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Harnessing the power of your suppliers
ABSTRACTS
interested in the water treatment they had to do. Their skilled people wanted to concentrate on more important technical problems, so refused to read materials and go to seminars on water treatment. The solution, not in the mind set of the customers, has led these firms into a new business--they took over the water treatment activity and everybody is happier. Third, don't expect brilliant insights each time you study a customer. Small operational shifts can add up to significant improvements. The inference is given that these "small" improvements, easier to find and to activate, will add more to profits than the occasional blockbuster action. Fourth, involve all levels of the organization in the drive to become market-focused. Example: at a Weyerhaeuser sawmill in Oregon, the general manager ordered a cross-section of all employee levels to spend a week at a time as "employees" of their customers. These visitors began requesting that lumber be wrapped in plastic, and that the ends be colored distinctively. Car loading was altered, to increase ease of unloading. The approach is rapidly spreading to other Weyerhaeuser units. A key part of this article, not abstractable here, is a lengthy "case," a not-so-phony fable described as the "Tale of Woodbridge Papers." The setting is essentially reengineering, but in this case based directly on feedback received from customers, at meetings ordered by top management of Woodbridge. The key customers were invited to come to the paper company. The marketing vice president "sulked for a day" and kept asking, "But what about our surveys, our focus groups?" Real information flow finally began, and lots of obvious product and process changes came out. The case demonstrates the four key principles.
Harnessing the Power of Your Suppliers, David Asmus and John Griffin, The McKinsey Quarterly (Number 3, 1993), pp. 63-78 Some companies whose experience provided the base for this article were Toyota, Honda, Ford, HarleyDavidson, Detroit Diesel, Black & Decker, Yamazaki Mazak, Motorola, Bose, and Xerox. By working more closely with their suppliers, they have been able to slash development times, increase inventory turns, and reduce the cost of purchased items. To do this, they have focused on optimizing product design, engineering, manufacturing, and purchasing. These four activities often conflict--for example, engineering commonly emphasizes meeting technical
J PROD 1NNOV MANAG 1994; 11:464-475
469
targets of new products but sees cost as secondary. Group work can resolve these conflicts or minimize their negative effects. In the product development operation, firms have traditionally developed a new product, and then passed the blueprints on to purchasing for quotes. The design was, of course, the definitive one, and suppliers had little hope that their cost saving design changes would be seriously considered. Today, many firms now select probable suppliers before drawing a single line on a plan. The suppliers sit down beside engineering, manufacturing, purchasing, quality, and whatever other functions are deemed core for the new product project. Suppliers have input on the full range of product and process definition; when selected, they are selected for life unless there are quality or delivery problems that cannot be corrected. Bose Corporation goes a step further by setting aside office space in their buildings for supplier personnel to work in during the earlier phases of the project. Honda recently built thirty offices in its engineering and new product development departments for supplier people to work in. In rare cases, developers have even been known to purchase suppliers (or portions of them). The closer developers and suppliers can be, the better the communication and the less the chance of manufacturability problems. In the supplier selection process, some finns such as Yamazaki Mazak (machine tools) list all of the components in the new product, then designate those components on which the firm's technical advantages will ride; that very important set is selected for in-house manufacture, whereas the less critical components are farmed out to suppliers. An advantage to product development is that this method avoids competition between developer and supplier in future make-buy deliberations--the outside suppliers get the business for life. A key issue in the supplier selection process is an assessment of just how much technical assistance the supplier can bring to the table. So the better firms tend to study supplier weaknesses, and take steps to equip, staff, or train as necessary to give the required capabilities. This closeness is maintained for the life of the product. In some cases developers set up formal systems of supplier assistance. They may also use supplier councils, formal methods of evaluating ongoing supplier performance, and, interestingly, ongoing methods of evaluating the developing firm as well.
470
J PROD INNOV MANAG 1994; 11:464--475
These evaluations are based on benchmarks from other phases of their businesses. Regardless of the techniques that seem to work best for individual firms, it now appears necessary that suppliers play an active and important role in new product programs, from the very beginning, and throughout the entire development and marketing process.
Breadth of Coverage for Intellectual Property Law, Frank Alpert, Journal of Product and Brand Management (Number 2, 1993) pp. 5-17 (GPL) The author puts forth the proposition that it might be possible to stimulate more innovation by reforming intellectual property law. In particular, services and information technology are only weakly protected. Too, innovation of all types requires more protection to justify its increasing costs. A major issue for public policy-makers in setting boundaries for intellectual property protection, is to strike a subtle and delicate balance between being too broad (inhibiting improvements) and too narrow (failing to provide incentive to create.) Another consideration is the distinction between two types of commercial products--" marketing" goods and "technical" goods. For a patent, technical goods require a breakthrough not obvious to other professionals. But for marketing goods (such as foods, services, and computer software) a new product is not beyond the technical capabilities of other professionals in the field. Marketing creativity and implementation are more of a barrier than is technical invention, for bringing new marketing goods to market. For example, making the first diet cola was relatively easy; the breakthrough was spotting the market opportunity and analyzing it correctly. Thus, innovation in marketing goods may suffer from lack of legal protection, especially if in smaller firms. For example, Royal Crown's pioneering Diet Rite diet cola and RD 100 caffeine-free cola were overcome by entries from Coca-Cola and Pepsi. To remedy the inadequate legal protection afforded marketing goods, this author suggests that protection be broadened to cover new product ideas. They would not be protected at the preliminary idea stage (to deter applications with excessive sketches of very tentative ideas), but only when they are commercialized. And only for two to four years then. The current seventeenyear patent length is based on the centuries-old rationale for how long it would take an apprentice to
ABSTRACTS
master and commercialize an innovation. Today such a length could severely inhibit quality improvements and other beneficial advances by competitors if applied to ideas. Broader protection would not replace the current legal system of patents and copyrights, but supplement it so that after broader protection expires any patents and copyrights would continue. Furthermore, there need be no formal distinction in law between marketing goods and technical goods--the broader protection would cover both. The standard criteria for obtaining a patent (originality and nonobviousness) would be used. Only new items (new-to-the-world or line extensions) would be included, not improved products. The key to identifying a new and distinct product concept (that is, a new product form) is to view the product as a distinct technology to the provision of a particular function for a specific customer group. Only when a change occurs along one or more of these three dimensions that involves a sharp departure from the present strategies of participating products would the product qualify. Such judgment calls are routinely required of our judicial system. One potential problem is that some companies might hastily engineer ineffective products to be first to market, thereby establishing control over potentially lucrative new product ideas. The broader protection must be qualified in some way to deter this. One solution would be to permit all firms beyond a certain threshold of the new product development process (say, completed engineering prototypes) to complete development even if they were not first. The first-tomarket company would still have the greater prospect of success if its implementation is satisfactory. But the first to market would now also face the threat of losing the opportunity and wasting the launch cost if a competitor has a second-but-better product near completion. This system of broader protection would increase the quantity of innovation without degrading the quality of innovation, because the threat exists that careful innovators just behind the pioneer could still market their goods. Small firms and inventors, in particular, would be encouraged to innovate because of the time cushion they would have against encroachment of large firms. Purely imitative business strategy would be discouraged in the earliest stage of the product life cycle when it would be harmful (by reducing the rewards of innovation), yet imitation would be encouraged soon after to provide lower priced alternatives for price sensitive consumers and at
interested in the water treatment they had to do. Their skilled people wanted to concentrate on more important technical problems, so refused to read materials and go to seminars on water treatment. The solution, not in the mind set of the customers, has led these firms into a new business--they took over the water treatment activity and everybody is happier. Third, don't expect brilliant insights each time you study a customer. Small operational shifts can add up to significant improvements. The inference is given that these "small" improvements, easier to find and to activate, will add more to profits than the occasional blockbuster action. Fourth, involve all levels of the organization in the drive to become market-focused. Example: at a Weyerhaeuser sawmill in Oregon, the general manager ordered a cross-section of all employee levels to spend a week at a time as "employees" of their customers. These visitors began requesting that lumber be wrapped in plastic, and that the ends be colored distinctively. Car loading was altered, to increase ease of unloading. The approach is rapidly spreading to other Weyerhaeuser units. A key part of this article, not abstractable here, is a lengthy "case," a not-so-phony fable described as the "Tale of Woodbridge Papers." The setting is essentially reengineering, but in this case based directly on feedback received from customers, at meetings ordered by top management of Woodbridge. The key customers were invited to come to the paper company. The marketing vice president "sulked for a day" and kept asking, "But what about our surveys, our focus groups?" Real information flow finally began, and lots of obvious product and process changes came out. The case demonstrates the four key principles.
Harnessing the Power of Your Suppliers, David Asmus and John Griffin, The McKinsey Quarterly (Number 3, 1993), pp. 63-78 Some companies whose experience provided the base for this article were Toyota, Honda, Ford, HarleyDavidson, Detroit Diesel, Black & Decker, Yamazaki Mazak, Motorola, Bose, and Xerox. By working more closely with their suppliers, they have been able to slash development times, increase inventory turns, and reduce the cost of purchased items. To do this, they have focused on optimizing product design, engineering, manufacturing, and purchasing. These four activities often conflict--for example, engineering commonly emphasizes meeting technical
J PROD 1NNOV MANAG 1994; 11:464-475
469
targets of new products but sees cost as secondary. Group work can resolve these conflicts or minimize their negative effects. In the product development operation, firms have traditionally developed a new product, and then passed the blueprints on to purchasing for quotes. The design was, of course, the definitive one, and suppliers had little hope that their cost saving design changes would be seriously considered. Today, many firms now select probable suppliers before drawing a single line on a plan. The suppliers sit down beside engineering, manufacturing, purchasing, quality, and whatever other functions are deemed core for the new product project. Suppliers have input on the full range of product and process definition; when selected, they are selected for life unless there are quality or delivery problems that cannot be corrected. Bose Corporation goes a step further by setting aside office space in their buildings for supplier personnel to work in during the earlier phases of the project. Honda recently built thirty offices in its engineering and new product development departments for supplier people to work in. In rare cases, developers have even been known to purchase suppliers (or portions of them). The closer developers and suppliers can be, the better the communication and the less the chance of manufacturability problems. In the supplier selection process, some finns such as Yamazaki Mazak (machine tools) list all of the components in the new product, then designate those components on which the firm's technical advantages will ride; that very important set is selected for in-house manufacture, whereas the less critical components are farmed out to suppliers. An advantage to product development is that this method avoids competition between developer and supplier in future make-buy deliberations--the outside suppliers get the business for life. A key issue in the supplier selection process is an assessment of just how much technical assistance the supplier can bring to the table. So the better firms tend to study supplier weaknesses, and take steps to equip, staff, or train as necessary to give the required capabilities. This closeness is maintained for the life of the product. In some cases developers set up formal systems of supplier assistance. They may also use supplier councils, formal methods of evaluating ongoing supplier performance, and, interestingly, ongoing methods of evaluating the developing firm as well.
470
J PROD INNOV MANAG 1994; 11:464--475
These evaluations are based on benchmarks from other phases of their businesses. Regardless of the techniques that seem to work best for individual firms, it now appears necessary that suppliers play an active and important role in new product programs, from the very beginning, and throughout the entire development and marketing process.
Breadth of Coverage for Intellectual Property Law, Frank Alpert, Journal of Product and Brand Management (Number 2, 1993) pp. 5-17 (GPL) The author puts forth the proposition that it might be possible to stimulate more innovation by reforming intellectual property law. In particular, services and information technology are only weakly protected. Too, innovation of all types requires more protection to justify its increasing costs. A major issue for public policy-makers in setting boundaries for intellectual property protection, is to strike a subtle and delicate balance between being too broad (inhibiting improvements) and too narrow (failing to provide incentive to create.) Another consideration is the distinction between two types of commercial products--" marketing" goods and "technical" goods. For a patent, technical goods require a breakthrough not obvious to other professionals. But for marketing goods (such as foods, services, and computer software) a new product is not beyond the technical capabilities of other professionals in the field. Marketing creativity and implementation are more of a barrier than is technical invention, for bringing new marketing goods to market. For example, making the first diet cola was relatively easy; the breakthrough was spotting the market opportunity and analyzing it correctly. Thus, innovation in marketing goods may suffer from lack of legal protection, especially if in smaller firms. For example, Royal Crown's pioneering Diet Rite diet cola and RD 100 caffeine-free cola were overcome by entries from Coca-Cola and Pepsi. To remedy the inadequate legal protection afforded marketing goods, this author suggests that protection be broadened to cover new product ideas. They would not be protected at the preliminary idea stage (to deter applications with excessive sketches of very tentative ideas), but only when they are commercialized. And only for two to four years then. The current seventeenyear patent length is based on the centuries-old rationale for how long it would take an apprentice to
ABSTRACTS
master and commercialize an innovation. Today such a length could severely inhibit quality improvements and other beneficial advances by competitors if applied to ideas. Broader protection would not replace the current legal system of patents and copyrights, but supplement it so that after broader protection expires any patents and copyrights would continue. Furthermore, there need be no formal distinction in law between marketing goods and technical goods--the broader protection would cover both. The standard criteria for obtaining a patent (originality and nonobviousness) would be used. Only new items (new-to-the-world or line extensions) would be included, not improved products. The key to identifying a new and distinct product concept (that is, a new product form) is to view the product as a distinct technology to the provision of a particular function for a specific customer group. Only when a change occurs along one or more of these three dimensions that involves a sharp departure from the present strategies of participating products would the product qualify. Such judgment calls are routinely required of our judicial system. One potential problem is that some companies might hastily engineer ineffective products to be first to market, thereby establishing control over potentially lucrative new product ideas. The broader protection must be qualified in some way to deter this. One solution would be to permit all firms beyond a certain threshold of the new product development process (say, completed engineering prototypes) to complete development even if they were not first. The first-tomarket company would still have the greater prospect of success if its implementation is satisfactory. But the first to market would now also face the threat of losing the opportunity and wasting the launch cost if a competitor has a second-but-better product near completion. This system of broader protection would increase the quantity of innovation without degrading the quality of innovation, because the threat exists that careful innovators just behind the pioneer could still market their goods. Small firms and inventors, in particular, would be encouraged to innovate because of the time cushion they would have against encroachment of large firms. Purely imitative business strategy would be discouraged in the earliest stage of the product life cycle when it would be harmful (by reducing the rewards of innovation), yet imitation would be encouraged soon after to provide lower priced alternatives for price sensitive consumers and at