Creating 'Interlock'

April 9, 2009
Five strategies to keep the relationship between procurement and R&D in gear.

In her 20 years as a procurement manager and management consultant, Nancy McGuire has seen too many organizations fall into the trap of using purchasing as little more than "the order-placer for early-prototype and development requirements."

Such an approach is fraught with peril. Without purchasing's early involvement in the R&D process, manufacturers run the risk of having to switch suppliers in midstream -- which can increase development costs and eat into valuable time-to-market.

Conversely, including procurement in the R&D process early on "ensures strategic supplier
selection, which optimizes manufacturability and provides for volume build once you're in production," McGuire explains.

One of the keys to a successful strategic relationship between purchasing and R&D is what McGuire calls the "ongoing, periodic interlock between procurement and development executives."

"These interlocks create the venue for understanding technology trends, quality and cost requirements from R&D's perspective and bridging with the capabilities of strategic suppliers," McGuire explains.

Interlocks between procurement and development should be occurring at the individual-contributor and executive levels, and according to McGuire, meetings between the two functions should encompass the following:

  1. Track what matters to the development organization.
    Technology road maps from suppliers, cost-trend outlooks, new environmental requirements and quality performance are critical components in the design of new products. Though procurement has to consider many other elements -- such as payment terms, e-commerce requirements and receiving standards -- this is not the venue for reviewing these supplier needs.
  2. Ensure periodic updates with both parties' views.
    At the worker level, the frequency is determined by how quickly the technology is changing. For example, in the computer industry, monthly is a good guideline, while updates could be less frequent for categories in which changes occur less frequently. For executives, quarterly interlocks are sufficient, as the information should be higher-level, and focused more on overall supplier performance and relationship management.
  3. Include both hard facts and subjective assessments.
    These meetings should include past performance on cost, quality, delivery and time-to-market as well as experienced opinions from professionals on both sides on what the predictions are for future performance. This is where procurement's value-add really can come into play. Procurement's visibility across several suppliers and experience with their prior performance is a critical input for future supplier selection.
  4. Allow time for views on how the teams are performing together and where improvements can be made.
    There are times when development and procurement can be perceived to be working toward competing objectives. It's important to allow time for feedback on what procurement is doing well, and how procurement can improve. It's also important for procurement to request any help or changes it needs from development in order to better perform its work.
  5. Consider participation by select critical suppliers.
    For some categories, the component can be so critical to the product development that it necessitates participation from the supplier. These interlocks should be exceptional in nature, driven specifically by the interdependence of both companies on each other's success. Extreme care has to be taken to ensure that suppliers' competitive information isn't divulged.

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