Effective New Product Development and Supplier Selection

Posted on Jan 6, 2025 in Economy

Cross-Functional New Product Development Teams

When users contact purchasing with a specific need, we say that purchasing is operating in a *reactive* manner. When purchasing works directly with internal customers to anticipate future requirements, such as during new product development, purchasing is being *proactive*.


Requisition Process

A requisition document is completed by a requisitioner. A requisitioner is someone who is authorized by purchasing to complete the needs clarification process.

Description of Requirements

There are a variety of methods for communicating the user’s requirements.

  • **Description by market grade or industry standard** might be the best choice for standard items, where the requirements are well understood and there is common agreement between supply chain partners about what certain terms mean.
  • **Description by brand** is used when a product or service is proprietary.
  • **Description by specification** includes characteristics such as the materials used, the manufacturing or service steps required, and even the physical dimensions of the product.
  • **Description by performance characteristics** focuses attention on the outcomes the customer wants, not on the precise configuration of the product or service.

Supplier Identification and Selection

Bidding or Negotiating?

Competitive bidding and negotiation are two methods commonly used when selecting a supplier.

Competitive bidding involves a request for bids from suppliers with whom the buyer is willing to do business. This process is typically initiated when the purchasing manager sends a **request for quotation (RFQ)** form to the supplier. The objective is to award business to the most qualified bidder.

Purchasers often evaluate the bids based on price.

Competitive bidding is effective under certain conditions:

  • Volume is high enough to justify this method of business.
  • The specifications or requirements are clear to the seller. The seller must know or have the ability to estimate accurately the cost of producing the item.
  • The marketplace is competitive, which means it has an adequate number of qualified sellers that want the business.

Negotiation is logical when competitive bidding is not an appropriate method for supplier selection.

Face-to-face negotiation is the best approach in the following cases:

  • When any of the previously mentioned criteria for competitive bidding are missing.
  • When the purchase requires agreement about a wide range of performance factors, such as price, quality, delivery, risk sharing, and product support.
  • When the buyer requires early supplier involvement.

Request for Quotation

  • If the requisition requests an item for a higher dollar amount with no existing supplier, then purchasing may obtain quotes or bids from potential suppliers. Purchasing forwards a request for quotation to suppliers inviting them to submit a bid for a purchase contract.

Specifications or Blueprints

If the requested item is complex or requires an untested or new production process, purchasing can include additional information or attachments to assist the supplier.