By Martin Kotula MARKETS ARE CHANGING and permanently providing major challenges for companies with intense competition, especially in times of crisis. In this environment, research and development (R & D) are important factors for developing competitive advantages or securing a top position on the market. Excellent companies will use a crisis like the present one, they'll invest in R & D and emerge strengthened from the crisis. That's why corporate groups maintain, for example, worldwide R & D networks and invest many millions in innovations.
New sourcing model structures the process in phases
So, is R & D among the core competences of a manufacturing company? This question inevitably leads us to the possibility of strategic (re-)alignment by sourcing out R & D services. Especially for medium-sized companies, purchasing or outsourcing may be an efficient opportunity to strategically position innovations and establish them with a short time to market.
To render the R&D outsourcing process more systematic, a sourcing model is used. It will look at seven functions in a project life cycle with a continuous project management and controlling as a central element over the entire project term. It pays to take a closer look at the individual phases and critical factors.
Key question of the project model (first phase: 'Analysis') will be that of the interaction of internal and external resources. Here already, it must be taken into account that, later on – in 'Contracting' – the objective of stringent knowledge security will be the focus of attention when the company cuts up the performance to be developed and farms the parcels out to different suppliers. Here, one problem is the technical delimitation, and also the interface management. An advantage to be utilized: One supplier never has the complete information. The car maker Volvo even went one step further and, in the process of a similar model, worked with two competing suppliers which were responsible for the development of vehicle seats within the scope of the platform strategy. This comprises: Development, production, purchasing of parts, and delivery. The supplier even acts as a project manager and, across the functions, coordinates Volvo's engineers and its competitors. It should be taken care here that the innovative performance is not entirely exhausted because there is the risk of the competitor draining know-how. Another question is to what extent partnerships with institutes or universities can be implemented.
Objective of the 'Specification' – the second phase – is not only to establish a daily rate, but also to agree on a quantifiable performance. For example, specialized qualifications may be required (materials know-how, welding technology) which are tied to specific objectives or measurable results. Moreover, subjects such as the provision of material and information, or formal reporting paths should be clearly defined. Within the collaboration, adequate confidentiality provisions are to be complied with.
Contract models are formulated in phase 3 of the model
The third phase (‘Contracting’) comprises potential contract models. The actual award can be commercially divided into binding and optional components. Moreover, graduated project rebates or sales refunds should be stipulated. Quantitative and qualitative criteria are essential. A quantitative component may be a measurable degree of target achievement (efficiency, temperatures), or the measurement of a reduced utilization of materials. The qualitative definition is more complex but must not be neglected. It would be possible to make a subjective assessment of the cooperation or the degree of innovation. A printed assessment form, based on school grades or keywords, may be used as a guideline. Also to be taken into account are legal protections against potential risks of staff transfer, as well as the protection of know-how and business secrets.
In the fourth phase ('Delivery'), the focus will be on delivery and development, as well as on the collaboration during the project term. The purchasing department is here responsible for establishing a consistent change and supplement management. Using the fact that knowledge transfer in an R & D project is highly sophisticated and complex, service providers frequently try to establish a dependency by not giving on all information. It even happens rather frequently that freelancers are charged with software development – without ensuring adequate documentation and knowledge transfer. That's what also happened in a concrete case in practical experience. Although the project manager of the outsourcing company had been satisfied with the service provided, the knowledge loss of the technical design became evident when an adjustment was necessary after one year. Consequently, regular and formalized knowledge transfer talks with specified depths and ranges of documentation are indispensable for its success.
The sourcing model is concluded with the payment process, the 'Payment' phase. In many cases, payment is made without the actual performance being traced in concrete terms, for lack of time. That's one way of neutralizing any purchasing result realized before. It's thus imperative that the performance will always be immediately controlled. If a documentation of the performance is lacking as a daily record, or the conducted knowledge transfer talk is lacking, or the required documentation (drawing or program code), the invoice must not be paid.
No invoice payment without performance documentation
Of course, a sourcing model like the one presented does not release companies from their obligation to weigh up carefully, on the basis of individual characteristics, which R & D services are to be rendered in-house and which externally. The consideration of flexibility, control, competitive advantage, core competences, as well as own capabilities are essential factors in the decision making process. Additionally, there are long-term effects for the company. Moreover, important for the success of the project is not only a systematic analysis of overall costs, but also an in-depth make or buy consideration.
External sourcing can definitely be considered as an expansion of competence by providing the company with new performances and findings or insight. Moreover, the company can profit from a fast 'time to market' phase by strategically using external capacities. The purchasing department plays a central role in this respect and, at the same time, it is facing the great challenge of increasingly procuring R & D services via the market. Market players should now already be prepared for one thing: This change will require a lot of project management experience, as well as highly qualified resources in the entire purchasing sector.
AUTHOR
Martin Kotula (MBA) is principal at Kerkhoff Consulting, a consultancy specializing in purchasing. He is in the process of obtaining a doctorate degree in 'Strategic Sourcing' at Aston University.
m.kotula(at)kerkhoff-consulting.com |
