Understanding the Supplier’s Role in New Product Development: How to Achieve Competitive Advantage in the Supply Chain

A review of the literature regarding the suppliers’ impact on the new product development (NPD) process is provided as a primer to those considering this imitative. The primer shows how the benefits of integrating suppliers within a firm’s NPD design team can be categorized as better, cheaper, or faster. The risks of such involvement and how a firm can increase its chances of a more successful collaboration are also discussed. INTRODUCTION In an increasingly competitive world, firms have to work harder to succeed. Customers expect new products even quicker than before and are demanding more features from the products they purchase. How does a manufacturing company cope? While there are several opportunities firms can employ; suppliers, if properly managed, can be a source of competitive advantage. This manuscript focuses on the benefits and risks of involving suppliers in new product development (NPD) and provides guidance for when and how to do so once the decision to utilize suppliers in the NPD process has been made. In many industries, suppliers are taking a more active role in the design of new products. This enables the manufacturer to capitalize on the supplier’s expertise early in the product design stage and, hopefully, to compress time-to-market for new products. However, the supplier’s motivations differ from those of a manufacturer and many challenges must be successfully managed to achieve the advantages of integrating key suppliers within the new product development design team. NPD efforts have become more important to the manufacturer because without successful new products, manufacturers lose customers and the revenue they take with them. This threat is true regardless of the industry, from automobiles and consumer electronics, to pharmaceuticals, “companies often depend on products introduced within the last five years for more than 50 percent of their annual sales” (Schilling and Hill, 1998, p.67). To further complicate this problem, markets are becoming more fragmented and to meet these more specific customer demands, firms need to partner with the right suppliers. The problem is that while manufacturing managers understand “why” they should form supplier collaborations, most do not understand “how” to effectively integrate suppliers into the development effort (Handfield et al., 1999; Monczka et al., 2000). Further research into those activities that help integrate suppliers into the design process are needed. Therefore more effort is necessary to evaluate the risks and benefits of supplier involvement in NPD, along with other considerations that may influence the success of the manufacturing firm’s NPD effort. Many authors have examined the issue of supplier involvement in NPD efforts. For a long time Japanese manufacturers and suppliers have been used as an example of the benefits of early supplier involvement (Clark, 1989; Clark and Fujimoto, 1991; Kamath and Liker, 1994), but companies in the United States and several European countries (e.g., U.K., Italy, Germany) have also experimented with early supplier involvement (Littler et al., 1995; Spina et al., 2002; Walter, 2003). In this article, we review the relevant literature that studies the NPD relationship between suppliers and operations managers. Specifically, we analyze and summarize the benefits and risks of collaborating with suppliers in the design of new products as well as how to increase the chances of a more successful, and more efficient, collaboration.