Suppliers’ involvement in customers’ product development is a common type of co-operation across different industries nowadays. Regardless of this, companies do not seem to have a very controlled way of coordinating these co-operation efforts, even though this is highly recommended in the academic literature. Especially the concept of early supplier involvement (ESI) has been widely studied. Given the rather significant mutual benefits from participating in ESI co-operation, the practice is highly recommendable to take into consideration in companies. Also the role of digital services in this type of co-operation should be considered.
The general benefits of ESI co-operation for the supplier are privileged treatment by the customer; access to the customer’s technical capabilities including the customer’s technological knowledge and product development capabilities; enhanced financial performance; and enhanced reputation in terms of reference value. For the customer participating in ESI, the benefits are reduced product development time; reduced product development and product costs; improved product quality and new product performance; access to the supplier’s technical capabilities; and possibility to influence supplier’s future technology. These benefits can be regarded as value created for the parties of the mutual co-operation.
Digital services can facilitate this value creation in ESI. In other words the use of digital services can further increase the benefits received from the co-operation in product development. A digital service can be defined as a coordinated bundle of different digital communication channels, through which the service provider’s capabilities and resources are utilized in favor of the customer. There are certain general elements that a digital service should have in order to be efficient in facilitating value creation. It should be integrated into other communication methods; transparent and informative; reliable and efficient; and useful and adapted to customer’s needs. Training should also be provided for the users of the service, and the information exchange through the service should be properly secured.
When used in connection with ESI co-operation, the digital service renders additional benefits for the parties and facilitates value creation. The mutual benefits include cost efficiency, convenience, and flexibility in operations. In addition, especially the customers benefits in terms of enhanced information management and more efficient transaction management. The role of a digital service in ESI co-operation is depicted in the figure below.
Whereas the customer can be seen to always benefit from ESI co-operation, the supplier participating in it should place care on making sure that the benefits cover the expenses. Accordingly, because the supplier renders its capabilities into customer’s disposal, it should make sure that enough value is created from the co-operation for it to be profitable for both parties. The use of digital services in connection with ESI can facilitate value creation in the co-operation, so that otherwise unprofitable co-operation becomes profitable. Resulting from this, the use of digital services increases possibilities for suppliers to participate in profitable ESI with their customers.
Parkkinen, V. (2012). The use of digital services in value co-creation through early supplier involvement (ESI) in industrial markets. Case Ruukki. Master’s thesis. University of Oulu.
Research assistant, Graduate Student
Oulu Business School