The double advantage from innovation

31 October 2002
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31 October 2002

The military wants front-line troops to have the latest technology faster, even if it has not been completed. David Arminas looks at the wider implications for supplier relationships

The Defence Procurement Agency (DPA) wants to make sure it has the greatest access to the latest research and technology.

David Gould, deputy chief executive of the DPA, has urged suppliers to come forward with their research. He also said he will increasingly look to the Ministry of Defence's major suppliers for information on research and development within the defence industry supply chain.

Gould told the audience at Jane's Economist Defence Industry Conference in London that he wants front-line troops to have more of the latest technology faster, even if development is not complete. It is better the troops have a product that operates at 80 per cent than not have it at all, he said.

His comments prove that purchasing is in the front line of national defence.

But what exactly is purchasing's role in this search for the latest research? Should purchasing even have a role?

If a purchaser's job is to know their own business as well as that of their suppliers, then by definition they are the radar for what both companies need.

To do this successfully, purchasers need excellent relationships with the internal functions of their own company, such as marketing, engineering and product development.

Simply being told to buy something will not be enough. Knowledge of internal research and development enables analysis of the usefulness of a supplier's research.

To overcome resistance to purchasing being privy to other functions' work, purchasers need strong communication skills, as delegates to this year's CIPS annual conference were told.

The key question for purchasers in all sectors is how to find out what innovation will give the company a commercial lead. This raises difficult issues for supplier relations.

Ask any pharmaceutical company where its corporate value lies and it won't be in punching out millions of pills. It lies behind the closed doors of the labs that devised the pill formula in the first place.

This holds true whether a supplier is developing a high-tech solution for the wings of the space shuttle or a new handle for a bestselling hair dryer.

But suppliers are not likely to brag about their research, as it is their competitive edge.

The supplier must see some commercial advantage in sharing the information or including the client in its research, development work or innovation. To get access to these closed laboratories, purchasers need to gain the trust of the supplier.

Solutions may include inputting client data to a supplier's research or using the client's resources and people.

The thorny issue of intellectual property rights is likely to be raised. Purchasers will need a clear understanding of how these are dealt with generally and specifically within their commercial or industrial sector.

In the case of QinetiQ, one part of the former public-sector Defence Evaluation and Research Agency, it manufactures nothing. Its only value is in its intellectual property rights, including copyright of processes and designs.

A manufacturer with research capability may be more inclined to bargain with a client over copyright in return for guaranteed commercial benefits.

A supplier's profit margins often dictate the size of its research budget. A purchaser and supplier will have to discuss percentages. Pounding down a supplier's margins could mean a purchaser's competitor is offered the supplier's improved product or system.

Intimate knowledge of this type of research will be one of the true features of corporate partnership. Fortunately, British purchasers live in a country where research is still regarded highly in the business community.

A recent survey by the University Companies Association and Nottingham Business School was upbeat about 175 companies spun-out of higher education research.

As a proportion of research expenditure, Britain's spin-offs, such as licences and income, was greater than either the US or Canada.

But a senior director of science policy at the world's largest pharmaceutical company, Pfizer, recently warned that the UK is losing its lead to the US, where many companies are more likely to invest in research.

The relationships between purchasers and their suppliers could affect where that money is spent.


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