BENChMARKS

Collaboration leads to clear

benefits for procurement and
product development
Suppliers can inform product development and
the R&D group can help select the best suppliers.

To promote efficiency and Involvement of the R&D function in supplier

effectiveness, organizations selection and appraisal can lead to lower pro-
are encouraging collabora- curement costs. However, these benefits may
tion among related functions come at the expense of some aspects of procure-
within the enterprise. Two ment efficiency.
areas for which this makes
sense is the research and Supplier involvement in product
development (R&D) or prod- development
uct engineering group and the The amount that organizations involve their sup-
procurement group. In prod- pliers in the product development process var-
uct development, members ies, with only about 31% of organizations hav-
of the procurement group ing extensive participation of suppliers in these
can provide insight regarding efforts. Those that do have extensive participation
the purchasing of product components. Some can create opportunities that are mutually benefi-
By Becky Partida, organizations are going a step further to involve cial. APQC has found that one way organizations
Senior Research
select external partners as well. In fact, APQC’s accomplish this is by involving suppliers in the
Specialist – Supply
Chain Management,
Open Standards Benchmarking data in product management of cost targets for new products and
APQC development indicates that 66% of organizations their components. Organizations communicate
involve their suppliers in new product or service cost targets for products or components to their
development, including product
improvements and extensions. FIGURE 1
In turn, members of the R&D
function can be involved in the
Stage at which product cost targets
selection of suppliers to ensure communicated to suppliers
the best supply of components Conceive (i.e., specification
19.2%
and concept design)
and materials.
Design (i.e., detailed design, validation
APQC’s research indicates and analysis, tool design)
36.4%
that organizations encourag-
Sourcing 32.3%
ing collaboration between the
R&D function and suppliers We don’t communicate the actual product cost 33.3%
targets to our suppliers to work on cost reduction
can take advantage of benefits
such as a reduction in the total Don’t know 13.1%
cost to manufacture a product or
Source: APQC
easier sourcing of components.

86 Supply Chain Management Review • May/June 2016 scmr.com

 BENChMARKS (continued)

suppliers at varying stages of the development process. As Open Standards Benchmarking data in procurement, about
shown in Figure 1, a similar number of organizations com- 57% of responding organizations involve the R&D or engi-
municate cost targets to suppliers during the design stage neering group in supplier selection and appraisal. The data
of product development as during the sourcing stage. Only also indicates that these organizations have some clear pro-
about 19% of organizations communicate targets to suppli- curement advantages over organizations that do not encour-
ers during the earlier stages when product specifications age this involvement.
and concept designs are developed, and about one-third For example, at the median, organizations that include
of organizations do not communicate cost targets to their the R&D group in supplier selection and appraisal spend
suppliers at all. over $10.00 per $1,000 in purchases to perform the over-
Organizations can benefit when suppliers are involved all procurement process, whereas organizations that do not
in the management of product cost targets beginning involve R&D spend just over $16.00 per $1,000 in purchas-
early in the product development process. Suppliers can es. This is due in part to the significantly lower cost these
provide the R&D team with input on whether the types organizations accrue related specifically to appraising and
and amounts of material needed to produce a product developing suppliers. As shown in Figure 2, these organiza-
is achievable from a sourcing standpoint. They can also tions spend nearly $7.00 less per $1,000 in purchases to
provide perspective on which countries a material can be appraise and develop suppliers.
sourced from and whether this would be impacted
by the presence of trade agreements, as well as any FIGURE 2
duty rates associated with sourcing from particular Total cost to appraise and develop
countries. Supplier input can lead the R&D group to suppliers per $1,000 purchases
find alternative materials for a product or can spur
$15.45
the procurement group to carefully source a mate- Involve R&D/engineering
rial to provide the best cost for production. It can in supplier selection and appraisal

also enable organizations to research the most reli- Do not involve R&D/engineering
in supplier selection and appraisal
able locations from which to source to ensure that
production is not at risk of interruptions in supply. $7.75
Organizations benefit most when they communi-
cate cost targets to suppliers during the product con- $5.13
ception stage. At this early stage in the development $2.62 $0.94
of a product, components have not yet been finalized $0.29

and it is easier for the R&D team to make changes Top performers Median Bottom performers
to the product concept. Suppliers can work with Source: APQC
members of the R&D team to obtain the best value
for sourced materials. In fact, APQC’s research indi-
cates that organizations involving partners such as suppli- Accordingly, organizations involving the R&D function
ers and service providers in the design and sourcing aspect in supplier selection and appraisal need fewer full-time
of product development have more of their product devel- equivalent employees (FTEs) for appraising and develop-
opment projects launched on budget. Supplier involve- ing suppliers than organizations that do not. At the median,
ment allows organizations to make potential adjustments those that involve R&D need about seven fewer FTEs per
earlier in the development process when it is less costly, $1 billion in purchases than their counterparts that do not
rather than later in the process when changes to design involve R&D (Figure 3). It is possible that the appraisal
could lead to rework. process at these organizations takes less time and effort,
which would mean that the staff needed to complete this
R&D involvement in supplier selection activity is lower.
Some organizations are further encouraging collaboration Organizations that involve the R&D group in supplier
involving the R&D or product engineering group in the selection and appraisal have a higher percentage of their
selection and appraisal of suppliers. The aim of this integra- purchase value made from certified vendors. At the medi-
tion is to select suppliers that can provide the best value an, these organizations have 60% of their purchase value
in sourcing components for products. According to APQC’s made from certified vendors, whereas organizations that

scmr.com Supply Chain Management Review • May/June 2016 87

BENChMARKS (continued)
FIGURE 3
Take steps to avoid maverick purchasing
Number of FTEs for the process The procurement and R&D functions of an organi-
“appraise and develop suppliers” zation can both benefit from an increase in collabo-
per $1 billion purchases ration. By allowing suppliers to inform the product
43.4 development process through insight into the sourc-
Involve R&D/engineering ing of components or materials for a product, orga-
in supplier selection and appraisal nizations can make design adjustments or confirm
Do not involve R&D/engineering choices that will ultimately benefit both the enter-
in supplier selection and appraisal
25.1 prise and its suppliers. The R&D group can also pro-
vide input on what the organization should desire in a
17.7
supplier for its product components.
10.6 The downside of this collaboration is that it is asso-
7.0 ciated with greater amounts of maverick purchasing.
4.2
Because organizations that have adopted this level of
Top performers Median Bottom performers
collaboration tend to make more of their purchase value
Source: APQC from certified vendors, it may be that staff members
find their sourcing options too restrictive. Organizations
do not involve the R&D group in supplier selection make wanting to increase collaboration among the R&D group, the
only 35% of their purchase value from certified vendors. procurement group, and suppliers should take steps to ensure
These results indicate that input from the R&D group can that this does not result in adverse effects for other functions
help an organization identify more suppliers that can align that could outweigh any potential benefits. Organizations can
with organizational strategy and provide the best overall review purchasing processes and policies to make sure that
value. These suppliers may also provide superior service or they are user friendly for staff members in business units. This
be willing to work with sourcing organizations to determine can encourage staff to make purchases from preferred vendors
mutually beneficial improvements to the sourcing process. that have been vetted and selected through efforts from both
A disadvantage associated with involving the R&D group the procurement and R&D groups. jjj
in supplier selection and appraisal is that organizations with
this practice tend to have higher rates of maverick purchas- About APQC
ing. At the median, they have 1% of their total purchases APQC helps organizations work smarter, faster, and with greater
made via maverick buying, whereas organizations that do confidence. It is the world’s foremost authority in benchmarking,
best practices, process and performance improvement, and knowl-
not involve the R&D group have only 0.6% of their total
edge management. APQC’s unique structure as a member-based
purchases made in this manner. Although this may not
nonprofit makes it a differentiator in the marketplace. APQC part-
seem like a substantial portion of overall purchases made ners with more than 500 member organizations worldwide in all
by an organization, any maverick purchasing can have a industries. With more than 40 years of experience, APQC remains
detrimental effect on the time needed to process purchase the world’s leader in transforming organizations. Visit us at apqc.
orders and the lead times for supplier deliveries. org and learn how you can make best practices your practices.

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