4.5 Summary on cases presented
5.2.3 Reasons to invite suppliers
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5.2.3 Reasons to invite suppliers
Main reason to involve suppliers is technology distance between have‐want followed by optimization of components to work within architecture
Evidence from the case
ADVANUS and ASUS both identified, that the main reason why would they consider supplier involvement in NPD is the lack of some component they would like to use in a new product to be marketed. This new component to‐be might be crucial for the differentiation of the end product, but since there is no such a thing they would need to invite the supplier and introduce them into their future plans of what they want to create and see whether they can cooperate.
Secondary to this, all of the companies, including Theraltake and SANAV would introduce the supplier in order to improve the functionality of components in already existing product, so that they can market next generation with improved stats to gain some competitive advantage.
Discussion
The primary reason why the Japanese companies do involve suppliers – to reduce the development times and with more innovative features was not fully confirmed in the case of Taiwanese IT companies. The findings here are somewhat supportive with what was presented by Kamth and Liker or Bozdogan et al. – the companies would be looking for the innovative capacity of their suppliers, however won`t expect that they can help them to cut down the development time that significantly. Reason why the no one of the interviewed companies mentioned the time issue as important might be the already very short development times in the IT industry, and the fact that this is simply expected. The innovativeness factor, on the other side was posited – as most of the companies studied would contact suppliers for help when trying to introduce new product features or functions.
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satisfactory components, that would just pass their testing. It needs to be good enough, not the best of all possible.
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5.3 The relationship between “Architecture as variable” and “Buyer‐supplier relationship and NPD”
5.3.1 Complexity and supplier roles
Complexity has influence on the supplier roles creation as well as on relationship building.
Evidence from the case
It was only in the two companies – ASUS and ADVANSUS ‐ both with highly complex products, where we can clearly identify a need for detailed vendor management and different vendor role creation.
It is also the case of these two companies, where clear vendor selection factors and procedures were clearly defined as well as formalized.
In the case of ASUS, all the vendors are managed by the central procurement unit, where they differentiate between suppliers based on the 5 main criteria (Quality, Cost, Delivery,
Technology and Service) in two areas of components – strategic and nonstrategic. Also, they do mapping of their suppliers technologies – which is done by the R&D unit themselves – and the procurement would be working with these.
ADVASUS has the supplier list of roughly 100 suppliers, also mostly managed by procurement – but not solely as other units can provide input as well (such as quality, engineering etc.) and divide the suppliers onto different roles based on similar criteria as well as they keep track of development plans of their suppliers. The existence of the supplier list also means, that the companies on this list will be first called upon when necessary and given chance to provide with any technological solution.
SANAV and Thermal Management Company, on the other side, do not catalogue their suppliers any specific roles ‐ they do look for new suppliers anytime they develop new product. In case of Thermal Management Company this is done solely by the procurement unit and usually the
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Discussion
From the above we can see the correlation between the product complexity – the number of components and the matrix of their inter‐dependence – and a need to differentiate suppliers of the product components within a hierarchy to determine the relative importance of the
business relationship to the buying company.
With those most important – they would try to have a more close relationship, often based on less formalized tools such as contracts or deals etc – as they can clearly identify advantages of doing so instead of managing the whole huge mass of suppliers on the arms‐length basis – the suppliers are acting as the prolonged hand of the customer (Kamath and Liker).
On the other hand, suppliers with less complicated products tend to have no need to create any relationship with their suppliers – not even with those who posses the crucial technology necessary for their products. One of the reasons might be that the lower number of
components is more easily manageable on a daily basis, and therefore they can spend more time on each component within the system, finding another solutions or even substitutes that might be much more suitable and efficient. If the system is complex enough, the company would need an partner, who can free them of way too many concerns and considerations, they might not be able to cope with. In this way, the complexity is also an driver for the creation of supplier roles with different design responsibility.
5.3.2 Component knowledge
All companies have good understanding of the component markets and supplier pool.
Companies with less complex products would have deeper component knowledge, where the higher the complexity – the more they would trust their suppliers
Evidence from the case
All the companies studied will try to have good understanding of their suppliers and the markets their suppliers operate. Companies with more complex architectures (ASUS and ADVANSUS) would tend to work on catalogues of their suppliers and what processes and technologies these provide. ADVANSUS does have the vendor list, which is updated by new
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supplier technologies on regular basis by both engineers and procurement, where ASUS does have the special groups, who will specialize on screening markets for particular components.
This later approach is also similar with Thermal Management Company and SANAV, where single engineers would be given the responsibility to reach out and search for suitable suppliers before a new NPD begins.
Another trend is the level of component understanding – where the companies that have to deal with high complexity architectures would forego some of their component knowledge, so they can concentrate on the overall coordination and integration of the whole system. ASUS completely trust their suppliers will come with the solution they want – based just on very rough specs provided by ASUS and give them the complete freedom in how will they reach the goal. In ADVANSUS case, the suppliers have relative freedom to come up with an solution – where as long as the PM believes it will fit the architecture and operate in the way he wants than it is good enough.
SANAV and Thermal Management Company, on the other side had an excellent understanding of the components they were about to purchase. Thermal Management Company often even advice the suppliers on what exact changes they should do so they can enjoy the improved overall design so that the overall functionality increases, where SANAV gives clear and detailed specs of what they want and will not tolerate any deviation – as this does influence their planning effort.
5.3.2 Discussion
The reasons for this to occur might be twofold – once the complexity is lower, the buying company is not preoccupied with the integration process and might have greater opportunity to understand the components they employ. Also there is the fact, that the business model of these buyers is based on optimization of existing products rather than more radical innovation.
The second one is more prosaic‐ they both had the very recent history of moving up the ledder from OEM to ODM. Their buy or make decision is more than less affected by the cost issue – it is cheaper for them to purchase the component from third party than do it by themselves, but they still keep the knowledge so they can use it in the future if necessary. Their main
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often change components and their suppliers.
In the ADVANSUS and especially ASUS case, there is a strong dependence on knowledge – the companies already forsaken their component knowledge and need suppliers for their insights in technology – if they try to develop the product without this knowledge, the time frame spend on the research might be much longer.
5.3.3 Managerial alignment
Managerial alignment does follow the architecture of the product to be developed. Speed to market is constant, innovativeness variable.
Evidence from the case
It is the central R&D unit who is in charge of new product development projects together with procurement unit, who supports for business negotiation and closing business deals with customers. The central R&D is in charge of the whole product development, but they do create independent “specialty teams” that do have greater understanding of particular components.
These teams than work as an gatekeeper – they filter information to the central R&D and also translate necessary information to the suppliers. The communication strategy depends on the importance of the customer`s component as well as on situation and timing. Usually they do consult over the phone or do meetings, but sometimes they would create an task force in charge of specific problem or even employ visiting engineers (both supplier o customer and customer to supplier) who will work with the counterpart on longer terms for more
complicated projects, where they will invite all the involved parties to take part on the discussion.
Advansus` alignment is more straightforward, with the multilayer management control. They follow the importance of the component, where for supplier of more important components or cases with higher complexity they also want to work with supplier`s higher level managers and engineers for extra support. In such a cases they would sometimes consider to set up an temporary task forces, that would be effective until not resolved. On low level complexity or innovativeness this expensive approach is not necessary and they would only go wit personal liaisons or bureaucratic control mechanisms.
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Since Advansus and Thermal Management Company have only few interfaces between
themselves and their suppliers, there is not much need for elevating the matters higher than to individual liaisons, as the amount of data to be transferred is not that huge and can be easily managed in even small teams.
In addition we can see, that for projects with very fast development cycles (Thermal
Management Company, Asus), there will be an general tendency not to make the discussions longer than necessary. This is the case of all four companies studied – since the development time in IT are short in general and none of the customers is welcoming delay of any sort.Asus would discuss with suppliers only on the most important things and than let them to figure out the rest – and as long as it suits they are happy with that. Sanav in cases when speed is critical would not accept any changes and ask suppliers to redo their design if it does not fit – and same case is for Advansus.
5.3.3 Discussion
We can see, that the main mediator for the managerial alignment in Taiwan is the architecture considerations, instead of the innovativeness as proposed by Olson et al (1995). The time to market is an issue already and all the companies tried to be as efficient and quick as possible – so if there is not any requirement from the product newness, the alignment will always be as described by Olson – with only very few discussions, clear deadlines and district division of labor. If we were talking about complex product with new parts, however – the management alignment will become loser and more open to new insights from suppliers, with special ad hoc teams formed where they can discuss all the issues involved from different angles so that the customer can get better idea on what are the options – they can simulate different possibilities and choose the most suitable. Of course, this approach is much more demanding on resources and therefore not cooperation with every single innovative component provider can be done in this way. It is only those more strategic important suppliers of whole subsystems, who would be considered worthy of such an cooperation.
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Chapter 6 ‐ Conclusion and suggestion
6.1 Conclusion
The main question I asked myself before I started working on this research was – what are the ways suppliers can defend themselves against being replaced when the architectural innovation occurs? What should they do so they can participate on the next generation NPD, learn the new technology and skills so they won`t be left behind?
This area is quite unexplored area, and my decision was to start with the component buyers, from where it might be more visible to see what kind of recommendations give to the suppliers on how to behave so they can stay o the cutting edge of innovation.
For doing so, I answer the 3 main research questions:
Research question 1:
Do all the companies manage their suppliers in the same way? Are all the suppliers same important?
Based on the cases studied we can see clear differences in the way the different companies presented manage their suppliers.
Companies that face higher product complexity tend to categorize their suppliers into hierarchical roles based on specific criteria. Suppliers of these companies are not given same importance, some of them even have strategic importance and would have the position of an almost equal to the buying company where on the other hand, suppliers with commodity based product are easily substituted and seen as unimportant.
In addition, buyers with more complex products would often tend to create a relationship with their suppliers. The main selection criteria are technology, innovative capacity, price and quality.
Companies that face lower product complexity manage their suppliers on the arm length relationship. The main selection criteria for them is the price and quality.
Research question 2:
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What are the main factors to employ the suppliers into the new product development? Under what circumstances are buyers more likely to work with the suppliers on the new product development?
The main factor is the technology distance – between what buyers have and what they want to employ. Often they want an off the shelf component or detailed plans for one rather than advice – they don’t have the time to wait for the component to be fully developed. Secondary reason is the optimization of components
Suppliers who have some sort of relationship – based on previous successful cooperation experience are more likely to be asked for cooperation in the future.
Suppliers who have excellent component knowledge as well as understand the architectural knowledge of buyer`s system is in advantage on which they might be awarded with the business.
Research question 3:
What are the main problems when managing suppliers in the new product development? Are there any risks involved when suppliers work in the new product development?
The main issue identified in all cases was the equilibrium management of negotiating power as an direct impact of the scope of business exchange with the supplier. The customers were mainly concerned of the tradeoff between having one strong, sole provider with the technology capacity (who will have strong influence over their design) or more weak suppliers who are not interested in investments into the relationship due to weak returns.
All buying companies are concerned about the communication, especially during the new product development. They need to talk to their suppliers fast, with the right people and preferably face to face. Geography proximity of suppliers to customers is important.
Disputes between the development teams on a solution of particular problem may cause increased cost, longer development time or even failure. Even in cases they set clear specifications and have business deal, all suppliers will also set the project
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6.2 Suggestion to the industrial practitioners
The problems companies are facing are both long term and short term. Different kind of action and tactical preparation is necessary in both cases, therefore the following part is divided into two subparts – the long term action (this action is to be implemented continuously) and short term action to be done once when the immediate threat of architectural knowledge is
identified.
6.2.1 Suggestions to suppliers of long term character
In the long term run, the suppliers of buyers who are dealing with more innovative and complex products should try to promote their existing technologies as well as their plans for the future and where they wish to innovate next to their buyers – to get their plans on the radar of buyers to be present in the technology bookshelves of buyers.
The informal exchange and regular updating of their long term technology goals between buyers and suppliers and technology consultations should be supplier`s highest priority.
There are many platforms the buyers use and the suppliers can employ – be it special seminars on particular technology problems organized by the buyers, or in some cases through media (Digitimes etc) and even newsletters or word of mouth in between the engineers might be of benefit.
Also, it is a good idea to set a regular meeting between the top management of both companies, where the top management has the chance to meet up and do an update on the highest level as well. This will help to clearly show what are the strategic gals of both organizations so if there is any need for strategic alignment, the managers will have a good chance to raise these issues and see whether there is any chance of cooperation. Also, increased activity of sales engineers on the lower level towards the procurement is always an good an suitable entry strategy. In this way, they will be able to create a relationship on all levels, and be there the case of any new project – the suppliers can prepare in advance for the bidding or selection.
For suppliers who deal with buyers for less complex products, the main considerations should be the cost, quality and delivery issues together with an understanding of what exact
incremental changes to their design are important, so that they can help the customers to increase the overall system efficiency. They should not rely on the relationship that much, but rather try to learn more about their customers needs and how can use the existing
relationships to communicate how can they target these needs. Being initiative is important –
relationships to communicate how can they target these needs. Being initiative is important –