Purchasing and R&D strive to find the right fit
Buyers and researchers still struggling to break down walls in organizational structures
David Hannon -- Purchasing, 12/8/2005 2:00:00 AM EST
Despite the communication fostered by Internet-based technologies and the heavy emphasis on new product development in the chemicals and pharmaceuticals industry, the overwhelming majority of purchasing professionals in the CPI industry report that they rarely, if ever, collaborate with research and development teams. In two separate polls by PURCHASING and Purchasing.com, roughly two-thirds of CPI buyers said they never collaborate with R&D or product designers.
"Almost never," said one survey respondent when asked how often he meets with R&D. "As needed," said another. "There are no formal meetings, but I communicate with various R&D project managers almost daily," was a typical response.
But there are examples of companies leveraging collaboration between the two organizations for competitive advantage. "At our company, purchasing is collaborating with R&D on the cost impact, purchasing effectiveness and vendor support of the new products," says one survey respondent.
And Vaughn McCoy, head of global chemical and energy procurement at Eastman Chemical in Kingsport, Tenn., says Eastman's procurement has always worked very close with R&D "as it is imperative that one knows the potential economics to determine if commercial success is possible."
McCoy interacts with various R&D teams at multiple sites on a daily basis. "Often an R&D project requires access to a raw material that is new to Eastman or even new to the world," he says. "It's our job to determine the best supplier for such a material to assure Eastman gains an advantage in that area. Sometimes this requires establishment of a new producer, which requires as much advance notice as possible. Also, procurement has to learn the dynamics of the supply situation to assure the best negotiation position is attained at an early stage."
Case Study: DSM
Dan Farmer is the purchasing manager for a DSM Pharma Chemicals plant in South Haven, Mich. which produces active pharma ingredients used in the production of pharmaceuticals. His site buys a variety of chemical compounds, as well as solvents, citric acid, soda ash, and other raw materials. (Half of what Farmer buys is common raw materials and half is specialty chemicals.)
Farmer joined DSM about four years ago and says the former purchasing manager at the plant was very involved in production and worked closely with R&D at the site (the South Haven site has six Ph.D. chemists on staff in the R&D department as well as a quality control and regulatory affairs department on-site).
"But when I came in, I did not have that kind of experience, so the development of the relationship between the two organizations had to start over in some ways," he says. "In the outset it was bumpy—there were no clear bridges built to create a sustainable communication about what they were doing in the lab vs. what I was doing in procurement."
Farmer says one of his first priorities was to increase the company's supply base in many areas because the company was sole-sourced on many materials. This process required input from both production and R&D to find out which suppliers could be brought into the fold to both ensure supply and hopefully reduce costs.
"For example, we were sole-sourced for a raw material from Europe and we were at risk there and at the same time I knew there was opportunity for cost savings. So I consulted with R&D first just to raise awareness of this and other similar situations and also about other potential suppliers. In that respect I see my job as educating production and R&D about where the risks are and where the opportunities lie."
The result: Farmer was able to locate a suitable supplier of the same material in China for less than half the cost. "It took a lot of meetings and communication to do that. We brought in samples; they test them in the lab, and there's an investment and time to approve the supplier, but the payback far exceeds the investment."
Today, an increasing amount of Farmer's time is spent consulting on sourcing materials for new products in development. In the pharmaceutical industry, companies are always on the lookout for what drugs may be going off-patent in the near future and how to quickly create a generic equivalent to it.
"In the past six months we've really honed our processes in this area. Now, new business development is involving purchasing up front, where that was not the case in the past. For one, we're not duplicating the same processes. But also we're leveraging the value of purchasing in areas where we can bring more to the table than just price or a supplier."
Talking the talk
Farmer says one of the initial challenges of collaborating with R&D is the perceived concern that researchers and designers (in his case, Ph.D. chemists) will talk a different language. But by starting slow, finding strong allies in the R&D department and getting some early wins, the relationship can quickly become mutually beneficial.
"I'm not a trained chemist and that might be seen a hindrance to some, but I've proven that it's not. I've learned some basic chemistry skills but it's not a requirement to make the collaboration work. The communication hurdles can easily be overcome if both sides have an interest. And when the project involves 'heavy-duty' chemistry, then the chemists can talk directly with the suppliers, and purchasing can serve as the go-between or facilitator in that case."
One of the major drivers for the improvement in communications between the two organizations inside DSM has been the support from upper management for such efforts. Farmer says that DSM execs never issued a formal mandate to drive the collaboration, but pushed to create clear communication channels and responsibilities.
"Our doors are always open and people are free to talk informally about things," Farmer says. "That helps build strong relationships with folks in the labs and production and quality control. But that might change in the future, as we transition to a more centralized procurement model, I may end up buying for other sites and be asked to collaborate with R&D organizations in other parts of the world."
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