attention was not shared by the
research consortium. In the opposite, the practi-
tioners expressed great interest in the structural
organisation of rms. In fact, structural adapta-
tions are a common management technique for
change, apparently with the underlying assump-
tion, well known from the strategy literature, that
structure follows strategy.
From an organisational perspective, purchas-
ings dual responsibility to an NPD project and to
the cost concerns of the rm present a dilemma: in
order to increase the level of competence and
encourage company-wide pooling of demand, a
purchaser may want to specialise in a particular
commodity. From a NPD team perspective, how-
ever, involving each commodity purchaser could
result in an impractical number of purchasers
involved in a single project as more than one
commodity would be needed. Moreover, engi-
neering is often organised around product parts,
following more of an NPD project logic
(Lakemond et al., 2001). If purchasing were to
mirror this structure, giving priority to the pro-
ject, the result might be not only less specialisa-
tion, and thus, less acceptance of the purchaser
but also higher costs. The tasks would be dupli-
cated and company-wide coordination would be
reduced (Murphy and Heberling, 1996).
There seems to be a pattern that favours
specialisation of roles within purchasing and
features positions called procurement engineers
(Burt and Soukup, 1985), advanced sourcing
agents (Versteeg, 1999) or new product buyers
(Calvi, 2000). This indicates that some kind of
specialisation within purchasing would support
its amplied role on NPD teams.
Question 2: Is there an organisational structure
that resolves the dilemma of ensuring low
supply costs for the rm while also accounting
for the innovation requirements of a project,
i.e., harmonising cost and innovation issues?
3.4. Process organisation and supporting
tools: purchasings inclusion and
scope of activities
In NPD, the importance of a well-dened process
for innovation has been highlighted. Research has
found a positive relation between the existence of
a clearly dened NPD process and NPD success
(Grifn, 1997; McGinnis and Vallopra, 1999;
Petersen et al., 2003). With some variation, the
proposed process models tend to distinguish be-
tween (1) idea generation, (2) project selection,
(3) realisation (including market introduction of
the new product) and sometimes (4) a feedback or
adaptation phase. The role that purchasing can
play in this process, however, has not usually been
made clear in the publications on R&D manage-
ment.
The same is true when it comes to tools that
purchasing could use to support the process of
innovation. Only a few tools have been proposed,
such as co-location of purchasing and engineer-
ing, establishment of a preferred part list to
promote standardisation, or the implementation
of controlling of innovation (Burt and Soukup,
1985; McGinnis and Vallopra, 1999)
Question 3: When and how is purchasing being
involved in the NPD process? Which tools are
used by the best-practice rms to enhance
purchasings contribution?
3.5. Culture: corporate culture as an
enabler of collaboration
Corporate culture plays an important role in the
environment for NPD because it consists of . . .
the set of values, beliefs, and behaviour patterns
that form the core identity of an organization
(Denison, 1984, p. 5). A subset of the corporate
culture is the innovation culture, reected in
support for teams and an entrepreneurial climate
positively associated with innovation and NPD
success (Cooper and Kleinschmidt, 1995; Adams
et al., 2006).
However, empirical research has come up with
controversial results. For instance, McGinnis and
Vallopra (2001) could not nd any signicant
Holger Schiele
144 R&D Management 40, 2, 2010 r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
relationship between a rms general openness to
ideas from suppliers and the level of suppliers
involvement in NPD. It is possible that purchas-
ing is a moderator in between. Wei and Morgan
(2004) did not detect a signicant direct relation-
ship between a rms organisational climate and
NPD performance and concluded that culture
may have only an indirect effect. However, Pe-
tersen et al. (2005) found that the suppliers
business culture inuences integration effects
along with the suppliers technical capabilities.
One reason for the contradictory ndings on
cultures effect may be the difculty of measuring
this variable.
Question 4: Which visible indicators can be
found describing a corporate culture open for
innovation and collaborative teamwork?
In summary, it can be said that the literature
indicates the importance of early supplier inclu-
sion in NPD and gives some support to early
purchasing inclusion. A reference framework can
thus be derived. However, there is no comprehen-
sive model of purchasing integration into the
NPD process. Also, clear directions for manage-
ment are missing on how to maximise the con-
tribution of their supply base to the generation of
innovation. In the end, is also not fully clear how
to maximise purchasings contribution to NPD.
The next section reports on the results of the
consortiums visits to the six best-practice rms,
summarised in Illustration 2. The ndings could
also be used as the basis of an agenda for
purchasing managers who are trying to increase
their contribution to NPD and who are trying to
increase their supply bases contribution to inno-
vation.
4. Results: a differentiated purchasing
department actively searching for
innovations
4.1. Strategy: interlinked technology
roadmaps
All six best-practice rms had a dedicated strategy
for innovation, with technology roadmaps play-
ing an important role. These roadmaps were
formulated for each applicable eld of technology
and described the desired vision and the steps
needed to achieve it, thereby attaching a timeline
to technological development (Handeld et al.,
1999; Albright et al., 2003; Phaal et al., 2004). The
results of collective, cross-functional efforts, tech-
nology roadmaps usually reect market expecta-
tions and technological trends. Research results,
reports from trade fairs and market analysis
results are integrated into the roadmap. One
of the key benets of roadmapping is . . . the
Source: own elaboration
Questions
Main findings
Culture
Company culture plays an important role
as determinant of innovativeness
Are there any visible indicators?
Cross-functional innovation budgeting
committees as visible expression
of collaborative company culture
Process
Descriptions of the process of innovation
in literature usually do not refer
to purchasing's role
Are there special tools for proactive
purchasing activities?
Detailed process with purchasing
inclusion points ensures purchasing's
regular participation in NPD
Some tools available, e.g. innovation
meetings with suppliers
Structure
Limited attention to organisational
issues in purchasing and NPD literature
Which could be an overriding
organisational principle for purchasing to
maximise its contribution? How to
harmonise the innovation and cost
dilemma?
Segregation of purchasing into three
sub-departments: operative
procurement, life cycle sourcing and
advanced sourcing
Supplier selection in the responsibility
of the life cycle sourcing team
Importance of commodity management
as overriding principle
Literature emphasises benefits of
strategy for innovation
How to link corporate innovation
strategy to purchasing tasks?
Strategy
Technology roadmaps as tool to link
innovation strategy with sourcing
strategy and supplier selection
Illustration 2. Main ndings of the best practice benchmark.
Purchasing in new product development
r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
R&D Management 40, 2, 2010 145
alignment of strategy within the organisation and
between organisations for example, accessing
external resources in supply chains and networks,
and coordinating activities with partners . . .
(Yoon et al., 2008, p. 53). Through better orga-
nisational alignment, roadmapping may also be
used as an instrument to speed up planning
processes (Denkena et al., 2008). However, while
external commercialisation of technology has
been proposed as an element of a roadmap, the
external sourcing of technology continues to be
neglected (Lichtenthaler, 2008).
If the alignment with the supplier is a core
benet of roadmapping, then it is surprising to
note the limited emphasis literature has placed
upon purchasing participation in this process. In
contrast, our best-practice rms reected the
supply market considerations. More, the involve-
ment of purchasers in dening the roadmap was
explicitly part of the process. In two rms, even
key suppliers were involved in formulating the
roadmap.
Usually, the best-practice rms had between
three and eight roadmaps, depending on the
technological elds involved. One of the reasons
for such differentiation is the different clock
speed of the technological elds. In the case of
Cherry, for instance, the keyboard business has a
shorter planning period than automotive electro-
nics. The time period covered by the roadmaps,
therefore, ranged from 2 to 10 years, depending
upon the speed of development in a technological
eld.
Our ndings suggest that technology roadmaps
deserve a broader application; however, in the
literature, they have been conned to their role in
developing research and marketing agendas. We
found that the development of technology road-
maps is not only linked to the strategic planning
process, but also overlaps the commodity group
strategy formulation and supplier selection as
part of strategic sourcing. A roadmap should
include necessary decisions, such as whether to
buy or develop new technology, and also a
denition of the supporting supplier network
required (Voigt and Weber, 2005). A roadmap
indicating the evolution of the supply base can be
linked directly to the supplier selection. This
nding addresses the original research question
of how to establish links among the different
levels of strategy formulation. Namely, technol-
ogy roadmaps can serve as a tool to operationa-
lise the links among the rms strategy, the
strategy for innovation and sourcing strategies.
The suppliers who have a better t with the
buyers technology roadmap are given preference
in sourcing decisions.
4.2. Structural organisation: segregating
advanced sourcing and life-cycle
sourcing
All six rms visited had implemented some form
of commodity or material group management,
i.e., families of materials sourced from suppliers
in a single supply market were grouped together
(Rendon, 2005). This is very different from the
typical organisation pattern of engineering, which
does not follow supply markets but typically
organises around products (Lakemond et al.,
2001). With the exception of one rm that applied
a pure commodity structure, purchasing depart-
ments of the remaining ve rms were originally
organised in a matrix form; some purchasers were
allocated to one or more distinct projects where
they were responsible for all purchasing activities.
Other purchasers were responsible for a commod-
ity group. When purchasing is limited in this way
to support particular projects, it cannot full its
dual role because it cannot address in depth the
supply-base management and the company-wide
cost issues. Experience has shown that a typical
project purchaser cannot specialise on any parti-
cular commodity and, therefore, often ends up in
a more clerical role on the project.
As a consequence of this challenge, all but one
of the rms now made a clear distinction between
a department called advanced (or forward) sour-
cing and another department called strategic
sourcing, which was also termed life-cycle sour-
cing. This model resembles those found in auto-
motive companies (Versteeg, 1999) or in the
electronics industry (Calvi, 2000). The advanced
sourcing team is integrated into all NPD projects
while the life-cycle team takes over supplier man-
agement at or slightly after the start of produc-
tion. The advanced sourcing team usually consists
of engineers or purchasers who have developed a
strong technical background over time, while
members of the life-cycle team have a stronger
commercial focus and are responsible specialists
in a particular commodity. In fact, when purchas-
ing is included at an early stage of product
development, it is often because highly qualied
purchasers are available.
Segmenting the purchasing into advanced sour-
cing and life-cycle sourcing mirrors purchasings
dual cost and innovation-oriented role in NPD.
The literature often reduces the organisation to
Holger Schiele
146 R&D Management 40, 2, 2010 r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
issues of centralisation versus decentralisation,
but our ndings suggest a need to dig deeper.
BMW has implemented an extreme form of
organisational differentiation with several depart-
ments on innovation, including one within pur-
chasing. Also, in interesting sourcing markets,
such as Palo Alto or Tokyo, there are technology
ofces whose task it is to scan their supply market
for innovations. Of course, establishing such an
infrastructure may only be possible for an orga-
nisation with sufcient size and rewarding if they
pursue a strategy of technology leadership. How-
ever, the basic distinction between advanced and
life-cycle sourcing could be a model for smaller
companies as well.
In principle, other organisational approaches
for the liaison role between purchasing and en-
gineering could also be imagined. For instance,
the role of advanced sourcing could be played by
a person afliated with the department of R&D.
Alternatively, mediating agents could also be
hosted in a department of their own, not as part
of the purchasing or engineering departments.
However, we did not nd any evidence for such
models. In fact, in the case of one company, an
initial experiment with somewhat autonomous
advanced sourcing engineers failed. They did
not conform with purchasings dual role, ne-
glected company- and commodity-wide pooling
requirements and overwhelmingly concentrated
on their project. To ensure that professional
supply-base management takes into account the
well-being of the entire rm and not just a
particular project, the life-cycle management at
this rm now has overall responsibility for sup-
plier selection. This development highlights the
importance of decision-making issues in sourcing,
mostly neglected in the current debate. Through-
out the best-practice rms, decisions about which
supplier to select were usually made jointly by the
development team, the advanced sourcing team
and the life-cycle team. Sometimes, the life-cycle
team was rst among equals because it narrowed
the number of suppliers and ensured a company-
wide, rather than a project-focussed perspective.
4.3. Process and tools: clear process of
innovation and proactive innovation
meetings with suppliers
Without exception, all six companies had a well-
documented and highly detailed NPD process
with clearly dened steps, milestones, go/no-go
decisions, tasks and responsibilities. The process
was extensively documented and usually included
documents and templates for various procedures.
B/S/H, for instance, had the entire process em-
bedded in a software solution, which was cas-
caded out to suppliers as well. The suppliers were
asked to follow the same steps and milestones as
the internal managers once they were awarded
development of a new component. Opening the
process towards suppliers can be interpreted as a
particular feature that institutionalises an open
innovation approach.
Despite considerable variations in the details,
the processes in the visited rms were divided into
similar phases:
a concept phase (which ends with the decision
to start the development project);
a design phase (concluded according to an
approved design);
a piloting phase (including testing);
the transition to an operations phase (with
production release).
The processes also specied when and how to
involve purchasing, i.e., starting at the concept
phase with updated supply market data for the
commercial feasibility analysis and to create a
forum for including technical ideas originating
with suppliers. This kind of formal documenta-
tion became necessary to ensure smooth colla-
boration among the many people involved. Our
interpretation is that purchasings inclusion at an
early (conceptual) stage is greatly facilitated by
such process formalisation because it reduces the
friction that can arise when the composition of
the development team is left undened.
A tool used to access suppliers innovations
that is worth mentioning is the active participa-
tion in a regional cluster. Magna Steyr high-
lighted the role of the automotive cluster Styria,
while B/S/H was an active member of the Regens-
burg sensoric cluster. In such innovative clusters,
large quantities of rms along a particular value-
chain agglomerate in a region, become aware of
their kinship and often implement a cluster asso-
ciation. This network fosters collaboration be-
tween its members by establishing discussion
forums, providing the infrastructure for colla-
boration and linking rms and research institu-
tions. Active membership in such a cluster may be
an increasing strategic necessity for innovative
rms (Tallman et al., 2004; Schiele, 2008; Steinle
and Schiele, 2008).
Another tool that some of the visited rms had
implemented were active workshops in which they
would discuss innovations with selected suppliers.
Purchasing in new product development
r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
R&D Management 40, 2, 2010 147
B/S/H, for instance, organised innovation
workshops, Magna Steyr had joint thinking
workshops, while BMW introduced innovation
meetings. Each such innovation meeting with
BMW includes a supplier and a selection of
cross-functional personnel from the manufactur-
ing rm. The meetings are usually daylong events
rather than regular performance evaluation meet-
ings with suppliers that may or may not include a
discussion of new ideas. Planning and conducting
an innovation meeting falls to the department of
purchasing and innovation and follows a ve-step
process:
1. Supplier selection: suppliers are selected with
great care to reect a balanced group, covering
all relevant technical elds. A limited number
of slots is reserved for potential suppliers to
present their competencies. This is a real-life
instance of what has been termed competence
marketing because suppliers seldom offer n-
ished products during an innovation meeting
but instead usually try to convince buyers of
their ability to implement an innovation (Gol-
fetto and Gibbert, 2006).
2. Meeting preparation: both suppliers and
BMW personnel do their homework in ad-
vance. The topics of common interest are
dened and the level of detail agreed upon.
The planners make a list of interested partici-
pants from BMW and personally invite them.
The participants are recruited not only from
purchasing and R&D, but also from functions
such as marketing, strategy or production.
3. Meetings: the meetings have the character of a
workshop, i.e., the participants are expected to
generate and discuss ideas with the goal of
agreeing on a new project. Employees from the
host rm often have to sign a condentiality
agreement before attending a meeting. At the
same time, the supplier is encouraged to dis-
close his innovation roadmap and the status of
his development projects.
4. Tracking results: the ideas generated during
the meetings are carefully followed up. It is
essential that an innovation meeting not be
simply a road-show by the supplier, but is
sufciently detailed so that actions result. For
result tracking, it may be particularly helpful
to have a special department dedicated to this
task whose evaluation also depends on its
ability to enact the changes recommended by
the innovation meeting.
5. Closing: at a certain point in time, all innova-
tion projects brought up during a particular
meeting will either have been integrated into
the normal NPD work or will have died or
been postponed, so that the process eventually
is closed.
Based on this best-practice case, it can be
suggested that a certain amount of trust among
the partners is required for innovation meetings
to produce results. This may reduce their useful-
ness to a limited number of suppliers, who them-
selves must consider the buying organisation
sufciently attractive. Becoming attractive for
suppliers is a new way of thinking for rms.
This has so far attracted only marginal attention
in research (Christiansen and Maltz, 2002;
Ellegaard et al., 2003). The ndings of this study,
however, imply that being a preferred customer of
innovative suppliers may be a pre-condition for
successful early supplier inclusion in NPD.
4.4. Culture: a communicative company
culture indicated by cross-functional
innovation councils
An innovation-oriented company culture was
found to support innovation. This goes along
with cross-functional collaboration within the
rm and extends to the inclusion of suppliers
and top-management supporting this process.
The cross-functional innovation boards or coun-
cils found in the best-practice rms indicate the
kind of open company culture that fosters internal
collaboration. Innovative ideas are brought to a
council that decides whether to pursue them by
funding NPD. Typically, members of this cross-
functional council come from R&D, marketing,
services, production and purchasing. From a pur-
chasing perspective, the importance of being in-
cluded in this council is highlighted by the fact that
when a purchasing delegate takes part in project
selection, NPD projects cannot start without pur-
chasings knowledge. Membership in the innova-
tion council is therefore a safeguard of early
involvement. Purchasings participation in the re-
source-allocation body for innovative projects is
clear evidence that a rm has a culture of full cross-
functional integration.
It is necessary, however, to note some limita-
tions to the above ndings. Our study was limited
to one cultural area and to six cases. Our conclu-
sions may best apply to similar environments, and
they would prot from being veried on a
broader empirical basis. Also, all six rms have
an industrial and manufacturing focus. NPD
processes in the service or process industries
Holger Schiele
148 R&D Management 40, 2, 2010 r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
may be quite different. Further, all six rms can
be considered high-tech, spending 510% of their
sales on R&D. This means that rms should
consider their own requirements, especially their
technology orientation, before adopting any of
the above ndings. Finally, there is the question
of whether it is necessary to distinguish between
incremental and discontinuous innovation. Close
supplier relationships are supposed to favour
incremental innovation, while new and temporary
relationships should favour discontinuous inno-
vation (Phillips et al., 2006). Most of the techni-
ques described above are likely to support the
incremental or path-following model. However,
we also detected some tools that would generate
discontinuous innovations, such as purchasing
scouts dedicated to scanning the supply market
for new and unknown components.
5. Implications and outlook: supplier and
organisational issues as objects of
research in NPD
This paper analysed several structural options for
setting up a purchasing department as well as
potential enablers and tools, which allow pur-
chasing to full its dual role in NPD. That dual
role is to support the process of innovation while
maintaining cost and integration responsibility
over the entire product life cycle for the entire
rm. Based on an open innovation approach,
which may persuade rms to reconsider the
composition of their NPD teams, we documented
the growing importance of supplier inclusion in
NPD. A purchasing department that plays a
stronger role in NPD may improve the stagnating
NPD success rate and contribute to a rms
overall performance. It is worth noting that
purchasings life-cycle perspective differs in im-
portant aspects from a purely R&D-oriented view
of NPD.
Recalling our research questions on the optimal
organisational structure for purchasing and on
the enabling tools, three points deserve emphasis.
Implementing an advanced sourcing depart-
ment as an organisational unit.
Using innovation meetings with suppliers as
a tool.
Employing technology roadmaps to link in-
novation and sourcing strategies.
One striking nding was the signicance of the
internal organisation of the purchasing depart-
ment. Without structural reorganisation, the
purchasing department of a rm may nd it
difcult to full a dual role in NPD. The organi-
sational setup could indeed be a key to harmonis-
ing the dual role of purchasing in NPD, which
involves supporting innovation processes in col-
laboration with suppliers while controlling for
cost issues on a rm-wide basis. This dual-role
denition has received little attention in the lit-
erature, but it is clearly relevant in practice.
Five of the six best-practice rms had separated
advanced sourcing, life-cycle sourcing and opera-
tive procurement rather than making the tradi-
tional separation between operative procurement
and strategic sourcing only. The technically so-
phisticated advanced sourcing team interfaces
with R&D, while the life-cycle sourcing team
ensures compliance to the commodity sourcing
strategies and company-wide pooling considera-
tions.
Furthermore, a well-organised and systematic
programme of innovation meetings with suppliers
is a powerful tool that enables purchasing to take
a proactive role in NPD and generating more
innovative input for the rm. Eventually, our
ndings suggest that technology roadmaps can
be used to bridge NPD strategies and sourcing
strategies. This means including the supply net-
work design as a step in roadmap formulation
and including purchasing professionals in its for-
mulation.
From an academic perspective, the ndings of
this study encourage a redirection in NPD re-
search. The usual focus of analysis in early
supplier inclusion, the project, may be misleading.
Rather, suppliers and a rms own organisation
might be a more illuminating subject for study:
1. Supplier, rather than project, focus: the domi-
nant organisational unit in NPD has been the
project (Grifn, 1997). A single-project focus
may have advantages in NPD completion and
project management, giving it a genuine legiti-
macy. But it can also narrow the perspective to
this single task, thereby neglecting the rms
interests over the life cycle of the product being
developed. While research thus far has paid
considerable attention to the management of
NPD projects when partners have already been
chosen, our research concludes that it would
be worthwhile to go one step further. How can
innovative suppliers be identied, and how can
their continuous collaboration be ensured,
both from project to project and across the
product life cycle? So far, only a few contribu-
tions have been made to clarify these issues,
Purchasing in new product development
r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
R&D Management 40, 2, 2010 149
suggesting a fruitful path for future research
(Handeld et al., 1999; Croom, 2001; Schiele,
2006).
2. Sustainable organisational structure: accom-
panying a supplier through a products life
cycle and ensuring its integration with other
businesses in the buying rm emphasise the
permanent structures that enable these tasks to
be accomplished. The traditional research fo-
cus on projects has neglected this issue, in
particular in the context of purchasing (Table
1). This may be a white spot that is just
beginning to be addressed but that still lacks
a broad empirical basis. The strength of the
consortial benchmarking method is that it
shows from the business viewpoint that this
neglect of organisational research is not justi-
ed. Instead, understanding which organisa-
tional structure of the purchasing department
best supports, NPD can dene a path for
future research (Trent, 2004).
Ultimately, by using both a supplier and a
project focus combined with a more sophisticated
supplier-inclusion process and backed with an
adequate organisational structure, rms have a
genuine chance to advance their NPD practices
and better handle open innovation processes.
Researchers should support this evolution by
redirecting their efforts towards studying organi-
sational design and supplier characteristics as
antecedents to successful NPD.
Acknowledgements
We would like to express our gratitude to several
colleagues for their suggestions: Sakun Boon-itt,
Jeff Butler, Richard Calvi, Nanci Healy, Stefan
Krummaker, Jarmina Kopecka and two anon-
ymous reviewers for the POMS-SIMPOI congress
in Rio, for which this paper had been accepted.
Possible remaining errors are, of course, our
responsibility.
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Holger Schiele is professor of Technology Man-
agement Innovation of Operations at the Uni-
versity of Twente, The Netherlands. He earned
his PhD and his habilitation (venia legendi) from
Leibniz Universita t Hannover, Germany. Besides
publishing three management books, his aca-
demic work has appeared in journals such as
Research Policy, Industrial Marketing Manage-
ment, Journal of Purchasing and Supply Manage-
ment, Journal of Business Strategy, among others.
His current research focuses on innovation gen-
eration in buyersupplier relations, innovative
clusters and on methods enabling academic
practitioner collaborative research such as con-
sortial benchmarking.
Purchasing in new product development
r 2010 The Authors
Journal compilation r 2010 Blackwell Publishing Ltd
R&D Management 40, 2, 2010 153
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