Early supplier integration: the dual role of purchasing in new product development

Interest in early supplier integration in new product development (NPD) has increased as an open innovation approach has become more common in firms. To support supplier integration, the purchasing function of a firm can assume a new ‘dual’ role: contributing to NPD while also managing overall costs. Previous research has offered few insights into how the purchasing function should best be organised so that it will fulfil this dual role. This paper reports on the results of a consortial benchmarking study in which an industry–academic consortium visited and analysed six best‐practice firms. The findings describe how innovative firms organise their purchasing function, distinguishing between ‘advanced sourcing’ and ‘life‐cycle sourcing’ units. The results include the tools that these firms use, such as regular innovation meetings with suppliers and technology roadmaps linking firm strategy, innovation strategy and sourcing strategies. The paper also recommends that researchers shift from a narrow focus on a single project to a broader consideration of supplier and organisational issues in NPD.     

Internal vs. external learning in new product development: effects on speed, costs and competitive advantage

The purpose of this study was to investigate how different technology sourcing strategies throughout the new product development process influenced innovation speed, development costs, and competitive advantage. We studied 75 new product development projects from ten large, U.S.-based companies in several industries. Results indicated that: (1) more external sourcing during the early (i.e., idea generation) stage was related with lower competitive success; (2) more external sourcing during the later (i.e., technological development stage was related with slower innovation speed; and (3) development costs tended to rise with greater reliance on external sources of technology, but this result was not statistically significant.     

Organizing for knowledge generation: internal knowledge networks and the contingent effect of external knowledge sourcing

Research summary : When faced with a new technological paradigm, incumbent firms can opt for internal development and/or external sourcing to obtain the necessary new knowledge. We explain how the effectiveness of external knowledge sourcing depends on the properties of internal knowledge production. We apply a social network lens to delineate interpersonal, intra‐firm knowledge networks and capture the emergence of two important firm‐level properties: the incumbent's internal potential for knowledge recombination and the level of knowledge coordination costs. We rely on firm‐level internal knowledge networks to dynamically track the emergence of these properties across 106 global pharmaceutical companies over a 25‐year time period. We find that a firm's success in developing knowledge in a new technological paradigm using external knowledge sourcing is contingent on these internal knowledge properties . Managerial summary : Incumbent firms in high‐tech industries often face competence‐destroying technological change. In their effort to adapt and develop new knowledge in a novel paradigm, incumbent firms have several corporate strategy options available to them: internal knowledge development and a wide array of external knowledge sourcing strategies, including alliances and acquisitions. In this study, we make an effort to address a critical question: How effective is external knowledge sourcing under different internal knowledge generation regimes? We find that external sourcing strategies are less effective when firms can already internally generate new knowledge or if they have high internal coordination costs. Therefore, when considering external sourcing, managers must carefully weigh the benefits of it vis‐à‐vis its commensurate costs as the benefits of external sourcing may be overstated . Copyright © 2015 John Wiley & Sons, Ltd.     

Managing inventory with two suppliers under yield uncertainty and risk aversion

In this paper, we consider a single-product single-period inventory model in which the retailer can source from two suppliers. The primary supplier is cheaper but unreliable in the sense that it generates supply yield uncertainty, whereas the secondary supplier is perfectly reliable but more expensive. The reliable supplier's capacity is fixed and the retailer cannot order more than the quantity reserved in advance. We study the problem in the context of a risk-averse retailer who has to determine the optimal order quantity from the primary supplier and the optimal reserved quantity from the secondary supplier. We develop the model in the perspective of a low risk averse retailer and quantify the risk via an exponential utility function. We show by numerical experiments how the resulting dual sourcing strategies differ from those obtained in the risk-neutral analysis. We also examine the sensitivity of some model-parameters on the optimal decisions.     

A Taxonomy of Sourcing Strategic Types for MNCs Operating in China

This paper presents a taxonomic study of sourcing strategy types and their relationships to subsidiary profitability. Using the taxonomic approach, this study identifies five sourcing strategy types based on the decision rules of direction and volume of sourcing activities, namely market access, offshore platform, offshore manufacturing, local sourcing, and complex sourcing. We validated these sourcing types by linking them to a set of business and investment strategic factors. Based on a sample of 319 foreign subsidiaries in China, the results confirm the taxonomy of sourcing types indicating that sourcing strategy types indeed vary along the strategic factors including wage rates, R&D intensity, subsidiary size, capital commitment, ownership control and partner type.     

Innovation-induced food supply chain design

We present a conceptual framework depicting the issues and strategies of a firm with an innovation (in product or technology or system). To “implement” the innovation in terms of procurement of feedstock (intermediate inputs), production and processing, and marketing, the innovating firm undertakes strategic design of its supply chain. It must decide how much to produce, what segments of the supply chain to undertake in-house versus sourcing externally, and what institutions such as contracts and standards it will use to coordinate the suppliers assuring its external sourcing. The paper illustrates with cases from developed and developing economies, draws policy implications, and lays out a research agenda.     

DOES DUAL SOURCING LOWER PROCUREMENT COSTS?*

U.S. defense policy encourages the use of dual sourcing to reduce government procurement costs, but recent theoretical work raises doubts about the benefits of this policy. I study the determinants of dual sourcing and its effects on government procurement costs using a panel dataset of tactical missiles. I find dual sourcing is not driven by failures to reduce costs; instead, it is used more often after incumbent suppliers demonstrate quality control problems, and in settings where tacit collusion is likely to be difficult. After correcting for selection bias, dual sourcing is found to reduce government procurement costs significantly.     

Does R&D offshoring lead to SME growth? Different governance modes and the mediating role of innovation

Research summary : In this article, we address the role of R&D offshoring strategies in the sales growth of small‐ and medium‐sized enterprises (SMEs). We propose that different governance modes of R&D offshoring—insourcing versus outsourcing—may lead to growth, but that they differ in their effects. In turn, we argue that innovation mediates the relation between international R&D sourcing strategies and sales growth. Based on a large database of SME manufacturing enterprises in Spain, we find that offshore outsourcing positively affects sales growth both directly and indirectly, while offshore insourcing only affects sales growth indirectly via innovation results. The analysis reveals different contributions of each governance mode to sales growth and the mediating role of innovation in the relation between R&D offshoring and firm growth. Managerial summary : We analyze how different governance modes of international R&D sourcing—offshore insourcing and outsourcing—may contribute to growth in SMEs. Modes of offshore R&D outsourcing positively affect the growth of sales in two ways. One effect is direct, produced by improved efficiency, flexibility, enhanced resources, and access to new markets. And the other effect is indirect as offshore R&D outsourcing favors the achievement of innovations, and this in turn, positively affects firm growth. For their part, captive modes only exert an indirect effect. Offshore R&D insourcing contributes to the achievement of innovations, and thus, ultimately to firm growth in so far as these innovations enable SMEs to increase sales. Therefore, innovation results perform a mediating role in the relation between R&D offshoring and sales growth. Copyright © 2015 John Wiley & Sons, Ltd.     

Product variety,sourcing complexity,and the bottleneck of coordination

Research summary: This paper studies the coordination burden for firms that pursue variety as their main product strategy. We propose that product variety magnifies the tension between scale economies in production and scope economies in distribution, giving rise to complex sourcing relationships. Sourcing complexity worsens performance and poses a dilemma for organization design: A hierarchical structure with intermediate coordinating units such as sourcing hubs reduces sourcing complexity for downstream distribution but creates bottlenecks at the hubs, hurting performance for both the hubs and downstream distribution. We empirically examine operations data for about 300 distribution centers within a major soft drink bottling company in 2010–2011. Results support our hypotheses, illuminating the source of complexity in multi‐product firms and the challenge for organization design in managing complexity. Managerial summary: This paper uses data for about 300 distribution centers within a major soft drink bottling company to study how a large product variety creates complex sourcing networks. We find that, in addition to poor performance (e.g., increased stockouts), complex sourcing networks can cause challenges for organization design. In particular, the benefits of converting an existing distribution center into a sourcing hub (i.e., reduction in sourcing complexity for downstream distribution) and the costs of doing so (i.e., reduction in performance for both the hubs and downstream distribution) are both real and significant. The design of an efficient sourcing network despite its complexity involves important managerial decisions. Experiences in building and managing such networks can be the basis of a dynamic capability. © 2016 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.     

Supply chain management in the luxury industry: A first classification of companies and their strategies

This paper aims at analysing the supply management strategies in the luxury industry in order to find out (1) whether different clusters of companies could be identified within the luxury industry, on the base of a set of contingent variables derived from previous research, and (2) which supply chain strategy is currently applied within each cluster. Case study methodology is used. A sample of 15 Italian luxury companies, belonging to different industrial sectors, was taken into account.On the basis of five classification variables (company size, selling volume, product complexity, product fashionableness and brand reputation) four clusters are identified; these clusters present differences in terms of Supply Chain strategy, as well as in terms of practices for managing manufacturing, sourcing and distribution processes.     

Measuring perceived pre-purchase risk for a new industrial product

Risk is an important element in industrial adoption decisions. This paper proposes a method to investigate how different group of individuals influencing the adoption of a new industrial product differ in their assessment of the risks. Two dimensions of risk are distinguished: (1) the likelihood that adoption of the new product will have undesirable consequences, and (2) the perceived intensity of these consequences both at the organizational and at the individual level. Purchase consequences are measured in terms of product economics and product reliability. Multivariate analysis of variance is used to assess how decision participants differ in their assessment of risk components. An attempt is made to assess the relative importance of these various components in the formation of individual preferences. The implications of the analysis for the development of better industrial marketing strategies are discussed.     

Organization,technology and management innovations through acquisition in China’s pork value chains: The case of the Smithfield acquisition by Shuanghui

This paper reviews the changes in Shuanghui’s operations after the Smithfield acquisition as well as transformations in China’s pork industries. As income grows and diets change, there has been an increasing demand for high-quality pork and more processed pork products. However, China’s swine and pork industries are still at an early stage of development as evidenced by the low market concentration, intensive use of labour, a proliferation of intermediaries, and low levels of technology. Bounded by the established consumer preferences for freshness and the status quo in the midstream and upstream segments, Shuanghui is in a slow process of upgrading its domestic operations with Smithfield’s leading brands, import of chilled and frozen pork, advanced technologies, and the vertically integrated business model after this acquisition. In particular, it remains unclear whether Shuanghui can follow Smithfield’s experience to establish stable and safe hog supplies by multiplying self-owned hog farms, maintain and expand its current contracts with large-scale commercial hog farms, or rely more on global sourcing of pork primarily from the U.S.     

When Does Search Openness Really Matter? A Contingency Study of Health‐Care Innovation Projects

Given the growing popularity of the open innovation model, it is increasingly common to source knowledge for new product ideas from a wide range of actors located outside of organizational boundaries. Such open search strategies, however, might not always be superior to their closed counterparts. Indeed, widening the scope of knowledge sourcing at the ideation stage typically comes at a price given the substantial monetary and nonmonetary costs often incurred in the process of identifying, assimilating, and utilizing external knowledge inputs. Considering both the benefits and costs of search openness, the authors develop a project‐level contingency model of open innovation. This model suggests that search openness is curvilinearly (taking an inverted U‐shape) related to new product creativity and success. They hence assume that too little as well as too much search openness at the ideation stage will be detrimental to new product outcomes. Moreover, they argue that the effectiveness of open search strategies is contingent upon the new product development (NPD) project type (typological contingency), the NPD project leader (managerial contingency), and the NPD project environment (contextual contingency). To test these propositions empirically, multi‐informant data from 62 NPD projects initiated in the English National Health Service (NHS) were collected. The econometric analyses conducted provide considerable support for a curvilinear relationship between search openness and NPD outcomes as well as for the hypothesized contingency effects. More specifically, they reveal that explorative NPD projects have more to gain from search openness at the ideation stage than their exploitative counterparts. Moreover, the project‐level payoff from search openness tends to be greater, when the project leader has substantial prior innovation and management experience, and when the immediate work environment actively supports creative endeavors. These findings are valuable for NPD practice, as they demonstrate that effective knowledge sourcing has much to contribute to NPD success. In particular, pursuing an open search strategy might not always be the best choice. Rather, each NPD project is in need of a carefully tailored search strategy, effective leadership, and a supportive climate, if the full value of external knowledge sourcing is to be captured.     

The effects of purchasing proactivity on value creation and supply risk reduction in sourcing projects: Implications for marketers' capabilities

In many organizations, the role of purchasing is in a transition from a reactive order taker, into a proactive and internally integrated business partner. Building on a Resource-Based View and Capability-Based View, this study explores how purchasing professionals' involvement and proactive efforts in sourcing processes affect sourcing project outcomes, in terms of both value creation and supply risk reduction. The authors gathered data on 112 sourcing projects from a large, private financial services company with in-depth and structured interviews with key stakeholders. A structural model deploying the research hypotheses was analyzed using the Partial Least Squares technique. The results reveal that, driven by early involvement of and responsibility granted to the purchasing professional, purchasing proactivity enhances value creation and supply risk reduction sourcing outcomes. Specifically, proactivity mediates the effect of purchasing's involvement on value creation.This study empirically establishes the importance of purchasing proactivity, serving as critical capability of purchasing professionals. Following a dyadic logic, this impacts industrial marketers. More specifically, when purchasers build capabilities to show proactive behavior to enhance value creation and risk reduction, marketers need to develop capabilities to facilitate purchasers in their endeavors.     

Strategy in pharmaceutical R&D: a portfolio risk matrix

The management of any research-intensive company must weigh carefully the expenditure on any particular development product with the sales revenues that are likely to be obtained when the new product is introduced to the market. In particular, the technical risk (whether the development product results in a marketable product) and the market risk (whether the new product can be introduced to a suitable market niche where it will generate the required revenues) have to be scrutinised.
This paper sets out to develop an original model by Drews into a methodology for assessing the risk associated with a company's research portfolio. To test a model they had developed, the authors carried out in-depth interviews with three British pharmaceutical multinational companies, and compared the overall technical/market risk profiles of their respective development portfolios. Some interesting differences between the three were detected in terms of the overall risk profiles, in market risk, and in technical risk. The authors conclude that the matrix described here may be a useful tool in discriminating between the risk levels of the research portfolios of several companies; it may also be useful for plotting the movement of a particular firm's research risk over time.
While this paper concentrates on comparing the portfolios of three pharmaceutical firms at a particular point in time, R&D managers in other industries and other situations may find some evaluative utility in the model.     

On the strategic value of risk management

This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where firms that are rendered “risk averse” by financial frictions decide on and commit to their hedging strategies before their product market strategies. We find that commitment to hedging modifies the pricing and production strategies of firms. This strategic effect is channeled through the risk-adjusted expected cost, i.e., the expected marginal cost under the probability measure induced by shareholders' “risk aversion”. It has opposite effects depending on the nature of product market competition: commitment to hedging toughens quantity competition while it softens price competition. Finally, not committing to the hedging position can never be an equilibrium outcome: committing is always a best response to non-committing. In the Hotelling model, committing is a dominant strategy for all firms.     

Strategies for Linking Vertical Cooperative R&D to Commercialization in Korea

Since 1982, the government of Korea has actively promoted vertical cooperative R&D programs between government-sponsored research institutes (GRIs) and private firms. A number affirms participated in the programs because cooperative R&D could lower the risk and could contribute to rapid commercialization of many technologies. In this article, Chulwon Lee, Zong-Tae Bae, and Jinjoo Lee examine the effectiveness of participant firms' strategies for commercial utilization of cooperative R&D results, from the viewpoint of technology sourcing at the project level. The data have been obtained from 162 cases of vertical cooperative R&D projects from a diverse group of industries in Korea. Three different commercialization strategies are empirically derived through cluster analysis of the relative usage rates of cooperative R&D and of other supplementary technology acquisition methods. They find that the effectiveness of these strategy clusters varies significantly according to the types of innovation, that is, project-business relatedness. If the project belongs to an existing business area, in-house development augmented cooperative R&D strategy is the most effective. On the other hand, licensing-in supplemented cooperative R&D strategy is the most successful, if the project belongs to a new business area. Findings suggest that firms participating in cooperative R&D projects should try to utilize other supplementary technology acquisition methods in order to achieve commercial utilization of cooperative R&D results.     

Service-based capacity strategy for manufacturing service duopoly of differentiated prices and lognormal random demand

Globalization of production has ushered in vibrant manufacturing service industries whose business is to serve the production needs of product engineering firms. In these engineering–manufacturing chains, risk of capacity supply is an important concern for product firms as manufacturers are normally conservative in capacity expansion, especially when demand uncertainty and investment risk are high. To provide quality manufacturing services, this risk must be taken into consideration in formulating a capacity strategy. This paper presents a competition analysis method based on supply risk for a manufacturing duopoly of differentiated prices and lognormal random demand. A novel service-based demand rationing rule is first proposed. Reaction curves and equilibrium of capacity strategy are next derived. Finally, competition behavior of the duopoly is analyzed.     

Product Development Strategy: An Integration of Technology and Marketing

Although it seems obvious that a new product development strategy must bring together marketing and R&D strategies, the conceptual development of marketing and R&D strategies has taken place in relative isolation. More than ten years ago, when Professor Harry Nyström began his research program on product development in Swedish firms, he realized that the isolation wasn't an appropriate point of view. He began to construct a conceptual framework for analyzing product development strategies that incorporated many more variables than had traditionally been considered. The latest set of firms in the research program are four pulp and paper companies. They are in mature, process industries, quite unlike the earlier study firms. Yet many of the same propositions from the earlier research still hold. In this article, Professor Nyström presents the most recent version of his framework to help managers develop an integrated product development strategy.     

The Paradox of Openness: How Product and Patenting Experience Affect R&D Sourcing in China?

External R&D sourcing may help firms compete in an environment characterized by rapid technological changes. Yet, prior studies have produced conflicting findings on how a firm's technological experience affects the extent to which the firm engages in external R&D sourcing. Although many highlight that firms with extensive technological experience are equipped with more technological knowledge, collaborative skills, and absorptive capacity, encouraging greater levels of external R&D, others suggest the opposite due to potential exchange hazards and partnership conflicts. Adopting an external partner's perspective, the current study reconsiders this “paradox of openness” by analyzing how a focal firm's product experience and patenting experience affect an external partner's tendency to provide external R&D services to the focal firm. Specifically, this study explore how a focal firm's knowledge protectiveness and tacitness embedded in its product and patenting experience influences the external partners' motivation for knowledge transfer. This study predicts that a firm's product experience increases the focal firm's external R&D sourcing because it provides high levels of knowledge tacitness and external openness and can encourage external partners to share and exchange knowledge with the focal firm. In contrast, a firm's patenting experience decreases the focal firm's external R&D sourcing because it denotes knowledge explicitness and protectiveness and may discourage external partners to share and exchange knowledge with the focal firm. This study further predicts that patenting experience has a negative moderating effect on the relationship between product experience and external R&D sourcing. Using a data set of 575 high‐tech firms in China, this study finds support for our predictions. Our findings contribute to the growing literature on the knowledge‐based view and technology entrepreneurship in emerging markets.