The role of procurement in new product development (NPI)

There is an important strategy in new product development (NPI) – Concurrent Engineering. Concurrent engineering also refers as simultaneous engineering, is a method of designing and developing products, in which the different stages run simultaneously, rather than consecutively. It comprehensively considers product characteristics such as manufacturability, affordability, reliability, maintainability, plan-in-advance ability, and marketability in the early design stage to prevent unnecessary occurrences in later production stages. problems or delays.

Since any decision on design has a profound impact on the long-term cost and survival of the product, the design cost, which accounts for 5% to 15% of the total product/service expenditure, directly affects 70% of the total cost. That is, once the product/service is designed, most of the costs are determined. Therefore, the close cooperation between the procurement and design departments in many fields is particularly important. Each of these areas is discussed below.

Research & Development

Procurement should be consulted as soon as the R&D department conceptualizes a new product/service. Because procurement can provide very constructive advice and can quickly identify potential resources. Close collaboration between design and procurement can bring valuable information to R&D efforts, speeding time-to-market for new products, while reducing costs and improving quality.

Alternatives and Product Innovation

Procurement not only knows the various parts and components used by the company, but also has a lot of resource information. As a result, they can recommend components to the design department that meet performance specifications at the lowest cost. Moreover, since the sourcing also knows excellent suppliers who are familiar with the relevant industries, these suppliers may provide more reasonable and more economical parts than the original design, so the close relationship between the sourcing and these suppliers can also bring value to the design things. In addition, if the company’s design resources cannot keep up with the new product development requirements, it is possible to seek external design services. At this time, procurement personnel can give full play to their role in contract management, qualification certification and negotiation. The advantage in skills minimizes the associated risks and ensures that the design can be completed successfully on time.

Early Supplier Involvement (ESI)

ESI refers to the cooperation of one or several professional suppliers and a professional design group of the buyer to develop product specifications, the purpose is to use the supplier’s skills to improve the process, assembly and delivery experience.  Due to the procurement is very important to the supplier’s early involvement degree, they know best how it works to optimize the value of the supplier, therefore, procurement has the most important influence on the ESI side.

Cost & Profit issues

In the aforementioned “simultaneous engineering”, if procurement can participate in product design at an early stage, it can play a great role. The value of purchases is greatest during the new product development phase, and gradually decreases as the process of placing an order gets closer. In addition to early involvement in design, procurement excels at sourcing, which is identifying which supplier and what level of partnership to establish with it. In addition, the contribution of procurement lies in the forecasting of the procurement market and contract negotiations. Nowadays, product life cycles have become shorter and shorter, there is simply no time to make up for it if it’s not a one-time success. Therefore, performance monitoring has become the most minor part. Of course, for companies with long product life cycles, such as in the automotive industry, procurement is often more focused on cost reductions for existing products, so potential cost reductions remain a major issue even after production begins.

Target Cost

As we all know, the target cost is the result obtained by subtracting the expected profit of the enterprise from the price accepted by the market. Under this cost, the cost of all functions of the business, such as sales, distribution, production, labor and materials, are taken into account. Obviously, procurement costs are of course one of the most important parts. Therefore, in order to effectively achieve the target cost, the procurement must participate in the design team to modify and improve the design together with the designers, so that the product can not only meet the functional requirements, but also meet the requirements of the target cost. It is worth noting that the target cost is an interactive process. If the target cost cannot be achieved within the time frame required by the new product, the company must decide what to do, cancel the new product plan or delay the new product plan. Because target costs do not exist in isolation, the most effective way to implement them is through the formation of cross-functional teams, combined with strategies such as early supplier engagement, price analysis, and value engineering.

Speed of Market Entry

The speed of product market entry has become one of the important means of competition among enterprises. It includes two important aspects, the new product development speed and the transmission speed of products in the “pipeline” of the company’s entire operating system. The role of procurement is to certify and confirm suppliers as early as possible in order to provide a stable supply of material parts and services. Also bring the right suppliers into the early design process. In addition, the flow of products in the company’s entire operation system, that is, the cycle from determining product demand to delivery to users, is also an important factor affecting the speed of market entry. Therefore, in order to speed up the market entry of the product, the following must be done.

• Improve market forecast accuracy
• Necessary simplification and standardization of components
• Suppliers should be selected as close as possible to the production or distribution center
• Improve communication with downstream customers and upstream suppliers
• Reduce waste and lower inventory
• The design of the operating system should be flexible

The above work is closely related to the functions of supply chain management. In addition to the above aspects, procurement and supply chain personnel also play an important role in supplier development and acquisition of procurement funds. New product development (NPI) must take full advantage of the strategic position of procurement in the business, and suppliers should also be a part of the new product development process. Procurement and supply chain personnel are responsible for important information transfer and exchange between suppliers and end users.