In Project Procurement Management,1 as described in A Guide to the Project Management Body of Knowledge, purchasers2 play a key role as internal subject matter experts in the process of “acquiring goods and services from outside the immediate project organization”3 in the course of new product development (NPD) projects. Suppliers4 are the external resources that serve as providers of goods and/or services that become inputs into the production process of the project organization. Customers are the external recipients of the project organization's outputs. The process linking these key players is called a value chain, because each link in the chain adds value toward satisfying the requirements of the project organization's customers. This process is illustrated in Figure 1.
In this context, purchasers manage the project organization's interfaces with upstream suppliers, while marketers manage relationships with customers. Since every dollar in sales in manufacturing organizations is offset by an average of 55 cents of expenditure on purchases from suppliers,5 experienced purchasers can have a major impact on a project's bottom line. But they can do so only if they join project teams in the formative phases of a project, not after all the design decisions have been made and production plans finalized.
In particular, purchasers add value to the following inputs to project procurement planning6:
1. Scope Statement. In establishing project boundaries, purchasers can help define applicable materials, technologies, resources, and constraints, including price tends, supply shortages, lead times, and environmental regulations.
2. Product Description. The process of developing specifications or statements of work that describe the product to be acquired can benefit greatly from involvement by purchasers who may suggest standardization of components, use of alternate materials, and participation by suppliers.
3. Procurement Resources. The talent pool of subject matter experts available in an organization's purchasing function is an invaluable resource in negotiating and writing supplier contracts for maximum mutual benefit.
4. Market Conditions. A purchaser's tool kit includes intimate knowledge of sources of supply, product availability, price trends, the pace of technological change, and opportunities for cost savings.
5. Other Planning Outputs. Because the quality of supplier inputs into the project organization determines the quality of its outputs to customers, purchasing professionals team with quality experts in auditing and managing supplier quality. They work with cost analysts to understand and reduce supplier cost and thus the cost inputs into the organization.
6. Constraints and Assumptions. Purchasers can help identify order lead times, supply trends, legal restrictions, and cash flow projects.
Moving to Early Involvement of Purchasers
In the new world of rapid reaction, purchasers are joining NPD project teams as charter members. And they are bringing their partners to the party—suppliers contribute ideas and resources from the outset.
This new scenario is dramatically different from the traditional NPD process where purchasers occupied a “boundary-spanning” position and entered into the picture only to place orders for parts and materials that others had designed and selected. As Figure 2 illustrates, organizational functions are clearly separated from each other in the traditional NPD process and merely pass work-in-progress to each other by “throwing it over the wall.”
In contrast, the new NPD process makes extensive use of cross-functional project teams, which include representatives from purchasing, product engineering, production engineering, production, and marketing. As indicated in Figure 2, these teams assume joint ownership of key steps in the NPD process and combine talent from previously separated functions. Figure 3 illustrates that cross-functional teams tear down functional barriers to engage in an integrative effort.
A few enlightened organizations, though, have taken this integrative effort even further. Labeled Advanced Process in Figure 2, these organizations have adopted the Extended Enterprise NPD Project Team concept, which extends project participation beyond the boundaries of the firm and adds representatives of both suppliers and customers to the cross-functional project team. The inclusion of these additional members is illustrated in Figure 4.
In this new configuration, suppliers and customers become players on the Extended Enterprise NPD Team of the advanced NPD process and their roles change:
| From: | To: |
| Static | Dynamic |
| Reactive | Proactive |
| Tactical | Strategic |
On an Extended Enterprise NPD Project Team, the traditional boundaries between functions and firms are transcended and all players are asked to contribute ideas for cost and time savings. The team initiates project activities in a timely manner to help reduce time to market and its members cooperate closely throughout the entire NPD process. Electronic linkages with CAD/CAM and 3-D capabilities facilitate cooperation between different players on Extended Enterprise NPD Project Teams, both within and between the participating organizations.
Figure 1. Links in the Value Chain
Figure 2. The New Product Development Process: Three Scenerios
The Eastman Kodak Experience
To highlight successful practices in early involvement, we examined the approach taken by the Eastman Kodak Company. This organization has employed a New Program Support Manager in its materials management function for several years, whose role it is to serve as an interfunctional liaison in integrating best practices into NPD projects. His efforts have been focused on the implementation of four practices throughout NPD processes: recommended supplier base; component standardization; target costing; early supplier involvement.
Like many other organizations, Eastman Kodak has been streamlining its supplier base, from several thousand suppliers supporting its equipment needs to less than 500 targeted for new business. But instead of unilaterally dropping hundreds of suppliers from its roster, materials management has made sure that NPD project teams have the opportunity to contribute to the process of selecting the Recommended Suppliers.
Proliferation of parts is a multifaceted problem. It creates more work in terms of logistics, introduces variability and hurts Six Sigma efforts (Six Sigma is a quality management technique popular in manufacturing functions), minimizes purchasing leverage, and tends to increase the supply base. So materials management has targeted a significant list of parts as standard for purposes of design. With early purchasing involvement, the use of standard components sourced from Recommended Suppliers can be considered while a product's design is still evolving.
Figure 3. Cross-Functional NPD Project Team
Figure 4. Extended Enterprise NPD Project Team
One prerequisite for becoming a Recommended Supplier is agreeing to Target Cost methodology. Target costing is used to establish a fair and reasonable cost for a component by creating an agreed-upon cost formula that represents all elements of true cost instead of using a competitive bidding process on critical and/or expensive items. Emphasizing the need for process efficiencies, this approach differs significantly from the traditional cost-plus model.
Throwing a design “over the wall” happens both internally among functional groups and externally with suppliers. Early involvement of suppliers avoids such potential pitfalls as production outside the scope of their true competence or outside the actual needs of the design. By including the supplier on the development team during a project's infancy, the chances of either of these scenarios happening at Eastman Kodak are significantly reduced.
Evaluating NPD Project Teams for Early Involvement by Purchasers
In Figure 5, a scoring method is provided to help evaluate the degree of early involvement by purchasers in NPD project teams. Five key criteria are used that relate to internal working relationships and the selection and management of external suppliers. Individual criteria scores range from 1 for weak involvement of purchasers to 3 for strong involvement. An overall score is computed by adding the criteria scores. As shown in Figure 6, this overall score can range from 5 to 15.
Our application of this scoring method to Eastman Kodak yielded the following scores:
| Criterion | Score |
| Internal Relationships | 3 |
| Supplier Selection | 3 |
| Supplier Relationships | 2 |
| Cost Management | 3 |
| Quality Management | 2 |
| Total Score | 13 |
These results, which are reflected in Figure 6, indicate that there is still room for some improvement in the involvement of purchasers in NPD project teams in the areas of supplier relationships and quality management to move Eastman Kodak to the top in advanced process participation.
Concluding Remarks
Kodak is not alone in benefiting from early involvement of purchasing by saving significant amounts of both time and money. Ingersoll-Rand made a commitment to its dealers to dramatically cut the time to market for a new high-speed grinder from the typical four years to one. Forming an Extended Enterprise NPD Project Team that involved suppliers from the outset enabled the company to meet its commitment and score a significant competitive coup.
Figure 5. Scoring Method for Early Involvement by Purchasers in NPD Project Teams
Figure 6. Degree of Involvement of Purchasers in NPD Project Teams
In developing its 777 airplane, Boeing asked several suppliers and customers to join the NPD project team, which came up with a number of innovative design approaches in an accelerated time frame. Chrysler houses both its purchasers and supplier representatives at its new design center, thus involving them continuously in all of its activities. It routinely outsources the design of parts and components to its top suppliers who have far more design expertise in their respective areas than their customers could ever hope or want to develop.
Given the tremendous potential for saving time and money in critical new product processes, it makes sense for project teams to involve the talents of both purchasers and some of their key suppliers early in the game. Those who don't will have to pay a price in the form of diminished competitiveness, profitability, and market share for their organizations. ■
Notes
1. In this article, the term purchasing is used instead of procurement to provide the link to the prevailing name for this business function.
2. Synonym for buyers.
3. A Guide to the Project Management Body of Knowledge (PMBOK), Chapter 12. Upper Darby, Penn.: Project Management Institute.
4. Synonym for sellers or contractors.
5. Shawn Tully, 1995. Purchasing's New Muscle. Fortune (Feb. 20), p. 75.
6. This section draws on the framework listed in A Guide to the Project Management Body of Knowledge, Chapter 12, Section 12.1.1.
Eberhard E. Scheuing, Ph.D., CPM, is professor of marketing, director of the Business Research Institute, and director of executive education at St. John's University in New York. He is founder and president of the International Service Quality Association.
Itzhak Wirth, Ph.D., is associate professor of management at the College of Business Administration, St. John's University. He is a frequent speaker at international conferences and author of more than 70 articles.
David Antos has been with Eastman Kodak for 17 years and is a materials engineer, semiconductor buyer, design and development buyer in research and materials management new program support leader. He is a NAPM-certified purchasing manager.