Imagine the following scenario: An R&D professional is tasked with developing and commercializing a new product and then paired with a procurement professional to help with this project. What typically follows is a two-step process:
- R&D comes up with a potential formula. Then, they identify potential suppliers for the various ingredients, receive raw material samples, conduct benchtop trials and tasting evaluations, and finally (hopefully) arrive at a technically feasible prototype.
- R&D then asks procurement to get the commercial pricing for the chosen ingredients so that the costing and pricing for the new product may be determined and start conversations with the suppliers about the commercial phase of the project (initial orders, lead times and replenishment orders).
Unfortunately, this very typical process is counterproductive. For starters, by the time procurement gets involved, it has lost any potential negotiation leverage because the suppliers know they have been chosen and that they are “the only game in town.” Second, waiting to do the costing analysis after the work on the prototype is done runs the risk that the formula ends up being too expensive—then it is back to square one. Other potential risks with this traditional approach involve issues like IP protection, liability and trademarks (to name a few), but the bottom line is that the earlier procurement gets involved, the better.
Early involvement by procurement, however, can be perceived by R&D as either threatening (undermining R&D’s credentials) or intrusive. Luckily, there is a proven roadmap for achieving effective collaboration between the two functions and, for procurement, this journey involves four specific milestones/enablers.
The first enabler: Build (humble) credibility
Procurement is already extremely well positioned to help with new products because it has a built-in network of suppliers that enables—if done right—access to early innovation in the marketplace. The humble part is that procurement professionals need to first establish themselves with both external (suppliers) and internal (company) stakeholders as credible go-to resources for innovative ideas and initiatives.
External credibility is developed through effective and purposeful networking: connecting with industry leaders, attending major tradeshows (Natural Products Expo West and East, SupplySide West and East, IFT, etc.) and joining specific trade organizations (institute for Supply Management, Council of Supply Chain Management Professionals, etc.). Internal credibility is developed through effective networking with company stakeholders. This means active listening, understanding needs and expectations, and providing effective solutions that “make them look good” and make their lives easier. Building such humble credibility helps bring innovation opportunities to the company and helps facilitate the process of evaluation and decision-making.
The second enabler: Learn and deploy (with R&D) the stage-gate process
The stage-gate process is a best practice tool for launching new products. It is a cross-functional process that moves the organization from the initial concept phase through feasibility, development and launch. It ensures that a predetermined set of deliverables at each stage is met before progressing from one phase to the next, and it eliminates costly and time-consuming mistakes.
The third enabler: Facilitate (with R&D) suppliers’ capabilities presentations and innovation sessions
These are opportunities for procurement and R&D to “expose” the company to new suppliers and to innovative trends. Many of these sessions end up being just informative, but sometimes they are the catalyst for new ideas and new projects.
The fourth enabler: Help R&D with sourcing and bottom-up cost buildup in “real time” during formulation
This teamwork ensures that prototypes are built to meet financial objectives as well as technical parameters; maximizes price negotiations leverage and, where applicable, builds supply security upfront; and reduces the time needed for formulation work.
Though there’s a clear roadmap for effective collaboration between R&D and procurement, don’t expect that to happen overnight. The executive leadership needs to support this effort and, inevitably, there will be some resistance to change. Experience shows, however, that the benefits of such collaborations far outweigh the challenges of its implementation.
Ori Amrami is a strategic sourcing professional with more than 25 years of experience in driving innovation and building reliable and cost-effective supply networks. He is currently the purchasing manager at Guittard Chocolate Company.