Early supplier involvement

4. INFLUENCING A PUBLIC BUYER IN THE PRE-

is continuing focus on outsourcing of noncore activities, capabilities, and competencies, claims the author. Second driver is the exponentially increasing cost of design changes as the product development process progresses. The author adds that the high cost of design changes has pushed the buyers to involve competent suppliers early so the de- sign is sufficient from the beginning. Literature also recognizes that highly co-operative buyer-supplier relationships are more likely to lead to ESI (Birou & Fawcett 1994; Par- ker et al. 2008). More precisely, the study of Parker et al. (2008) found out that an es- tablished and trusting buyer-supplier relationship is associated with earlier and more extensive ESI.

From the buyer’s point of view, ESI can result in multiple benefits. The benefits of ESI in the literature are presented in Table 2.

Table 2: Benefits of ESI in NPD

Benefit Focus area References

Reduction in development lead time

Short-term (Wynstra 2001; Trent 2007, p. 224;

Hölttä et al. 2009) Reduction in development

costs

Short-term (Wynstra et al. 2001; McIvor & Hum- phreys 2004; Trent 2007, p. 225) Reduction in the internal

complexity of project

Short-term (Brown & Eisenhardt 1995)

Increased product quality Short-term (Hölttä et al. 2009)

Reduction in product costs Short-term (Wynstra et al. 2001; Hölttä et al.

2009)

Increased product value Short-term (Wynstra et al. 2001; Hölttä et al.

2009) Access to the knowledge

of the supplier

Long-term (Bonaccorsi & Lipparini 1994; Trent 2007, p. 224)

Improved buyer-supplier relationship

Long-term (McIvor & Humphreys 2004)

Reduced supply risk Long-term (Zsidisin & Smith 2005)

In addition to the timing, the extent of ESI has to be planned by the buyer. Figure 23 presents 4 different extents of supplier involvement by Petersen et al. (2005).

Although many studies indicate the correlation between the high extent of supplier in- volvement and project success, the high extent of supplier involvement is no guarantee for success (Trent 2007, p. 225). Trent (2007, p. 225) highlights the importance of fit- ting the extent of ESI to the need of the customer organization.

Supplier involvement in service requirement specification also provides an interesting source of literature as, in addition to NPD, ESI is also used by buyers to specify the service requirements. The basis for the supplier involvement is the service specification types by Axelsson & Wynstra (2002, p. 143-148), which are presented in Table 3.

Table 3: Supplier involvement in service specification (Axelsson & Wynstra 2002, pp. 143-148)

Orientations for service specification

Input Process Output Outcome

Focus on… … resources and capabili- ties of the sup- plier

… processes / production of the service

… the function or perfor- mance of the service

… value in economic terms for the user

Depending on the orientation of the service specification, different level of ESI is needed in the specification of a service. For example in output- or outcome-oriented service specification the customer usually needs the supplier to translate the de- manded output or outcome into activities (Axelsson & Wynstra 2002, p. 145).

Figure 23: Extents of supplier involvement (Petersen et al. 2005)

Selviaridis et al. (2013) created a framework of supplier involvement in service specifi- cation on the basis of the book of Axelsson and Wynstra (2002) and other literature sources. Figure 24 presents the framework.

As presented in Figure 24 above, two factors have the most influence on the choice of service definition method: buyer perceived uncertainty and the supplier’s buyer-specific experience. According to Axelsson and Wynstra (2002, pp. 141), buyer perceived un- certainty refers to the novelty of the sourcing situation, sourcing expertise and complex- ity of the service. The authors define buyer-specific knowledge as relational experience and knowledge of the buyer’s business requirements. As the method for service defini- tion has been chosen, the buyer-supplier interaction begins as they define the service together. On the basis of the framework, Selviaridis et al. (2013) created a four-quad- rant matrix, which describes different ESI roles with limited and extensive buyer per- ceived uncertainty and supplier’s buyer-specific knowledge. The matrix of Selviadiris et al. (2013) is presented in Figure 25. With different buyer perceived uncertainty and supplier’s buyer-specific experience, the supplier can have a role of translating, re-en- gineering, developing, and fine-tuning.

Figure 24: Supplier involvement in service specification (Selviaridis et al. 2013)

As in the Selviaridis’s et al. (2013) quadrant presented in Figure 25, in translating role the buyer perceived uncertainty is extensive due to the novelty and/or complexity of the sourcing situation and the supplier has limited knowledge and understanding of the buyer’s requirements and needs due to lack of trading history between the parties. The authors add that in this kind of buying situation buyers prefer output-based service specification and the role of the supplier is to translate the desired output of the buyer to activities, processes, systems and resources. The findings of translating role by Sel- viadiris et al. (2013) of the supplier very well corresponds to the theory of Axelsson and Wynstra (2002, p. 145) in output-oriented service specification. The supplier can re- duce the perceived uncertainty of the buyer through close interaction and knowledge building (Selviadiris et al. 2013).

Re-engineering role of the supplier suits situations where the buyer’s perceived uncer- tainty and the supplier’s buyer-specific experience are limited. As the buyer is familiar with the sourcing situation, a process-oriented service specification is preferred by the buyer (Selviadiris et al. 2013). The implication of Selviadiris’s et al. (2013) study for the supplier is to focus on benchmarking the costs and re-engineering the existing opera- tion using consultative selling approaches. There is no need for the supplier to translate the desired output to activities and processes since the buyer already has experience in the sourcing situation (Axelsson & Wynstra 2002, p. 145). A successful re-engineer- ing and optimization of the service specification can also facilitate the building of a

Figure 25: Supplier's role in service specification (Selviaridis et al. 2013)

foundation for the buyer-supplier relationship similarly as in translating role and the supplier can gain buyer-specific knowledge.

Developing role of the supplier suits situations where the buyer perceived uncertainty and supplier’s buyer-specific experience are extensive resulting in an information asymmetry in favour of the incumbent supplier (Selviaridis et al. 2013). A modified re- buy situation could represent a situation where the buyer’s experience in sourcing the product is limited but the two parties have already co-operated with other deliverables.

The findings of Selviaridis et al. (2013) implicate that as in translating role the buyer re- lies on output-oriented service specification, which the supplier translates into activities, resources and processes. The authors add that a clear difference to translating role is that in developing role the past collaboration has resulted in trust, which mitigates the perceived risk of relying on the supplier’s suggestions. In a developing role, the sup- plier is in a good position to defend against competitors in future bids.

Fine-tuning role of the supplier suits situations in which the buyer-perceived uncertainty is limited and the buyer-specific experience is extensive. The situation could for exam- ple be a rebuy of a service, which is also called a renewal of a service contract. Given the sourcing expertise, the buyer usually prefers input-oriented service specification so the supplier’s task is then to fine-tune and optimize the planned resource use of the buyer (Selviaridis et al. 2013). It can be concluded that in fine-tuning role the supplier does not have much power in the service specification.

Figure 26 combines the service specification and supplier involvement roles in service specification by Selviaridis et al. (2013) and the service specification orientations by Axelsson and Wynstra (2002).

The model in Figure 26 shows that buyers with extensive perceived uncertainty prefer output- and outcome-oriented service specifications as those require less sourcing ca- pabilities from the buyer. The role of the supplier is then to use their capabilities in re- verse-engineering the desired output or outcome to activities, resources and pro-

cesses. Another conclusion is that the larger the information asymmetry in favour of the supplier, the more the supplier has power in the service specification. However, in situ- ations where the supplier’s buyer-specific experience is limited, the supplier can use the service specification situation in building a buyer-supplier relationship. Also, in situ- ations with low information asymmetry and low buyer perceived uncertainty the supplier can use the situation in further strengthening the relationship and showing expertise, which both complement future business between the two parties.