The role of specifications and contracts in outsourced product development in the automotive industry

Abstract

Much attention has been paid to relationships between supplier and buyer finns, especially in the field of product development and in particular in the automotive industry. There has been a growing debate on the need to increase the responsibilities for suppliers and have a win-win relationship with them instead of an adversarial relationship. Research has been extensive, dealing with issues like location of suppliers, just in time, tiering of suppliers, etc., although little attention has been paid to the issue of specifications and contracts which are an important part of the product development process. The specification flow between the buyer and suppliers is necessary in order to obtain the product. Specifications could be validated' with the help of written contracts and thus can be seen as an important part of the contracts. The objective of the study is to understand the role of specifications and contracts in these companies and thus contribute to knowledge and the understanding of practitioners. One automotive OEM located in Europe was used for the case study. One aircraft OEM, also located in Europe, was used for supplementary data collection. In-depth interviews in five first-tier suppliers, and an open ended questionnaire survey (internal and external) have been used to provide complementary perspectives. The research2 is guided by a qualitative inductive approach and is aimed at developing ideas grounded in field observations. Strauss & Corbin's (1990) method for coding qualitative data has been followed in order to model the role of specifications and contracts. Data was gathered through semi-structured interviews with various managers in the OEMs and supplier companies, participant and direct observation, internal documents, and questionnaires. Specifications were identified to have a role in guiding outsourcing decisions, function as a means of communication, help decide the time of involvement of the suppliers, help differentiate suppliers, create visions for suppliers and help provide competitive advantage. Contracts were identified to have a role in reaching agreements for continuing supply and help assist in the validation of specifications.