THE ROLE OF SYSTEM THEORY IN NEW PRODUCT DEVELOPMENT: AN

INVESTIGATION FOCUSING ON LEAN AND SIMULTANEOUS ENGINEERING

Ali R. Ahmadi
University of Bremen, the Bremen Institute for Work Science
(aib), Hochschulring 40, 28359 Bremen, Germany
E-mail Address: a.ahmadi@uni-bremen.de

ABSTRACT
The forces on the firms could be summarized in five dimensions
namely, competition through new technologies, new entrants

KEYWORDS
Lean, Supply Chain, New Product
Development, Concurrent Engineering,
Continuous Improvement.

with their low cost of investments, suppliers with their high

authority, buyers with their extreme freedom to switch to low

ARTICLE INFO

cost suppliers, and high range of similar products on the market.

Reducing price to compete with firms in the global market makes
it compulsory to analyze the continually changing market
demands and produce what customers really need and launch the
product rapidly on the market to conquer the cheap products
which ensures the companys existence. Accordingly, more
companies are getting conscious over the benefits of Front-End
models of innovation comparing to traditional Back-process
(Monczka et al., 2000). Therefore, it is necessary to take a closer
look at the whole potential aspect of improvement in firms
managerial process, especially at the fuzzy front end period by
new product development to achieve higher success. One of the
important aspects during this period of development is the
involvement of external resources such as supplier and customer.
Involving suppliers in product development has been namely
explored to reduce costs of product and development, to
decrease development time, and to improve product quality
(Wasti & Liker, 1997). In this paper, we will discuss the success
factors and barriers of involvement of external resources and the
be managed.

Received: 12 April 2015

Accepted: 08 May 2015
Available online: 02 June 2015

Ali R. Ahmadi /International Journal of Lean Thinking Volume 6, Issue 1 (June 2015)

ways how this process can be managed.

1. Introduction
Managing innovation is a challenge for companies because they have to cope with the
complexity of todays market. Improving a systematic process for such a management strategy
is a goal of many companies and enumerates as a factor for competitive advantages. Austin and
Peters (1989) identified four critical factors to become excellent companies which are people,
care the customer, constant innovation and leadership.
Speed of new product introduction is related to cumulative capabilities of firms. In this
context, the supply chain is playing a prominent role for simultaneous improving of multiple
dimensions of manufacturing performance. Therefore, supply chain is one of the main subjects
of lean practices while other practices of lean like TPM, JIT, and TQM are frequently mentioned
in literature.
Surely, such an integrated management philosophy supports the competitive advantage
which is highlighted through continuous improvement. There are different interpretations of
competitive advantages. However, the key parameters of competitive advantage are listed as
below (see Table 1; Boyer, 1998).

Table 1.Competitive advantages

Cost

Quality

Delivery

Flexibility

Reduce inventory;

Provide high

Provide fast

Make rapid design

Increase capacity

performance

deliveries;

utilization;
Reduce production
costs;
Increase labor
productivity.

products;
Offer consistent,
reliable quality;
Improve
conformance to
design
specifications.

Meet delivery
promises;
Reduce
production lead
time.

changes;
Adjust capacity
quickly;
Make rapid volume
changes;
Offer a large number
of product features;
Offer a large degree
of product variety;
Adjust product mix.

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Lack of investigation of product design has negative influence on down term processes in
manufacturing and may cause an increase in manufacturing costs. To avoid this and ensure the
long-term competitive advantage of companies, suppliers have to be part of product
development process in early stages. Then, they could support the companies by most of the
aforementioned factors. Suppliers make a significant contribution for competitive advantages
of their customer, in terms of innovation and operational performance through quality, delivery
time and reliability as well as flexibility (Wasti & Liker, 1997).
There are different comprehensions of core principles by lean strategy: Identification and
elimination of waste e.g. WIP inventory or delays in flow time, generating smooth flow
(Kanban pull signals), supplier partnerships, mixed-model production, pursuing continuous
improvement, TQM, TPM, design for assembly, visualizing key indicators of production and
respect for people. Same as Six Sigma, it could be observed different developments and
interpretation by adopting lean. First, Lean is identified as a set of tools and has been adopted
within production management to improve its process. More recently, it made a progress toward
operational philosophy of management, which can be shared by customers, employees, and
suppliers. Therefore, the proponents of lean production disclosed that supplier partnership is
one of the main principles of Toyota system. Accordingly, the Japanese long-term contracts
between buyers and supplier are one of their well-considered advantages (see Figure 1;
Womack et al., 1990).

Employee Satisfaction

Customer Satisfaction

Supplier involvement

Long-term
Competitive
Advantage

Figure 1. Long-term competitive advantage.

With increase of global competition, the need for product novelty is increasing which makes
it necessary to answer high market demand with frequently innovation and shortage of product
development cycles. The principles mentioned in DIN EN ISO 9001/9004: 2000 are used to
improve performance of the organization and it consists of following eight aspects:

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Customer orientation;

Leadership;

Involvement of people;

Process approach;

System-oriented management approach;

Continuous improvement;

Factual approach to decision making;

Supplier relationships for mutual benefit.

One important point is to develop products by considering four major points which are time,
quality, cost, and more importantly the interrelation of all these parameters with each other. To
reach this goal many companies gaining from one approach by integrating their supplier and
customer in the fuzzy front end of product development (Ragatz et al., 1997).
One major point is the complexity of products. The products are getting more complex which
cause simultaneously increasing the complexity in internal process. Therefore, it is not possible
to cope with upcoming challenges during the development process reclusively. Otherwise, the
know-how of producing each part in own factory is not given in every company. Even
producing and developing internally increases the firms` risks so that the need for out-sourcing
is increasing. This may have a positive effect on performance because the firms are focusing
on their core competence and incorporate innovations from external sources. Therefore, in the
literature, the role of supplier in the innovation process has been extensively discussed (Roy et
al., 2004). One major approach is Simultaneous Engineering, which means developing and even
manufacturing of products concurrently with suppliers. We can classify the contribution of
supplier regarding the design, development and engineering of components to increase the
efficiency and effectiveness. The cooperation with both supplier and customer must be
however, simultaneously in every stage of product development (see Figure 2).

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Figure 2. Continuous cooperation between Firm-Supplier-Customer

Furthermore, Kleinschmidt et al. (1997) explored that the successful product or service
related directly upon whether the needs of customers have been considered and moreover if the
product gives customer unique usage. Particular needs of customers are superior quality. Garvin
(1987) declared in his extended quality performance model that quality management practice
has a direct impact on product quality performance (e.g. conformance, performance, feature,
reliability) as well as operational performance (e.g. cost, delivery) and they both have a
mediator effect on business performance (financial). These acknowledgements make it clear
that products which are more affiliated to customer needs are more successful than the new
product developments which are developed based solely on new technology. Therefore, there
is a need to focus on product development with contribution of external resources, mainly those,
which have close relation to customers.
In the last two decades many academics researches are done to analyze the successful
development of new products. As a result the positive usage of external resources for NPD is
now more apparent for the companies and managers. While just 20% of the most technologyintensive companies were relying heavily on external sources of technology in 1992, the
number increased to 85% by 2000 (Roberts, 2001). The shift from closed innovation to open
innovation considering external parties can be done for four reasons: increasing mobility of
workers, advent of venture capital, external option for ideas and increasing capability of
suppliers (Chesbrough, 2006). But contributions cannot be as open as it sounds. The companies
are in need of some control methods.
Ohno (2009) reported how Toyota has developed the new concept for supplier involvement
which benefits from both innovative features and faster launches of products and their support.
This contribution begins from simple consultation for design to make the suppliers responsible
for their whole design components which will be used in the final product. The positive effects
of supplier and customer involvement are demonstrated in some literature with product
development topic (Drge et al., 2000; Dyer, 1996; Liker et al., 1996).
2. Successful integration of supplier in product development
Ohno (2009) has identified seven types of wastes, especially in the production process which
are: overproduction, waiting, transporting, inappropriate processing, inventory, movement, and
defects. In a common contribution these wastes should be translated for supplier integration
process and minimize all types of wastes.

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One major point by optimizing the innovation capability in companies is the use of crossfunctional teams for new product development. Coordination and communication across
different functional groups make it possible to recognize the limitations from different
perspectives and save money. Therefore, it makes sense to expand this functional group up to
extensive external communications with suppliers.
Partnerships are needed in all internal customer-supplier relations, in all external supplier
relations, in external customer relations and between managers and their subordinates. The clue
is to build a total system of customer-supplier relations, which are working close together in
their own interest for reducing waste. This requires a lot of the managers.
Deming (2000) advocates that there is a need to build a total system of external
customer/supplier relations with a common goal to reduce waste. The greatest contribution of
Deming was to view an organization as a system and a system cannot understand itself.
Therefore, such a system needs manager with ability of System of Profound Knowledge (SoPK)
and it consists of following four parts:

Appreciation for a system: understanding the overall processes involving suppliers,

producers, and customers of goods and services;

Knowledge of variation: the range and causes of variation in quality, and use of statistical
sampling in measurements;

Theory of knowledge: the concepts explaining knowledge and the limits of what can be
known;

Knowledge of psychology: concepts of human nature.

Nevertheless, since the human factor is involved in the whole innovation process, it is the
key element of successful innovation (Vrakking, 1990). Unfortunately, the role of human
(customers, employees, etc.) in lot of management methods is considered quite indirectly
(Heeg, 2013). He suggested to adopt a method which is focused on human interventions and
emphasized the human actions and attitudes. Morcillo (1997) agrees with this opinion and he
states that:
There are no good technologies or good innovations without competent people who can
adequately use them and get benefit from them. At the same time, no competent people can be
available if there is not, first, a business project defining the role that technology and innovation
must play and creating the necessary and sufficient conditions for catalyzing and channeling
aptitudes, capacities and attitudes of the individuals towards the established direction.

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Therefore, the social aspects of such a process should not be neglected which is influenced its
success.
Altogether, two pillars of Toyota production systems are continuous improvement and
respect for people (i.e. employees, suppliers, customers, investors and the community). To deal
appropriately with the human, Heeg (2013) emphasized the human nature of decision making
which is inherently based on not rational-logic but also emotional-logic. These points underline
the importance of knowledge of psychology as Deming (2000) has defined. Deriving out of this
point, the prerequisite of building a successful partnership, regarding to Toyotas perspective,
are the core values such as trust and respect.
Brunner (2001) describes the cooperation with the supplier, from Japanese perspective as a
trustworthy in a mutual exchange of information. A lack of trust has been cited as a main reason
of fail in business collaborations. To establish such a trust culture, it is necessary to proof
internal principles and remit to suppliers. (Gemnden & Walter, 2000). According to Brunner
(2001) Toyota management culture offers four principles to develop a "value-added culture"
as:

Focus on systems and processes, not results;

Open decision-making;

Spontaneous information and coordination;

Individual initiatives and self-control of the partner.

In
Table 2 the main factors influencing suppliers integration in product development are listed.
They have positive impact by integration process. Schiele (2010) reported how successful
innovative firms organize their purchasing function distinguishing between advanced
sourcing and life-cycle sourcing unites. According to another study published by Wynstra
et al. (2001) there are three issues for successful supplier involvement: identifying specific
processes and tasks for broader area of purchasing involvement in product development;
forming an organization that supports the execution of such tasks; and finally staffing the
organization with people that have the right commercial, technical and social skills The
knowledge and specially skills of suppliers and customers should be embedded in product
development process in order to be successful.

Table 2. Factors influencing the process of supplier integration

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Factors

Literature

Timing of supplier involvement

Hartley et al., 1997

Suppliers control/monitoring
Degree of supplier responsibility

Monczka et al., 2000

Alignment of organizational objectives with

regard to outcomes
Supplier membership on the project team
Frequency of buyer/supplier communication

Drge et al., 2000

Availability of adequate human resources

Wynstra et al., 2001

Organization of purchasing function

Ragatz et al., 2002

Specific responsibilities in the requirement setting

process
Intellectual property agreements
Identify managing involvement in PD
Trust

Brown & Eisenhardt, 1995

An approach for successful integration of supplier in the product development process is the
imitation of process by those companies in which they undertook a superior experience in that
context and learn from their knowledge. This approach is called role modeling in psychology
and has been deployed in different field of organizational development like lean implementation
(Goldsby, Griffis, & Roath, 2006).
One major point in the innovation process in companies is their own definition of business
strategy. The business strategy can lead innovations destiny and become a powerful instrument
to decide for each idea at the beginning of their origin. The main question according to business
strategy is the companys own potential. We could ascend this potential by direct contribution
of supplier and enhance the reliable opportunities in companies and use their possible
advantages.
Brown and Eisenhardt (1995) figure out that the communication plays an important role and
they suggest a communication web. The underlying premise is to ensure the communication
between them and thus the stimulus performance of group. Same as Coopers

(1990)

perception, Brown and Eisenhardt (1995) determined that for an efficient result in product
development there is a need of Gate-Stage-model and for each gate corresponding gatekeepers

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has been defined. They are responsible for the communication outside their groups to encourage
them and to ensure the resources for the group.
Heeg (2013) speaks about changing the perspective and analyze customers` needs
accurately. In order to create a common sense and support the improvement projects, Heeg
recommends to set an action graph. This method enables to understand a problem in a system
with its interdependencies and consider it from multiple views. The first step is collecting
system elements in actual condition and defines a target condition. Under consideration of
mutual reactions.
In this connection Heeg introduced his method named NELOD as an alternative to involve
external resources and ensure communication. This method allows to grasp the dynamics of
changing system by identifying the relevant issues, goals, expected effects through underlying
causes and reasons are illustrated in an action graph. Methods and technics like empathic
communication, systematic questioning, impact analysis through other system elements and
moderation which support innovation process are all included by dealing with NELOD method.
This model is like a common language which ensures smooth communication between all
contributed parties. One of its benefits is the decision making process which takes place in
consensus of all team members (see Figure 3).

Figure 3. Action graph (Heeg, 2013)

To ensure innovation management process Heeg (2009) introduced the following 8 step
strategy to establish an action graph:

Determination of system parameters;

Intuitive Clustering of system elements;

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Defining cluster names;

Determination of the dynamic relationship of the parties;

Determination of the relevant levels of relations;

Determination of the overall system dynamics;

Determination of the feedback loops;

Determining the ranking of the system variables and starting point for optimization.

In an empirical research conducted through Rist (2009), the improvement of organizational

performance for a sample project could be measured. The main benefit was becoming
innovative structures by clear definition of responsibilities and interactions.
3. The impacts of supplier involvement in product development
Aforementioned practices make it principally easy for supplier to contribute in all stages of
new product development. But earlier integration of supplier is generally suggested and
mentioned in literature often as the most effective solution. By involving in product
development process, they receive more responsibilities and these have a direct impact on cost
reduction and better quality of products. Moreover, the following adjustments are recognized
earlier which ensure minimal cost, high flexibility in case of new variations (Monczka et al.,
2000). Furthermore, the other impacts of supplier involvement are listed in Table 3.
Table 3. Positive impact of supplier involvement
Possible advantages

Literature

Reduce product manufacturing cost and

Ragatz et al., 2002; Hartley et al.,

developing cost

1997

Improve quality and features

Handfield et al., 1999

Quicker response to the market changes

Improve reliability of overall design

Petersen et al., 2005

Realize the most expectation of customers

Decrease new product cycle time

Banaccorsi & Lipparini, 1994;

Access to technological knowledge of suppliers

Bonnaccorsi, 1997

Quality and reliability of component designs

Wasti & Liker, 1997

Alternative materials and possibilities for

Monczka et al., 2000

component designs

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Learn more about competitor through supplier

Kleinschmidt et al., 1997

and find out their capacity and equipment

Increase efficiency in manufacturing processes

Cannon & Homburg, 2001;

Soosay et al., 2008

We can generally categorize the benefit of supplier involvement under two aspects: Business
strategy and their operational impact. Laage-Hellman (1997) distinguished four types of fit that
are relevant for technological cooperation: functional fit; organizational fit; strategic fit; and
time fit. However the most lauded advantages of such a cooperation with suppliers are:
improving product design, cost-reduction (development or product costs), better quality,
quicker response to market changes, faster completion and realize the main expectation of
customer (Ragatz et al., 2002). Otherwise the companies have not only benefits from the end
results in case of a cheaper product, they can profit from the new integration process and
supplier experiences. We can classify the contribution of supplier with regard to design,
development and engineering.
Monczka et al. (2000) described positive impact of supplier involvement as below and
introduced it as Four Cs. These are Commitment to quality, Cycle-time reduction, Competitive
value, and Customer satisfaction.
The benefit of cooperation between buyer and supplier can be visible in form of so-called
technology roadmaps so that they decided for closer cooperation and new approaches
together. They can be informed with the technological trends and potential of other parties and
opportunities for the future contribution.
Despite the remarkable benefits of such contribution, the survey of Lehmann (2009) shows
that this approach is neglected. She analyzed the companies in two regions of Germany North
Rhine-Westphalia and Saxony and measured the innovation impulse which the companies
received from various suppliers in both regions. The results show that depending on region and
supplier affiliation, companies received roughly up to 70 % of any impulse or minor impulse
from suppliers in North Rhine-Westphalia. However the situation in Saxony is slightly better.
Nevertheless, in some literatures negative impact of supplier involvement in product
development were found or they report a partly integration was possible. These cases will be
presented in the next chapter. Eisenhardt and Tabrizi (1995) stated that involvement of supplier
by product development would be faster just in developed industry segment.
4. Barrier to the involvement of suppliers in product development

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Wynstra et al. (2001) took a closer look to understand the supplier involvement problems
and pointed issues in dealing with the most important problems. In this case we should
recognize three sides of observation: the company side, supplier side and the process between
them (Wynstra et al., 2001; Wasti & Liker, 1997; Dyer & Ouchi, 1993). Few studies observe
all detail of obstacle for supplier contribution providing a recommendation for manager. In
Figure 4 some barriers for supplier involvement are listed.
The plenty, intensity and right time for contribution depend on different factors. In literature
is impressed the grade of innovation, suppliers` potential, intimacy and project object priority
as important aspects for the depth of contribution. According to Brown and Eisenhardt (1995)
it is not clear to say when and how the customer or supplier should be involved in product
development. Liker et al. (1998) argues that the involvement of supplier in design has the most
impact and more efficiency. He mentioned that product uncertainties impress the process of
development and a firm needs to invest in developing a partnership with a selected group of
supplier. For the sustainable involvement the supplier should perceive an active role, informed
openly and extensively, be involved in decision making during design and finally monitoring
the results and learn from experiences (Monczka et al., 2000).

Figure 4. Barrier to involve suppliers (Based on examples drawn from the following
references: Wynstra et al., 2001; Monczka et al., 2000)
5. Customer involvement
Regarding the house of quality in quality function development (QFD) the customer needs
are the first and the most important column. Then, right identification of their needs will be the
first criterion to recognize the successful or unsuccessful products. One instrument to avoid
more inaccurate decisions in case of identification of needs and in the whole development
process is to integrate the customer in the NPD process. Firms can apply customers in a different
section of organizations such as product development, product support and marketing. In each

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section is an intensive communication mandatory to identify their conscious and hidden needs.
The accurate identification of customers needs under consideration of their involvement has
many advantages that a company can profit from them (see Table 4).
We must differ between several types of customers. We can differ between existing
customers, potential customers, ordinary or lead users. The result of collaboration with average
customers and innovative or lead users is very different. Von Hippel (1986) reveals that the
most important customers who influence the development are so-called lead users which can
be useful only in case of radical innovation. Best innovative companies try to identify lead users
and work closely with them. Many commercially important products have an origin of customer
contribution Von Hippel et al., 1999). On the other side the perception of Ulwick (2002) shows
that customers may not have sufficient technical knowledge to help the manufacturer by NPD.
Generally the more experience and knowledge a person bring, the higher is the expected quality
(Gavetti, 2005).
Table 4. Impact of customer involvement
Possible advantages

Literature

Provide differentiated services

Alam, 2002; Matthing & Sandn,

Reduce the development time

2004; Parahalad & Ramaswamy,

Facilitate user education

2000

Improve market acceptance

Establish a long-term relationship with customers
Better understand the user needs

Anderson & Crocca, 1993; Von

Hippel et al., 1999)

Improve the quality and reliability of NPD

Cooper & Slagmulder, 2004

The most important question is with whom company should cooperate? To find an
appropriate customer contribution for product development there are some methods we can
generally use. We can distinguish between direct and indirect methods. Under indirect
procedure we can determine complaint management, user observation and as a direct method
we understand interviews/questionnaires, idea competition, focus group and lead-user methods.
For example, Griffin and Hauser (1993) found that twenty one-to-one interviews with
customers are enough to recognize the 90% of the customer needs.
The same as supplier contribution in new product development process, we can again
recognize some barriers. The companies explained some common barriers such as: lacking of

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resources, not having considered doing so and considering user idea as not producible or
internal resistant.
6. Conclusions
The UK innovation survey shows that suppliers and customers are the most important
external resource for co-operation despite the ambition to co-operate with supplier is slightly
more than customers (Stones, 2001).
Regarding the culture as a barrier to involve both supplier and customer in product
development, we must try to find a solution under this aspect in company and make them
responsible for their job. More involvement means more communication and more information
about the company and their processes. This occurs sometimes as an internal cultural problem
in the company. The supplier must be motivated for such collaboration as well as the customer.
One of the important problems for a sustainable contribution is how to allocate the revenue
between the network members. They are responsible for the whole production cost, but they
benefit just from the end product, which the whole parties have collaborated.
One factor is to share the benefit with the supplier. The same problem is argued for customer
contribution and compared to the supplier involvement it may be more difficult. The impact of
supplier involvement ideally should be linked to company level performance measures such as
profit or market share.
The main difficulty is to motivate the customers` contribution in the NPD and participate in
process. Afterwards contribute by problem identification process and contribute in crossfunction processes. The most critical point by customer or supplier contribution is the lack of
trustfulness and knowledge. In efficient contribution form of customer literature have been
spoken about lead-users (Von Hippel et al., 1999). It is necessary to review the questions: when,
how and how much should be the contribution and who should decide for the next step.
Otherwise the question is still to analyze: with how many customers should the technological
cooperation, carry out and with which specific customer should be collaborated?
The grads of communication influenced the quality of involvement of both supplier and
customer in the NPD process. Therefore, there is a need to develop methods which are
promoting these factors and support the cross-functional processes. For sustainable cooperation four factors should be considered: social factors, technical factors, legal factors and
economic factors. On the other side, enterprise must evaluate the external contributions under
consideration of cost and quality. By gathering information over all these factors decision over
suitable supplier could be made. Further research could analyze and develop an instrument to

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support enterprises in this context. However, general challenges are still remained mainly by
initiation of this practice like, selection of right supplier or customer, knowledge about their
effectiveness and efficiencies by radical innovations and more over dealing difficulties with
sensible firms.
We conclude that for innovation management in collaboration of other parties, one standard
procedure should be employed. This procedure insures the communication between team
members and collecting customer requirements and integration in a multi-project management
support the transformation. Therefore, Heeg (2009) recommends supplier or customer
integration with the assist of system theory.
Finally, five stages of supplier partnership development could be defined: Give supplier an
active role, define clear strategy and targets, share information openly and extensively, active
involvement of suppliers in decision making and problem solving during design, and Monitor
results and learn from experience (Monczka et al., 2000). These issues are mainly part of
organizational development.
Acknowledgments
The author thanks The Bremen Institute for Work Science (aib) and FAZIT-Stiftung for their
support.
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