Aran Puri continues his series by asking: How can purchasers work successfully with raw materials suppliers and R&D?
Passions were raised by the column I wrote in the January 2012 issue of SPC asking what purchasing wants from R&D and NPD. Marketing, R&D and NPD teams reacted strongly to what I had to say. One senior R&D manager who did not wish to be quoted said: “Purchasers are full of their own self-importance. They want to get real, get off their high horses and realise that in the NPD process we cannot have the tail wagging the dog.”
They are exasperated that purchasers are so focused on their own problems that they do not see the bigger picture and understand the challenges faced by the R&D and NPD teams generating products for their company in order to develop new revenue. They stress that they are not unsympathetic to problems faced by purchasing departments and appreciate the complex issues and limitations faced by them and say they are always open to take all practical steps to help alleviate their problems. However it is equally vital that purchasers understand the nature and extent of the challenges faced by the R&D and NPD teams and the limited room for manoeuvrability they have in their quest to innovate and develop new products.
Below are a few of the issues R&D, NPD and raw materials suppliers have outlined that they would like purchasers to understand and address.
What R&D wants
R&D is required to develop new products to meet the brief of the NPD team to very exacting parameters and work within a tight timetable. In this highly demanding and competitive world this can be as little as three months. The new product must be innovative, meet the product profile and cost target criteria, ignite the imagination and approval of the intended target market and user, and above all, be capable of standing up against the competition.
Raw material supplier selection
Choosing the correct raw material and supplier is strategically very important. An enormous amount of thought and effort goes into the selection of raw material and the choice of suppliers. The primary objective always has to be to develop a product that bests fits the requirements. Other related criteria such as ease of procurement has to be a secondary consideration. This process leads to compromised choices which sometimes involve selecting raw material suppliers from suppliers who are not always popular with purchasing. However, R&D relies on the professional skills of the purchasing department to overcome such difficulties.
Single source suppliers
A senior purchasing manager of a multinational told me that 80% of all their raw materials originate from single source suppliers. This is not unique to the cosmetics industry. Other industries, such as electronics and pharmaceuticals, cope with it very well. However, as the saying goes, “if you have all your eggs in the same basket… you must watch it very carefully”. That’s why R&D and NPD want purchasers to use their ingenuity.
Good relationships
When a new supplier becomes involved with a manufacturer they embark on a relationship which develops and matures over time to great mutual benefit for both parties. For example, P&G’s relationship with Sederma resulted in the launch of the highly successful Regenerist range.
This relationship with the raw material supplier, based on mutual need, is of paramount importance and key to the successful identification of promising new raw materials and the development of innovative products. In many cases this relationship evolves to become a partnership rather than a customer supplier relationship. Sometimes pressure may need to be put on raw materials suppliers to toe the line but this must be done in such a way that the objective is achieved without upsetting the relationship. And there are many outstanding examples of companies where this has been implemented without either party having to make any weak compromises.
Changing suppliers
This a delicate issue. By nature of their job purchasers are always on the lookout for better buying opportunities. This includes finding and nurturing alternative suppliers for their raw materials to get better security of supply lines and terms. However, because of the strong relationship that exists between R&D and raw material suppliers, they are often reluctant to approach R&D and instead solicit the support of the QC department to compare the QC specifications and pronounce an acceptable alternative. This approach can lead to problems down the line for R&D since it is bound to upset the delicate relationship between R&D and their raw material supplier. Furthermore risks of problems downstream cannot be completely ruled out since QC can only pronounce the replacement raw material based on limited technical specification data. On the other hand, smart purchasing departments will also involve the R&D team to ensure that any replacements are carried out with their cooperation, thus reducing the risk of problems.
Raw material inventory
Responsible R&D teams share the purchasing department’s misgivings about the ever increasing and changing raw material inventory. But this has to be offset against the demands of NPD and marketing who need to launch different brands and products with different USPs. There is no way round it. New raw materials are constantly needed to fulfil this demand and this need has to take priority.
What raw materials suppliers want
Raw materials suppliers are fully aware of their key contribution to the innovation of new products within the cosmetic industry. Their ingenuity and skill in developing and placing a very large number of new raw materials within the reach of the cosmetic industry every year drives R&D innovation and allows marketing to launch many new cosmetics, each one with its own point of difference in the market. Having a thriving and healthy raw material industry is therefore in the interest of the cosmetics industry. Fair play and acknowledgement of their key role, investment and wanting a fair return on this investment by all parties, including purchasing, is important. However, imposing unreasonable demands commercially or technically will not sustain this process and all parties must keep this in mind during negotiations.
Multiple sourcing
Raw material suppliers acknowledge that being single source suppliers of speciality raw materials places a heavy responsibility on their shoulders. They fulfil this role with great flair and are proud of their record of fair play. So they are not being unreasonable expecting the same loyalty and understanding from purchasers when they are approached by offers of cheaper copycat raw materials by other companies who don’t have to factor in R&D investment and so are able to quote cheaper prices. Choosing these suppliers is bound to halt innovation, the life blood of the cosmetics industry’s growth, and lead to a scarcity of information which is not in the interest of the industry as a whole.
Technical and regulatory information
Raw material suppliers are inundated by never-ending demands for technical and regulatory information. Customers expect all this information to be supplied immediately and free of charge regardless of the quantity purchased or money spent. However, generating and supplying this information is cost and resource intensive and has to be factored into the product cost.
Finally, the overall message I would like to get across is the fundamental importance of working closely as a team, both in proximity and in thought. Talking to each other, appreciating the problems and challenges of all the sectors involved and not allowing the issues of individual sectors to blur the overall final objective of making your organisation commercially successful is paramount.
Company leaders must have 360 degree vision and set clear and weighted overriding objectives for the whole organisation. They must then police them and make it clear that the overall objectives take absolute priority over any individual sector objectives or considerations. There are many fine examples in our industry where this is already being successfully done.
My advice is to get together with your purchasing counterpart and give him or her a big hug, invite them for a drink, talk things over and send the bill to your company!
