Sudipta Chatterjee

Sr. Program Director (Procurement & SCM), Blue Ocean Corporation

Supplier Integration refers to the process of synchronization of a company’s systems and processes with its suppliers, which are a valuable source of knowledge and information. Integration with suppliers enables the buyer to have access to the huge resource of information that would otherwise remain untapped.  Supplier integration has a lot of benefits to the buyer, viz.,

• Cost reduction

• Higher efficiency

• Higher innovation

• Reduced risks

• Enhanced competitiveness

• Joint investment

In this blog, we shall focus on the facets of supplier integration in new product design and development. The process of supplier integration in new product development is generally referred to as ‘Early Supplier Involvement’. This is a collaborative approach to new product (or service) development where the buyer strives to develop a better product design which is enriched by the knowledge and skills of a few strategic suppliers. Supplier involvement in new product design can be divided in the following ways based on the responsibility and depth of involvement of the suppliers:

• None- The supplier is not involved in design. The specifications and design are provided by the buyer.

• White box- This level of integration is informal. The buyer "consults" with the supplier informally when designing products and specifications, although there is no formal collaboration.

• Grey box - This represents formal supplier integration. Collaborative teams are formed between the buyer's and the supplier's design teams and joint development occurs.

• Black box- The supplier independently designs and develops the required product or component based on a set of interface requirements provided by the buyer

There are numerous benefits of Early Supplier Involvement viz., lower cost of design, more innovative design and lower time-to-market which enables the buyer to secure the ‘early mover’ advantage.

One of the concepts in supplier integration is the idea of a "bookshelf' of technologies and suppliers. This involves monitoring the development of relevant new technologies and following the suppliers that have demonstrated expertise in these technologies. Then, when appropriate, a buyer firm can quickly introduce these technologies into new products by integrating the supplier design team with its own. This enables a firm to balance the advantages and disadvantages of being on the cutting edge of new technology.

On one hand, there is no need to use the technology immediately in order to gain experience with it since the suppliers are developing this knowledge with other customers. On the other hand, the danger of being slow to introduce cutting-edge technology and concepts is lessened. The bookshelf concept is a dramatic example of the power of supplier integration.

However, supplier involvement in new product design has its own set of disadvantages like-

• Buyer getting locked into the supplier’s technology

• Supplier influencing the design such that the buyer develops long-term dependency on the supplier

• Possible loss of confidentiality

• Conflicts related to the ownership of intellectual property rights

The buyer should, therefore, be extremely careful in selecting the suppliers for integration during product design. In addition, the buyer should clearly define the goals and manage the expectations of both parties to ensure there is cohesion and synergy.

Reference:

- “Designing & Managing the Supply Chain- Concepts, Strategies and Case Studies” – David Simchi-Levi, Philip Kaminsky and Edith Simchi-Levi