27 January 2006 | Anusha Bradley

Western European manufacturers must make use of purchasers' skills to help cut costs and drive innovation, according to KPMG.

The study Globalisation and manufacturing, commissioned by KPMG and conducted by the Economist Intelligence Unit, found EU members' spend on research and development (R&D) is "significantly behind" competitors in the US and Japan. It was also below the average for the 30 members of the Organisation for Economic Co-operation and Development.

The study, which was published yesterday, revealed cutting costs and maximising efficiencies was one of the top strategic priorities for Western European manufacturers in the next three years. Fostering innovation was at the bottom of the list.

KPMG said manufacturers should use innovation as a "primary defence" to tackle increasing competition from China and other emerging markets, and told supplymanagement.com that buyers had a key role to play.

Andy Williams, director of KPMG's supply chain group in the UK, said procurement should consider both cost-cutting and fostering innovation part of its remit.

He said: "Many businesses have a 'white coat' view of R&D, but actually new product development and R&D should be cross-functional," he said. Procurement must collaborate with researchers and marketing staff to help source and buy cost effective new materials, he added.

Almost half of the 232 respondents said controlling costs was their biggest challenge; 26 per cent said it was managing increasingly complex supply chains; and 17 per cent said reducing inventory costs.

Quizzed about what changes firms would make in the next five years to remain competitive, 46 per cent said they will change how they manage suppliers and partners and 27 per cent said they will outsource part or all of production or R&D.

* The Confederation of British Industry's quarterly survey, published this week, said consistently accelerating oil and gas prices and weak domestic demand has squeezed profit margins and led British manufacturers to make 25,000 job cuts in the past three months.

SMjan2006