A Supply Chain Collaboration Model for Product Development with R&D Subsidies

The capability to concurrently design the product and the supply chain is becoming a key competence in manufacturing companies. In spite of this development, this competence is still underdeveloped in industry. Research has not been able to fill this industrial capability gap partly because there is a lack of convergence of the methodologies for concurrent product and supply chain design in the research community. Today, businesses depend on strategic collaboration with their suppliers and customers to create value to develop product and to obtain better market-share. Designing products to match the processes and supply chains processes to match product platforms and supply chains, and supply chains to match the product platforms and process are the ingredients in today's fast developing markets. If this co-design is done well upfront with sufficient focus on product development process managing, product will cost much less overall and the time to market will decrease substantially. This paper presents a supply chain collaboration dynamic model with two innovative R&D sectors for each supplier and buyer: a vertical R&D sector that improves the quality of existing differentiated products and a horizontal R&D sector that creates new differentiated products. The supplier and buyer exchange differentiated products and beneficiate from knowledge spillovers (possibly impulsed by R&D subsidies). The long term policy effects of R&D subsidies in this context had been studied in this paper. In this contribution, we have realised an attempt to integrate the product development model in a supply chain collaboration framework. This enables us to discuss of the optimal research policy integrating some feedback effects from innovation and knowledge spillovers. Our main result is that the effect of a subsidy to vertical R&D (the only subsidy that has a long term effect) depends on the relative innovative capacities of the supplier or buyer that realised this policy.