Charles Despres

The drivers of cooperation between buyers and suppliers for product innovation

Abstract This article reports the results of an empirical study that probed the adoption of Early Supplier Involvement (ESI) in the product development process. ESI is defined as a form of vertical cooperation where manufacturers involve suppliers at an early stage in the product development/innovation process, generally at the level of concept and design. Previous research has shown that Western automobiles manufacturers obtained significant benefits by emulating the ESI practices of their Japanese competitors; the bulk of research knowledge is, in fact, located in this domain. This study focused on a group of assembly-based industries outside the automotive setting to determine if the adoption and benefits of ESI are found in other domains as well. Twenty-five companies in three non-automotive industries participated in the research. A model of ESI adoption was developed and tested, and an ESI index created to determine the degree to which this practice was applied. The results reveal, among other things, that the level of ESI practice is strongly related to a higher number of supplier base initiatives, lower product integration, broader supplier scope and a higher proportion of parts purchased. Significant results were also obtained in comparisons between industry sectors and geographic regions (USA, Western Europe and Japan). We suggest that promising directions for future research include broad-based samples across industrial sectors and industry-focused empirical study.

New product development and early supplier Involvement (ESI): the drivers of ESI adoption

This paper reports the results of an empirical study that probed the adoption of early supplier involvement (ESI) in the product development process. ESI is defined as a form of vertical co-operation in which manufacturers involve suppliers at an early stage in the product development/innovation process, generally at the level of concept and design. Previous research has shown that Western automobile manufacturers obtained significant benefits by emulating the ESI practices of their Japanese competitors; the bulk of research knowledge is, in fact, located in this domain. This study focused on a group of assembly-based industries outside the automotive setting to determine if the adoption and benefits of ESI are found in other domains as well. Twenty-five companies in three non-automotive industries participated in the research. A model of ESI adoption was developed and tested, and an ESI index created to determine the degree to which this practice was applied. The results reveal, among other things, that the level of ESI practice is strongly related to a higher number of supplier base initiatives, lower product integration, broader supplier scope and a higher proportion of parts purchased. Significant results were also obtained in comparisons between industry sectors and geographic regions (USA, Western Europe and Japan). We suggest that promising directions for future research include broad-based samples across industrial sectors and industry-focused empirical study.

The Strategic Implications of ESI

‘Working on the Mustang was challenging,’ according to Lee Davidson, manager of automotive products for Intel. ‘The challenging part was meeting the schedule that Ford required.’145 Intel supplied some of this automobile engine’s electronics, and was one of around 200 suppliers that were swept up in Ford’s move from the 48-month ‘Concept to Customer’ programme to its new 37-month ‘World Class Timing’ new car development process.

The Context of Early Supplier Involvement

‘A car for two people and a pack of beer.’ This is how critics describe ‘Smart’, the micro-car due to be launched in the very near future and expected to sell at a rate of 200 000 by the year 2000. The Smart car departs from conventional automotive design logic - it is nothing, in fact, if not innovative. This new product, aimed at frayed nerves and urban congestion, is 40 per cent shorter than most European sub-compacts and capable of being parked perpendicular to sidewalks. A top-of-the-line ‘hybrid’ model is equipped with both a gas engine and an electric motor. The body of the car is fitted with plastic panels that can be changed in a short time to give the car a new look in a flash. Smart’s marketing is also expected to break new ground with a novel approach to leasing: consumers will have the option of leasing a ‘transportation solution’ where, for a monthly fee, they buy not only the Smart car but also the right to use a large sedan for a period of time each year.

The Supplier’s Perspective

The FM Corporation is a foam molding supplier that posts the following message on its homepage (http://www.fmplastics.com) Recently a customer came to us with finished drawings for a quotation. Their design was unique and creative - but impossible to mould. Our engineers and toolmakers, together with the customer, eventually solved the problem. But earlier involvement with FM could have saved hundreds of man-hours and thousands of dollars.

The Origins, Diffusion and Evolution of ESI

Rooted in the increasing socialization of the innovation process, ESI originated primarily in the Japanese automotive sector in the late 1940s where industry conditions were catalytic. The practice later spread to the US automotive industry via Japanese transplants in the early 1980s, and began to diffuse among other regions and industries beginning in the late 1980s. This chapter explains this process through five case histories, beginning with Toyota, the company where ESI originated. The story then moves to the US when Honda, one of the first Japanese transplants, adapted ESI into the North American context. American companies observed the activities of these transplants and tried implementing the concept themselves, Chrysler being the first US automaker to do so. Early non-automotive manufacturing companies to adopt the concept include Motorola. Later the practice moved full circle back to Japan and very sophisticated use by some of that country’s non-automotive manufacturers. Concluding the chapter, the history of Fuji Xerox illustrates the latest stage in the story of ESI.

The Drivers of ESI Adoption

Lexington, Kentucky is the original site of IBM’s typewriter division and home of the world-famous IBM Selectric. Between 1970 and 1980, in the face of relentless foreign competition, the Lexington site went from being IBM’s most profitable division to its least. On the assumption that corporate overhead allocations were at least partly responsible, Lexington’s management asked IBM to turn the group into a subsidiary and give it a free hand in running the business. This coincided with a period of ‘non-core’ divestiture at IBM so that, with Lexington’s agreement, IBM went a step further: it sold the operation. Lexmark thus became a legal entity in March 1991. The name Lexmark was derived from ‘lexicon’ (pertaining to words) and ‘mark’ from the company’s saying that it was in the business of putting marks on paper.

The Challenges of ESI

In the previous chapter we outlined the factors that lead to ESI adoption; in this one we discuss how to engineer an effective programme and manage the resulting partnership. Experience with ESI relationships is growing but, as we discussed in Chapter 4, the reviews are fairly diverse and there are no concise statements of how to manage the process. This is precisely our objective here: to put a roadmap in the hands of practising managers that will enable them to implement an effective ESI partnership. Our approach is practical and based on the life-cycle idea, that all ESI projects unfold over time: there are certain things managers can do to build a momentum for success and others that will almost certainly have the reverse effect.

What Is ESI

By the end of the book, it will have become clear to the reader that ESI is an integrated management philosophy quite at odds with the general perspective of management, at least until very recently, throughout North America and Western Europe. It is not a technique that can be simply grafted on to the existing system. This chapter introduces the concept by first setting the stage with TRW, a classic example of what has come to be seen in the West as the traditional New Product Development (NPD) process, and an outline of the benefits of this traditional process from the perspectives of both buyers and suppliers. In contrast, the ESI NPD process, as used by Diebold, a relative newcomer to the practice, is then presented in detail. The benefits to both buyers and suppliers, illustrated with examples from our research, bring the chapter to its conclusion.