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Michiel A. Schoenmaeckers Michiel_Schoenmaeckers@hotmail.com Technical Business Administration University of GroningenThe Netherlands
Since there are indications that the development focus in a chemical industry is shifting, the organization and management of development projects needs to change with it
(Chronéer, 2003; Tomiura, 1997).
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NNNNOOVVAATTIIOONN Author: Michiel A. Schoenmaeckers Michiel_Schoenmaeckers@hotmail.com Tel.: +31 6 434 96008Technical Business Administration University of Groningen
The Netherlands
Student number 1229885
University first supervisor:
Eva H. Karásek, MBA
University second supervisor:
Prof. Dr. Dirk-Jan F. Kamann
Company supervisor:
Ir. Chris P.J.H. Borgmans
Executive summary
The aim of this study is to establish early supplier involvement (ESI). Although it was given a high priority, ESI has not been investigated at DSM up to now and concrete plans or actions were non-existent. In fact, how and to what extent ESI has to be achieved, is unknown. Purchasing involvement in new product development (NPD) was also not investigated.
The theory review shows that differences between assembly-based and (chemical) process-based industries need further research with respect to ESI and purchasing involvement, prior to applying the theory at DSM. Past focus in literature was on assembly-based companies rather than process ones. It could be concluded from the literature survey that purchasing involvement in NPD is the prime objective; ESI is a logical consequence of this. The decision was to focus exclusively on the main objective. Further analysis showed that the role of sourcing is underdeveloped at DSM within the context of NPD. The strategic vision (Vision 2010), however, aims to create value by market-driven growth, innovation and operation excellence. As the sourcing role develops in the innovative part of DSM, the problem statement of this study could be summarized as follows: “How could sourcing contribute to innovation through developing its role in NPD activities?”
As stated before, the differences between assembly-based and process-based industries need further investigation, prior to adapting the theory in the chemical environment. Within this context, four identical trends in the chemical and assembly-based industry were identified:
1. focus on core competencies;
2. focus on functionalities and customer specifications; 3. Problem solution oriented developments:
4. Complex internal environment of product development.
Consequently, the literature on purchasing involvement, derived form the assembly-based industry, can be also applied in the chemical industry.
The opportunities can be divided in twofold: opportunities in NPD activities and opportunities to broaden the extent on innovation. From this division two main research directions can be deduced:
1. Research on the main guide for NPD;
2. Research on the formalization of an interface management as contribution to broaden the extent on innovation.
Due to time limitations and the defined priority of the two aforementioned research directions, it was decided to restrict this research to the first one (research on NPD. The interface management should be the logical next step.
This leads to the following question: “How can sourcing contribute to innovation through developing its role in the main guide for NPD, named the Technology Transfer Process (TTP)?”
An analysis of the TTP process (consisting of the development phases 1. idea generation, 2. feasibility, 3. development, 4. scale up and 5. transfer to business) led to
the conclusion that the sourcing role was almost nonexistent in today’s process description. A theory review on the contributions of the purchasing role in NPD for each specific TTP phase was conducted. This clearly showed that sourcing can contribute to the TTP in each specific phase. In summary, the degrees in which specifications are firm are relatively low in the first TTP phases and relatively high in the last phases, whereas, the costs to change will also increase during the TTP. As a consequence, the influences and the effect of supplier involvement is becoming more restricted every subsequent TTP phase. Hence, the earlier the suppliers are involved the higher is the value added potential (van Weele, 1994). A significant portion of the product’s costs are determined very early in the design cycle when technology decisions are being made. The early sharing of technology ideas and information can have major impact on cost reduction (Ragatz et al., 2002). Besides theoretical indications, several practical cases indicate major contributions by sourcing as well. Within DSM, the experience is that insights in the supplier technologies can raise competitive differentiation through analyzing and communicating with the supply market. Secondly, the sourcing role inserts a product lifecycle approach with respect to supplier management. This takes care of a more forward and backward iteration in the development model and gives a better understanding on the value chain perspective during the TTP; whereby the focus of the sourcing role is more on improvement of the lifecycle costing and not on merely on price reduction (Dyer and Ouchi, 1993).
Based on the previously described contributions of sourcing, different roles were described, which can be logically implemented in the TTP. In concreto, the sourcing roles in the 5 TTP phases are:
Phase 1: Upstream supply chain orientation; Phase 2: Strategic supply chain differentiation; Phase 3: Upstream supply chain completion;
Phase 4: Supply based Product Lifecycle management; Phase 5: Relationship management.
The management of upstream and downstream relationships with suppliers and customers is essential to deliver superior customer value at less cost to the supply chain as a whole (Christopher’s, 1998). This is a contribution of the sourcing roles as a whole to the TTP as well.
During the validation of the framework of the sourcing roles, it was concluded that a pragmatic decision tool had to be developed. The TTP is used for many different NPD projects with respect to the position of the project in the whole value chain. To that extent, sourcing roles will be more important and dominant the more downstream the TTP project is positioned. Therefore, the purpose of the pragmatic decision tool is to assist in making the decision whether to involve the sourcing roles in each TTP phase in each project. This decision tool will be filled in by the stakeholders, responsible for the different TTP phases, leading them to a logical advice on purchasing involvement.
In summary, this study led to two important findings. First the literature on purchasing involvement from the assembly-based industry can be used to a significant part of the chemical industry. Secondly, this study has concluded that the TTP has to be revised, which has been done by the delivery of a pragmatic decision tool, leading to a more thought over decision on purchasing involvement.
Acknowledgement
This study entails the final step of my study Technical Business Administration at the University of Groningen. The study has been conducted at DSM Sourcing in Urmond, The Netherlands.
The study constitutes the role of DSM Sourcing for the main guide for new product development, with respect to the innovational path DSM is taking in its vision for the coming years.
I was inspired by the subject, especially because it entailed a very wide plane for the direction of the investigation. Innovation is referred to as the key for success at DSM and the role of Sourcing has to be organized within this context as well. It was a great opportunity, embracing the risk of failure as well. With scant information I began the quest to embody an investigation what would be applicable for DSM, together with the idea to fulfill my final study step. The first month the study had ambiguous direction and it was not geared for success directly, because my creativity wanted to involve as much aspects of innovation and sourcing as possible. The devotion and structural approach for the project by my supervisors has led to the reversal, together with my growing understanding of the Sourcing organization and the road to contributing to innovation. Finally, a report has been handed in that engages a tool that involves identified Sourcing tasks within the new product development process. The result is a contribution to innovation from the Sourcing community, as defined in the vision for the coming five years.
I want to thank Chris Borgmans and Eva Karásek in the first place; Chris for his counsel and assistance during the six months and two weeks I was member of the Sourcing department; Eva for guiding and teaching me for being decisive during the study. I learned a lot from you both. Hopefully it has been the other way around as well, at least a little bit.
Secondly, I want to thank all the respondents who made time for the study. Also, my co trainees at DSM I have to say thank you. The environment in which we worked and had fun at the same time has been of great importance to me.
At last I want to give thanks to Marjolein and Odet, who made it possible to start at Sourcing in the first place and who gave me such a good feeling during the traineeship.
Abbreviations
BG Business group
CPO Chief purchasing officer
CTM Cost-to-market
EBA Emerging business area E&E Electrics and Electronics ESI Early Supplier Involvement LCP Large capital project NPD New product development PLC Product Lifecycle
R&D Research and Development
SCM Supply chain management
SP Standard projects
TTM Time-to-market
Content
Executive summary ... 5 - Acknowledgement ... 7 - Abbreviations... 9 - Content... 11 - Chapter 1 An Introduction ... 131.1 DSM Vision 2010 Building on Strengths ... 13
1.2 Organizational Structure ... 14
- Chapter 2 Points of Departure ... 17
2.1 Purchasing Objectives of DSM Sourcing... 17
2.2 Problem Indication ... 17
2.3 Study design ... 18
Study part one, Analysis... 20
- Chapter 3 Theory review ... 23
3.1 Innovation ... 23
3.2 Purchasing and Supply chain management ... 24
3.3 Purchasing involvement in NPD... 25
3.4 Early supplier involvement (ESI) in NPD ... 27
3.5 Theory reflection on the chemical industry ... 28
3.6 Conclusion... 29
- Chapter 4 DSM & New product development... 31
4.1 DSM’s perspective on innovation ... 31
The Innovation Center ... 33
4.2 The Technology Transfer Process (TTP) ... 34
4.3 NPD and Purchasing ... 35
4.4 Conclusion... 35
- Chapter 5 Problem direction ... 37
5.1 Problem Statement ... 37
5.2 Research Questions ... 37
5.3 Constraints ... 38
Study part two, Research ... 40
- Chapter 6 Research approach... 43
6.1 Why should sourcing develop its role in NPD activities? ... 43
6.2 How can sourcing develop its role in NPD activities? ... 48
6.3 Where could the development finally lead to? ... 51
6.4 Conclusion... 52
- Chapter 7 TTP Research ... 53
7.1 Research Design ... 53
7.2 TTP Analysis... 55
7.3 Stakeholders in developing the sourcing role in the TTP... 57
-7.4 What can the sourcing role contribute in each stage of the TTP process? ... 61
7.5 Framework of the sourcing roles ... 65
7.6 Validating the framework of sourcing roles... 71
7.9 Consequences for the sourcing community ... 78
Study part three, Evaluation... 80
- Chapter 8 Conclusions ... 80 - Chapter 8 Conclusions ... 83 8.1 Conclusions ... 83 8.2 Suggestions... 85 - Respondents ... 87 - Bibliography... 89 - Appendices... 91
Chapter 1 An Introduction
For general information on DSM their website www.dsm.com can be visited. Within this study the introduction on DSM consists of the strategy Vision 2010 and the new organizational structure.
1.1 DSM Vision 2010 - Building on Strengths
In September 2000 DSM launched its Vision 2005. The vision contained an acceleration of DSM’s transformation into a specialty company. Hereby DSM sold the petrochemical division and acquired activities in life science products and performance materials. In October 2005, after five years of solid work, Vision 2005 was completed successfully. DSM introduced Vision 2010 - Building on Strengths as well; CEO Peter Elverding: “We have achieved almost all of our objectives and are now ready to move on and take the logical next step. Once again an ambitious program, and one that is tailored perfectly to DSM’s current position.”
Growth, the quality of the portfolio, internationalization, innovation and sustainability are the key words in Vision 2010. With Vision 2010 DSM focuses more on the outside world, on customers and markets. Besides DSM looks for answers on society’s problems. With several of its products DSM has recently shown that it can provide those answers.
DSM possesses a lot of know-how in fields ranging from biotechnology, nanotechnology and process technology to fermentation, material sciences, etc. This knowledge has yielded more products last years. But DSM needs to create even more by accelerating and improving the development process within the company. Vision 2010 therefore will give a huge boost to innovation. Primarily within the business groups themselves but also in four new selected Emerging Business Areas (EBA’s). These EBA’s will be established as autonomous units with responsibility for their own business. The EBA’s are biomedical materials, specialty packaging materials, personalized nutrition and white biotechnology. The goal is to accelerate these areas and to sustain innovational products also after 2010.
DSM will also be establishing an Innovation Center. This center will be the driving force behind efforts to further develop relevant growth areas for DSM. Investment in innovation will rise by an average of some 50 million euro a year up to 2010. This basically means a roughly 15% of annual capital expenditure will be allocated to acquisitions of smaller companies and participating interests to foster new business development. This boost in innovation should bring EUR 1 billion sales by 2010.
Coming back at the Vision 2010, the following figure shows the three pillars of the Vision 2010.
Figure 1: Vision 2010
Excellence in sourcing
A part of the Operational Excellence program is the Excellence in Sourcing process. In 2005 DSM established a new, globally active sourcing organization with the aim to improve the company’s purchasing practices across the board and thus contributing to DSM’s bottom line. Many initiatives have been launched in this context, ranging from the introduction of best purchasing practices to the implementation of new performance management models.
1.2 Organizational Structure
DSM consists of four clusters, Nutrition, Pharma, Performance Materials and Industrial Chemicals. Each cluster consists of the mentioned Business Groups (BG’s) in figure two.
Figure 2: The organizational structure
The Corporate Staff contains the departments Finance & Economics, Human Resources, Planning & Development, Research, Legal Affairs, Communication Safety Health Environment & Manufacturing, ICT, Corporate Operational Audit, and Sourcing.
Chapter 2 Points of Departure
2.1 Purchasing Objectives of DSM Sourcing
The DSM Sourcing strategy (derived from the Vision 2010) is based on four pillars, namely Strategic Direction, Business Enablers, Results, and Top Must Do’s 2006. The last mentioned pillar is shown in figure 3.
Top Must Do’s 2006:
Value creation
Value creation of 100-mln euro realized savings Extended payment terms
Continue to build the high performance purchasing organization Staff the organization
Build cross-functional networks to secure exchange of knowledge Implementation of training curriculum
Create innovation and cost leadership
Use Strategic Sourcing Methodology with increased focus on innovative and dual sourcing Supplier consolidation and segmentation
Establish early supplier involvement to contribute to innovation Increase LCC sourcing
Processes & systems
Spend, sourcing and savings transparency Data cleansing
Design and implement process for knowledge management SRM development while rolling out EBP
Mandatory use of existing processes and systems Figure 3: Top Must Do’s 2006
Establish early supplier involvement to contribute to innovation
The driver for this objective derived from the external environment of DSM. The automotive industry sees early supplier involvement for strategic outsourcing and co development as the heart of end-market success with respect to value chain competition.
2.2 Problem Indication
During the first meeting with the supervisor of this study, it was mentioned that the link between DSM Sourcing and new product development processes is still largely lacking. One of the main topics for improvement that has been mentioned during the discussion was early supplier involvement (ESI), as mentioned in paragraph 2.1. What opportunities could ESI generate, what does it mean for the value proposition of DSM towards end customers, can it influence cost reduction and enhanced cooperation, etc.?
Another point discussed was the culture within DSM. People perceive the Intellectual Property factor as a dominant one in product development. This results in a reserved conduct in relation to product development. A probable reason is the recent course change DSM made; from a petrochemical industry into a more fine chemical industry, as mentioned in paragraph 1.1.
Third, there was a discussion on how the chemical industries can learn from the automotive industry. Could Benchmarking give additional information to this research?
Of course a difference exists between assembly industry and chemical industry, but what overlapping activities can be deduced?
Thus there is an awareness of a possible improved way of NPD, whereas purchasing can contribute to the challenges in relation to DSM’s Vision on innovation. ‘Better’ in this sense is unexplored and undefined. How to contribute to NPD in an innovative culture and work environment is still in its embryonic stage. The fact that that early supplier involvement could have benefits has been assumed. And DSM Sourcing sees great promise in contributing to NPD with their community.
The establishment of ESI has not been investigated yet. It has been given a high priority but concrete plans or actions are still lacking. In fact, how and in what measure early supplier involvement has to be achieved, is still unexplored.
2.3 Study design
Assembly industries represent an attractive venue for Early Supplier Involvement (ESI) research since they provide an opportunity to study supplier involvement at the component, sub-assembly and systems integration levels (Bidault et al., 1998). This is also the point of departure for this study; how and in what measure do the opportunities from the assembly and E&E industry for ESI apply for the chemical company DSM as well?
This study is built in three main parts, analysis, research and evaluation, as shown in figure 4. It is a very wide and yet unexplored point of departure. Therefore, the study will have a step by step approach.
Chapter 3 Theory Review
Chapter 4 DSM & New product development Chapter 5 Problem Direction
Chapter 6 Research approach Chapter 7 TTP Research
Chapter 8 Conclusions Chapter 2 Points of departure
Analysis
Research
Evaluation
The analysis will analyze the point of departure and the reflection of ESI on the chemical industry. Topics as ESI, purchasing and new product development will be discussed (chapter 3). The purpose is to gain insight on the relevant theory with respect to the point of departure. Secondly, the analysis will discuss the new product development at DSM (chapter 4). This gives insight in the practice of DSM and her product development organization. It is expected that the Analysis will come to a problem direction in chapter 5.
The research part entails two chapters with the goal to come to a research statement for further investigation. Chapter 6 will answer the study’s problem questions in the first place. It is envisaged that this chapter divides the problem into two main topics of which one will be the main research area. A reflection of the opportunities from the theory of
purchasing integration in NPD (based on assembly industry) at DSM will be the used
method. This reflection is expected to lead to a research statement.
In chapter 7, the research statement (a research on the role of Sourcing in the main guide for product development) and its research questions will be given. Its purpose is to investigate the Sourcing role and its tasks to execute, which will lead to value added in terms of Vision 2010. It is envisaged that the research will create a framework that could be implemented in the main guide for product development (the Technology Transfer Process, or TTP). This framework, what entails specific Sourcing tasks, is expected to look after the contribution of Sourcing to DSM’s innovation roadmap, Vision 2010. By validating the framework on feasibility, suitability and acceptability, it is envisioned that the framework cannot be implemented in the TTP directly, because many differences exist in NPD activity. As a consequence it is expected that a decision tool has to be implemented in the TTP that will look after the decision whether to involve the Sourcing roles or not in each NPD project.
The final chapter, what entails the evaluation section, will summarize the conclusions of the study and it is expected that suggestions will be made for further investigation with respect to the development of the Sourcing role in NPD activity and with respect to the innovation roadmap as stated in Vision 2010.
This study will be placed in the field of the chemical industry. Whereby the chemical industry will be referred to as an industry in which raw materials are treated or prepared in a series of stages.
The chemical industry can be segmented into petrochemicals, specialty chemicals, agrochemicals, biochemicals, food & nutritional chemicals, and pharmaceuticals.
Study part one, Analysis
Chapter 3 Theory Review Chapter 4 DSM & New product
development Chapter 5 Problem Direction
Chapter 6 Research approach Chapter 7 TTP Revisions
Chapter 8 Conclusions Chapter 2 Points of departure
Analysis
Research
Chapter 3 Theory review
The purpose of this chapter is to expand on the basic topics from the literature for this study, mentioned in the point of departure. Innovation (paragraph 3.1), purchasing (3.2 and 3.3), early supplier involvement with respect to new product development (3.4) will be discussed.
After the discussed literature, the findings will be reflected on the chemical industry (3.5). The purpose is to find differences, which exist amongst the assembly and the chemical industry. It is expected that the theory review will find a gap in the literature (in paragraph 3.6) with respect to the chemical industry. This gap is envisaged to be of importance in the research part (chapter 6 and 7), where the gap in the literature will be reflected on DSM. The findings are of importance for the conclusion of this chapter and for the problem direction in chapter 5.
3.1 Innovation
Innovation is the conversion of knowledge and technology into a benefit, which are for commercial use or for the public good; the benefit can be new or improved products, processes or services. In this study innovation will be seen as a new or improved product or process.
Innovation is a cumulative and evolutionary process (Clark and Juma, 1987). Love and Roper (1999) extend the determinants of innovation beyond R&D to include technology transfer and networking effects. Tatikonda and Stock (2003) integrated literature on NPD, supply chain management and technology management. They identified the process of product technology transfer as a key activity in the process of NPD.
The type of innovation is shifted into integrated networking models (as multi institutional networking processes) (Rothwell, 1994). Some researchers have indicated changes of innovation from product innovation to a more solution-oriented innovation (Shephard & Ahmed, 2000).
Salavou (2004) suggested a shift in emphasis to innovativeness of products. This approach shifts the common question ‘What factors influence a firm’ into ‘what factors affect the innovativeness of a new product?’
According to the model of H. Chesbrough (2003) ‘firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology’. The model is illustrated in figure 5.
Internal Technology Base External Technology Base Licensing Technology spin-offs Open Market New Market Current Market Technology insourcing
Procter & Gamble was aware of the fact that external connections could produce highly profitable innovative developments. They came up with a new approach on innovation: From R&D to Connect and Develop (Harvard Business Review, March 2006). The external focus now comes from R&D, Marketing, Manufacturing and Purchasing capabilities. Whereby there is a clear sense of customer needs.
It is expected in a later stadium in this study that the term open innovation will play a significant role in the research section in chapter 6.
3.2 Purchasing and Supply chain management
This section will among others shed light on two purchasing models (of Kraljic, 1983 and Monczka, 1991). Further in this study the two models are expected to be the basis of the framework of sourcing roles, therefore they will be discussed below. This paragraph contributes to the knowledge necessary for further understanding during this chapter, since the following paragraph describes the role of purchasing in new product development.
Kraljic introduced the first comprehensive portfolio approach for purchasing. This approach involves the construction of a portfolio matrix that classifies products on the basis of profit impact and supply risk. The result is a classification in four categories: bottleneck, non-critical, leverage and strategic items, shown in figure 6. The general idea of this approach is to minimize supply risks and maximize the buying power of the buyer.
Figure 6: The Kraljic portfolio approach
Häkansson (1982) defines purchasing as ‘securing of the resources, inputs of materials, components, and equipment into businesses’. Heinritz (1986) refers to purchasing as ‘buying materials of the right quality, in the right quantity, at the right time, at the right place, from the right source’.
The Michigan State University (MSU) Purchasing & Supply model entails eight strategic processes for profitable purchasing and six supporting processes. This model is developed by R. Monczka. The eight strategic phases are shown in figure 7. The model is an instrument for effective planning of supply management improvements. The supporting processes are not expected to be of importance in this study and will therefore not be discussed.
Non-critical items Bottleneck items Strategic items Leverage items Supply risk Profit impact
For competitiveness and growing profitability practicing supply chain management (SCM) has become an essential prerequisite (Moberg et al. 2002). Mentzner et al. (2001) focused specifically on the definition of SCM and define the concept as the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. Li et al. (2005) also emphasize the dual purpose of supply chain management; performance improvement of the own organization and of the entire supply chain. The scope of supply chain management has broadened its field of interest over time from an intra-organizational focus on logistics towards a focus on inter-organizational issues (Dubois et al. 2004). Thus, besides the internal planning and control of materials, information flows and logistics activities, supply chain management also addresses these activities externally between companies.
Supply chain management recognizes the strategic nature of coordination between trading partners (Li et al. 2005). Since supply chain management deals with the coordination of the parties involved, the implementation of supply chain management involves identifying the supply chain members with whom it is critical to link, what processes need to be linked to each of these key members and what type or level of integration applies to each process (Danese et al. 2004). The members involved in the process make up the supply network. The major assumption behind the SCM-concept is that there is an economic rationale related to the integration of processes (Häkansson and Persson, 2004).
3.3 Purchasing involvement in NPD
Purchasing involvement in new product development will be expected to be a part of this study with respect to NPD at DSM. Therefore theory on purchasing involvement will be discussed in this section.
During the last twenty years, several studies have shown that (new) product development has become a more important issue in maintaining and developing a strong position in the increasingly competitive business markets.
A lot of literature in relation to NPD is devoted to marketing, R&D and manufacturing. Purchasing literature is in this respect in behind to the field of NPD. Whereas several
1. Insourcing / outsourcing 2. Commodity / strategy development 3. Supply base optimization and management 8. Strategic cost management 7. Supplier development and quality management 6. Supplier integration into the order realization process 5. Supplier integration in product development process 4. Develop and manage supplier relationships
authors investigated the interface between R&D and marketing and even manufacturing, very little attention has been paid to how purchasing managers’ involvement in NPD might lead to improved new product development performance (Nijssen, Biemans and Kort, 2002). But one of the main contributors to the literature in relation to NPD and purchasing is Wynstra. From 1998 untill now Wynstra has published several findings to this extent, based upon assembly industries.
Because of current high customer demands, high technological standards and development (Nijssen, 2002) and an increasingly global competition (Wynstra, van Weele and Axelsson, 1999) NPD has become a more strategic factor within companies. This has resulted in new requirements for NPD.
In the existing field of purchasing it is generally regarded that involving purchasers in the NPD-teams can shorten the time-to-market, can use current supplier networks and can raise product quality. Even after the NPD stages, with respect to the product life cycle, purchasing can assure lower costs and can assure suppliers who are reliable according to the company’s performance demands, e.g. flexibility, technological level, price and the level of information sharing. In the first stage of NPD the focus is more on non-financial objectives, and strategic management decisions.
Within this development, purchasing has become a more strategic function over time. ‘Managing the external resources of the firm’ (van Weele 1994; Dobler and Burt 1996). Häkansson (1993) defined purchasing even as ‘a company’s behavior in relation to its suppliers’.
Wynstra (1998) investigated the role for the purchasing departments. The author defined the role of purchasing in product development as:
‘Contributing knowledge, taking part in managerial processes and participating in decisions with regard to product development, from a perspective of purchasing, i.e. striving towards optimal total product costs, well balanced dependencies on suppliers, and an optimal technological match with suppliers’
It can be clearly deduced from this definition that purchasing involvement can range from consulting to decision-making.
Based on studies Wynstra came up with a typology explaining the nature of tasks of purchasing managers in NPD. Ultimately they represent four clusters, whereby the purchaser’s tasks within NPD are distinguished. These clusters are ‘development management’, ‘Supplier interface management’, ‘Project management’ and ‘Product management’. Whereby ‘Supplier interface management’ is the crucial link between long-term ‘policies’ of Development Management and short-term ‘activities’ of Product and Project Management. The difference between Product and Project management is that the first one contributes to the actual design and determinations of the product. Project management focuses on managing the actual development project(s).
The author’s arguments are based on two issues. First, different activities have different time-horizons. Project and Product Management comprise activities that are related to specific individual development projects. The second argument is the conclusion that activities of purchasing involvement are performed on different hierarchical levels. The Framework of Integrated Product Development and Sourcing Activities, conceptualized by Wynstra, is given beneath.
Figure 8: The framework of Integrated Product Development and Sourcing Activities, Wynstra (2001)
According to Nijssen, Biemans and de Kort (2002), Purchasing involvement in NPD consists of active development teams and project involvement, Supplier interface management, Operational project assistance and Monitoring & Risk analyses.
The involvement is dependent on the antecedents of the firm size, NPD strategy, purchasing value, top management involvement, purchasing manager’s job experience, and purchasing manager’s level of education.
Buying firm’s representatives have reported the need for supplier improvements in the area of quality, delivery, cost reduction, new technology adoption, financial health and product design (Monczka and Trent, 1991; Morgan, 1993). Purchasing involvement in NPD therefore affects supplier improvements.
3.4 Early supplier involvement (ESI) in NPD
Cooperation between component suppliers and original equipment manufacturers beginning at the product conceptualization stage is referred to as “early supplier involvement or ESI” (Purchasing, 1991a)
Early supplier involvement has been advocated as a means of integrating supplier’s capabilities in the buying firm’s supply chain system and operations (Dobler and Burt 1996).
Some authors view ESI as a mechanism for the involvement of preferred suppliers in the early phases of product design and development (Dowlatshahi 1997).
According to Wynstra, van Weele and Weggeman (2001), the overall aims of early supplier involvement are to better leverage supplier’s technological capabilities and expertise and to improve product development efficiency and effectiveness.
Supplier integration into new product development is a social process and as such affected by a variety of behavioral factors (Bensaou and Venkatraman 1995)
The case for early integration of suppliers in the new product development process is compelling, but it is important to recognize that supplier’s integration is a process that must be managed properly to achieve maximum impact. The greatest barriers to
Selecting suppliers for involvement in the development project Determining the extent of supplier involvement
Determining the moment of supplier involvement Coordinating development activities
Coordinating basic design activities
Coordinating engineering activities
Coordinating prototyping/start up
Development Management Determining which technologies to keep/develop in-house and which ones to outsource Formulating policies for supplier involvement
Formulating policies for IPDS activities of internal departments
Communicating policies and procedures internally and externally
Supplier Interface Management
Monitoring supplier markets for technical developments
Pre-selecting suppliers for product development collaboration
Motivating suppliers to build up/maintain specific knowledge or develop certain products
Exploiting technical capabilities of suppliers
Evaluating supplier’s development performances Including development performances in overall vendor rating
Concept Development
Basic Design Detail Engineering
Pilot-Production / Start up
Providing information on new products/technologies
Suggesting alternative suppliers/products/technologies Evaluating product designs
Promoting standardization and simplification
Product Management Project Management
effective supplier integration, as perceived by respondents of the study of Monczka (New Product Development, strategies for supplier integration 2001), were:
Unwillingness of buying company technical staff to relinquish design or technology development responsibilities (the “not invented here” syndrome) Supplier concern over protecting proprietary cost information
Buying company concern over protecting proprietary cost information The time required to identify and integrate a supplier
Buying company concern over protecting proprietary technology The lack of processes revealed integrating suppliers
To achieve successful supplier involvement, the purchasing department often takes the role of a relationship manager (Dowlatshahi 1992). In this way, the purchasing department works as an intermediary, based on its knowledge about the supply market regarding cost, quality, and availability of purchased materials and components. Therefore, purchasing must have the ability to communicate effectively in coordinating part of the work of suppliers. At the same time, it must be able to communicate the potential design contributions to design and technology experts internally (Handfield et al. 1999).
Within this, it is important to note that purchasing does not have to coordinate all relations with suppliers. In fact, supplier involvement is never managed solely by the purchasing department (Lakemond et al. 2001). This implicitly means that it is an integrated task for the (new) product development team.
Suppliers should carefully be selected since only a minority (even among so-called first-tier suppliers) is able to add value in the design process. From this perspective, company priorities towards purchasing and supplier base management are key factors affecting ESI adoption. (Bidault et al., 1998).
Monczka et al. (1999) mention several significant questions that rise, when discussing supplier integration:
Which suppliers should be involved?
Is the supplier able to meet our requirements?
Is the supplier’s technology roadmap aligned with our roadmap?
Given the level of technical complexity, to what extent should the supplier be involved in the project?
When exactly should the supplier be involved in the project?
3.5 Theory reflection on the chemical industry
This section will involve the chemical industry in the theory described before in this chapter. The purpose is to find out whether the theory is applicable for the chemical industry as well.
The chemical industry entails hundreds of segments with an estimated 70,000 different product lines manufactured by more than 1,000 large and midsized companies, plus countless small ones (F. Budde, U. Felcht, 2006). It can be segmented in basic chemicals, polymers, specialty and performance products, industrial gases and agrochemicals. For practical purpose they are divided in commodities and specialties. But it should be kept in mind that commodities in the chemical industry are not nearly as commoditized as true commodities (e.g. crude oil) (F. Budde, U. Felcht, 2006).
Deschamps and Nayak (1995) state that ESI adoption is influenced by technological evolution that outdates the internal competences of a manufacturer. The current market dynamics therefore cause a higher rate of outdated internal competences, or the development time is shorter outside the company. As a consequence, ESI adoption becomes more and more important to retain competitive positions also for the chemical industry, since it can be stated that the market dynamics are for the chemical industry as well. Paragraph 6.1 will deepen this topic.
During the literature study the author of this research found a gap related to purchasing involvement in NPD and ESI in NPD.
First, it can be stated that the literature is based upon studies and investigations in an environment of assembly industry, such as the automotive and the E&E industry. But not one (bio) chemical company or some other company from the chemical industry was involved. And this study is focused on the chemical industry with respect to the mentioned ESI and purchasing involvement. Thus the theory cannot be adopted in a chemical environment directly. Therefore, this subject will be further investigated in chapter 6.
Secondly, it does not seem to be that purchasing involvement and ESI have a certain order with respect to both in NPD. ESI is seen as a potential benefit for NPD, but the role of purchasing with respect to ESI is lacking in theoretic studies. For the assembly industry this is not a direct problem (that is the reason for the underdevelopment in the literature) since commitment in terms of supply chain management comes from suppliers as much as from the company itself. But, in the chemical industry almost no supplier accelerates towards high supply chain strategies and value chain competition. Therefore the following statement is appropriate to the chemical industry but the last part.
To create competitive advantages, companies need product innovations; and to realize potential innovations, and to realize them quickly and efficiently, they need to cooperate with suppliers (Wynstra, 1996).
In the chemical industry, it is expected to be about constantly monitoring and assessing the market for potential ESI, and it is not a need as stated by Wynstra. Purchasing involvement is expected to facilitate the monitoring and assessing of the supply base. UGS, a global provider of product lifecycle management software underpins this statement significantly. Value engineering is performed with potential suppliers to ensure customer requirements and cost targets are met (Product Lifecycle Sourcing, Supply & Demand Chain Executives, January 2004).
Therefore the tendency to merge ESI and purchasing involvement in NPD is maybe an obvious step in the literature with respect to the assembly industry, but for the chemical industry this implicitly means that before discussing ESI, purchasing has to be involved in the NPD.
3.6 Conclusion
This chapter has analyzed the theoretical part of the point of departure. It can be concluded that the appointed objective of paragraph 2.1, Establish early supplier
involvement to contribute to innovation, is actually a two-step objective. Purchasing
involvement in NPD is a first step; a next logical step is to survey ESI.
Also, it is stated that the theory discussed does not apply for the chemical industry directly. In chapter 6 this will be further investigated. Within the framework of this study,
DSM has to be compared to the chemical industry in order to investigate how purchasing is organized at DSM with respect to NPD in chemical processes. This will be discussed in further detail in chapter four.
Chapter 4 DSM & New product development
In this chapter the guide for NPD will be discussed. The purpose is to analyze the point of departure in a practical sense. It is expected that the current status of the purchasing role at DSM will play a significant role in this study. Therefore, the role of purchasing at DSM will be discussed.
Secondly, this chapter will focus on DSM and the strategic direction with respect to innovation. This will be of importance for this study, because the further study is expected to be focused on the role of purchasing with respect to innovation.
The point of departure will be narrowed in paragraph 4.4, based upon the analysis in chapter three and four, which will be the introduction for the study problem in chapter five.
4.1 DSM’s perspective on innovation
In order to investigate factors influencing an effective product development processes, it is required to understand the type of innovation the firm is involved with (Chronéer 2005).
According to DSM innovation involves:
Tracking market trends and spotting opportunities that allow us to use our
capabilities and expertise to improve the quality of people's lives in ways that are also commercially attractive for our customers and us.
Interacting with the extensive external know-how infrastructure - partners in universities, other scientific research institutes and industry – to make sure we are active at the forefront of today's most promising developments.
Following up and developing precisely those ideas that enable us to make best use of synergies within the company.
Commercializing the resulting innovations with DSM business groups, or, if appropriate, externally.
Seeking out partners with promising new innovations in our fields of activity. Giving them the financial, technological, manufacturing and management
support they need to exploit those innovations to the full.
Ultimately, where appropriate, integrating those innovations with our own activities to our mutual benefit, and the benefit of society in general.
For DSM innovation is important in all stages of the Product Lifecycle to meet the objectives derived from the DSM shift and the world trends; this is shown in figure 9.
Figure 9: The Product Lifecycle, DSM and its environment
Further strengthen innovation can be deduced from the Vision 2010 with respect to
innovation management. Innovation has been and still is crucial for DSM’s success. The strong innovation track record on one hand and the unique positioning for the innovating hot spots on the other give good foundation for high and realistic innovation ambitions. Therefore DSM has launched an innovation center (see figure 2).
To establish focal areas for future innovation by DSM, a study was conducted resulting in the most important areas of innovation for the future. By combining the effects of the mega trends in society with trends in technology, DSM could map three specifically relevant innovation pockets, shown in figure 10.
Rapidly changing markets and needs
Rapidly changing (and converging) technologies
Pressure on established products (emerging economies, shorter life cycles, consolidation, ..) Portfolio shift towards
specialties
Innovation focus DSM shift
World trends
Innovative strength: optimal use of all capabilities in DSM network (internal & external) throughout the value chain
(in all functional areas) Bring the ‘next level’ of products to the market fast
Meet changing customer needs in ‘stable’ market
Reduce cost and improve quality
Figure 10: Three relevant innovation pockets The Innovation Center
The DSM Innovation Center has been established to accelerate and support innovation within DSM. In close cooperation with the DSM Business Groups, the DSM Innovation Center will play an important role in achieving the innovation objectives presented in Vision 2010.
The Innovation Center will follow a three-track approach in relation to the selection of innovation:
1. Selectively strengthen existing innovation programs to enhance the short and medium-term contribution of innovating to DSM.
2. Maintain a strong position in process engineering, enabling the development and implementation of process improvement and the design of effective, efficient processes for new products.
3. Initiate new innovation areas (Emerging Business Areas), to further boost innovation within DSM and secure the innovation contribution also beyond Vision 2010.
The Innovation Center consists of the departments shown below.
Business Incubator
Corporate Technology Management
Venturing Licensing Intellectual
Property
Emerging Business Areas
Figure 11: The innovation center
The department Business incubator is responsible for building and supporting new emerging business areas, and for providing market and business intelligence services.
Individualization trends
Environment, health & safety awareness trends
Age & World population growth trends
Bio- Process-
Markets IC & PM, Nutrition Technology Advanced chemistry & process technology UV/water/powder coating technology Markets Engineering Materials, Coatings Technology Materials science Advanced characterization Coating expertise Markets Nutrition, Pharma Technology Biocatalysis, Strain development Screening, Food & Feed applications Innovation pockets Healthcare & Prevention Renewable & Clean Resources Materials with Advanced Properties 1 2 3 1 2 3 Technology trends
Venturing is active in several Venture Capital Funds and start-up companies in DSM's strategic growth areas.
Licensing is responsible for technology licensing and the support of process operations and plant maintenance.
DSM Intellectual Property is the global competence center for all Intellectual Property (IP) issues at DSM.
The Emerging Business Areas (EBA’s) have been discussed already in paragraph 1.1. The department Corporate Technology Management of the Innovation Center takes among others responsibility for the guidance in New Product Development (NPD) and for the compatibility of NPD among the Business Groups. Therefore the Corporate Technology Management runs the main guide for NPD, the Technology Transfer Process (TTP).
4.2 The Technology Transfer Process (TTP)
The objective of the Technology Transfer Process (TTP) is to optimize the output and effectiveness of technology projects within the Innovation Center with integrating decision-making and learning. The process is shown in figure 12.
Transfer to Running Business Development Business Feasibility Initial Screening Idea Generation Scale Up/Validation Final Review Decision to Launch Decision to Scale Up Decision to Develop 1 2 3 4 5
Figure 12: The Technology Transfer process
The TTP is the standard decision process for the management of technology projects within DSM. TTP has been created to provide a common methodology and tools to be used by all Business Groups (BG’s) throughout the company. The TTP comprises checklists, which force the development teams to create awareness of all development activities.
A Phase and its Decision point together are called a Technology Transfer. Technology is defined broadly here, and covers all technology-related projects, including:
New Product Development
The development of modified products New Application development
The development of new chemistry/new technology The modification of an existing chemistry or technology
Transfer of technology from plant to plant
The actual work in the TTP is done in the different phases; each of which are preceded by a formal decision point at which the output of the project activities is assessed against the criteria determined at forehand and a decision is made how the project activities will proceed. Thus each decision point enforces systematic decision-making.
The TTP is applied throughout DSM and therefore used in all segmentations of the chemcial industry as stated in chapter 2.3.
4.3 NPD and Purchasing
The role of DSM Sourcing is based upon value creation in terms of spend reduction. This comes back in paragraph 2.1. With respect to new product development, the role of purchasing is still underdeveloped at DSM.
It can be seen that purchasing activities are not mentioned, nor is the purchasing function involved in the TTP in the early phases. A flowchart of the TTP is given in appendix 1. Purchasing comes into play in phase three of the TTP through developing
preliminary contracting strategy. Subsequently in phase four the development of a
procurement plan is mentioned.
In paragraph 2.2 it has been mentioned that the culture within DSM still lags the organizational changes DSM made. A fear of IP-loss (Intellectual Property-loss) discourages development processes towards supplier relationship management.
Within the Business Groups the awareness of possible purchasing contribution is limited. Because the low awareness of sourcing skills, the supplier selection process is ad hoc and not done deliberately within the NPD processes (thus also within the TTP). Secondly, supplier analyses and knowledge on supply markets are absent because of the low awareness of sourcing capabilities.
4.4 Conclusion
In the previous chapter, it has been stated that purchasing involvement is a first step to meet advantages of ESI (paragraph 3.6) and it has been stated that the literature on ESI and purchasing involvement do not apply directly for the chemical industry. The role of purchasing has been investigated in this chapter, which has shown that the role of sourcing is underdeveloped with respect to new product development at DSM.
These two conclusions will be the cornerstones for the problem direction of chapter 5. The differences in industry with respect to purchasing involvement and ESI will be investigated in chapter 6. The development of the sourcing role in NPD activity is even expected to be the main topic to investigate (chapter 6).
As a consequence, this study has to focus on the role of sourcing with respect to NPD, because the purchasing involvement in NPD is underdeveloped at DSM. And it is expected that this development will lead to a contribution to innovation. In this context, it is expected in particular, that the two pillars Operational excellence and Market driven growth & innovation of the Vision 2010 will lead to value creation by developing the sourcing role in NPD activities (paragraph 6.1 will deepen in this subject).
The following chapter will finalize the first part of this study by deducing a problem direction from this conclusion.
Chapter 5 Problem direction
This chapter will complete the Analysis part of this study, by introducing the problem statement and questions that is expected to lead to a contribution of the sourcing community to Vision 2010 in terms of innovation (as stated in the conclusion of chapter 4).
Chapter 2.3 has stated that the chemical industry is the nature of context for this study. This context cannot be further narrowed, because the problem statement is expected to be placed in a high aggregate context (paragraph 5.1).
5.1 Problem Statement
The problem statement has to lead to a development of the sourcing role in NPD, because this role is underdeveloped (paragraph 4.4). This development is expected to lead to a contribution of the sourcing role to innovation. Therefore, the following problem statement has been made:
How could sourcing contribute to innovation through developing its role in NPD activities?
5.2 Research Questions
1. Why should sourcing develop its role in NPD activities?
This question will discuss the drivers and opportunities with respect to the development of the sourcing role in NPD activities. It is expected that this question will give opportunities for the development of the sourcing role. This question will be answered by discussing the differences in industry between the assembly and the chemical industry first (with regard to the literature on purchasing involvement). Than the current changes in the chemical industry will be discussed and it is expected that these current changes in several parts of the chemical industry have overlapping characteristics with the assembly industry. The findings will be reflected on DSM. It is envisaged that these overlapping characteristics apply for DSM in several fields as well. Ultimately, this method is expected to lead to opportunities for the problem statement.
This problem question will be discussed in paragraph 6.1. 2. How should sourcing develop its role in NPD activities?
The appointed opportunities from research question 1 will have to be translated in a concrete plan what can be executed to come to the development of the sourcing role and how to accomplish this. This question will be the map (The development model, figure 14) of the study; it will describe how to arrive at the opportunities of the development.
The map will be drawn by dividing the development in several points of actions.
This question will be answered in paragraph 6.2.
3. What research needs to be carried out to come to a development of sourcing in line with the targets of Vision 2010?
It is expected that not all points of actions (from research question 2) can be investigated during this study. The decision what point of action has to be researched is expected to be made during problem question 3. It is expected that the point of action to be researched is the development of the sourcing role in the Technology Transfer Process (the guide for new product development).
The decision will be made through analyzing the map (The development model) discussed in problem question 2. Priorities will be given and a decision will be made with respect to the discussed priorities.
This question will be answered in paragraph 6.2 as well. 4. Where could the development finally lead to?
This question will give the envisaged results of this study. It determines the target of this study. In a later stadium of this study (chapter 7) the findings of the TTP research can be reflected on the determined target.
Paragraph 6.3 will discuss this problem question.
5.3 Constraints Innovation
The term innovation during this study means the consideration described in paragraph 4.1. In relation with this description of innovation, NPD will be considered to be restricted within the innovation pockets shown in figure 10.
Study part two, Research
Chapter 3 Theory Review Chapter 4 DSM & New product
development Chapter 5 Problem Direction
Chapter 6 Research approach Chapter 7 TTP Research
Chapter 8 Conclusions Chapter 2 Points of departure
Analysis
Research
Chapter 6 Research approach
This chapter will compare the assembly industry with the chemical industry. It is expected that current changes in the chemical industry will have overlapping characteristics with the assembly industry. Therefore, the literature on purchasing involvement (based on the assembly industry) can be applied for a part of the chemical industry as well. The purpose is to use the theory on purchasing involvement for the envisaged research in chapter 7.
Paragraph 6.2 will investigate how the development of the Sourcing role has to be filled in. Points of actions will be deduced and priorities given, which will build the development. This is necessary to decide what point of action should be further investigated in this study. The envisaged point of action to execute is the research on the Technology Transfer Process (see paragraph 5.2 as well).
Paragraph 6.3 will draw the envisaged outcomes of investigating the point of actions. It is expected that the outcomes will align the Vision 2010, which gives direction to the TTP Research of chapter 7 with respect to the problem under investigation.
Paragraph 6.4 converts the findings of paragraph 6.2 and 6.3 into the research statement for the TTP research.
6.1 Why should sourcing develop its role in NPD activities? Differences in industries
Several conditions distinguish process-based companies from manufacturing industry (Tottie and Lager, 1995). Some are:
Process industry is often a part of a long chain of customers/suppliers who do not always have access to information from end-users
Suppliers often deliver materials, not components
One major difference between chemical industry and piece goods industry is that the first mentioned, in general, has very inflexible and costly equipment (Chronéer, 2005). Product development in the process industry is to a great extent context-dependent (Trott, 1998).
Products of the process industry are interdependent and changes in one product or production process can affect other products and processes (Lager, 2001)
A car manufacturer introduces a new car A to the market in combination with ESI in relation with a specialized dashboard. Because of the high diversity in assembly parts the supplier of the dashboards will never have the intention to compete directly with the car manufacturer, despite the shared knowledge of the end product. In contrast, in the chemical industry, the several formulas and some commodities that form a product make the value chain development perspective more difficult. A supplier for product A can be a direct competitor for product B in the chemical industry, because the products consist of much less parts/formulas than in the automotive industry. Thus supplier integration and knowledge sharing can create value for product A, but harms as well the competitive differentiation for product B.
Furthermore a low spin-off rate can be added, in combination with NPD activities. In many manufacturing industries components will undergo incremental innovative improvements for future end products. Also a much higher rate of derived products (the dashboard technology for Volkswagen is used in many different car types) exist among assembly industries. As a consequence, within the chemical industry, future and current spin-off is lower. E.g. Peptopro® (using proteins for fast muscle recovery) had problems with the taste of the drink. The decision was made to insource a resins structure for a better taste (this decision was made unconscious by the way). This resin structure does not apply for other products in the food specialty (or another) department at DSM and for future sports drinks (who knows what the end market demands of sports drinks will be in the future). Comparing this resins structure with the VW dashboard it can be said that the resins structure is familiar with a more insecure future demand and with a less wide application for side products.
The low diversity and spin-off rate of the supply base results in lower volume procurement in the chemical industry (for both in and outsourcing) than in the assembly industry. Therefore, the Kraljic model has to be scrutinized as well. Kraljic build his model from only one perspective, namely the organization considering supply strategies. The assumption is made in the model that suppliers see the chosen fit in the same relevance. But in the chemical industry the volumes of supply are much lower in NPD projects, and the perspective of the supplier therefore has to be taken in account as well. Since lower volumes result in lower margins for suppliers, why would a supplier invest in developing a resins structure for a sports drink (with a low spin-off rate) what could become an end market success? Some critique on Kraljic can found this assumption. The Kraljic approach does not explicitly take into account the possible strategies and reactions of suppliers (Kamann, 2000 and Heege, 1981). The ‘what’s in it for me’ question is not considered for suppliers in the model, as mentioned by Steel and Trout (1997). Therefore, a twofold approach in the model would fit the sourcing techniques better in the chemical industry to avoid mismatches between buyer and supplier.
Coming back at the theory review, it has been said that the studies on the role of purchasing and suppliers in relation to NPD activities are all based upon the E&E and automotive industries. The actual question to consider is to what extent the concepts of Wynstra, van Weele, Axxelsson, Dobler and Burt, et al. are applicable for the chemical company DSM?
Changes in the chemical industry
Besides the differences in industry, as mentioned before, the chemical industry is changing as well. The pattern of innovation in the process industries has changed from a product-oriented to a more customer oriented perspective (Van Donk, 2000; Chronéer, 2003). In addition, it can be said that there are other determinants of innovation as well. The content in developing projects has changed to emphasize aspects other than the production process (e.g. material properties, customer services) (Chronéer, 2005). Figure 9 has shown the shift of DSM towards a more specialty portfolio.
Chemicals become more global than ever. The internet has created a new global and open market. Technical standards have been coming up as well. All this has increased the ability for customers to easily compare offers and sources on a global level rather than regional suppliers. Operating margins have dropped from eight percent in 1990 to 6.7 percent in 2000, and competition is taking place for almost any product on a global level (F. Budde, U. Felcht, 2006). The political developments and economical progress
