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Original equipment manufacturers (OEMs) in numerous industries recognize the benefits of involving their suppliers in the product design process. Specifications play a central role in guiding that supplier‐OEM relationship. For so‐called “black‐box” parts, the OEM specifies overall requirements for product function and performance, cost targets, and development lead time, and then communicates this information to suppliers, who perform detailed engineering and testing. Black‐box engineering marks a fundamental change in the buyer‐supplier relationship, and companies that use or plan to adopt this practice must understand the factors that contribute to its successful implementation. Using survey responses from more than 300 suppliers to a European automobile OEM, Christer Karlsson, Rajesh Nellore, and Klas Soderquist identify the problems those suppliers face in the specification process. To provide insight into the context and the causes of those problems, they also describe the results of case studies conducted in the OEM and two suppliers. In this way, they attempt to identify critical factors that can help to improve the specifications process both internally at an OEM and between the OEM and its suppliers. The respondents identified numerous problems that they face in the specifications process. Based on feedback from product development managers and design staff members in the case study companies, those problems are categorized as follows: technical content and the level of detail in requirements, changes of specifications, cost, interpretation and understanding, and supplier participation in the specification process. Black‐box engineering redefines the role of specifications. Instead of a fixed document that dictates to the supplier, the specification becomes an open medium for communicating functional and performance requirements and necessary technical adjustments. In other words, black‐box products require a highly interactive design process. Product development managers for suppliers and OEMs must understand that they cannot avoid changes in specifications during black‐box engineering projects. Rather than view such changes as wastes of time and effort, they should approach the black‐box engineering process as a learning opportunity. By working with several parallel sets of functional solutions, which they can validate with the customer before developing detailed dimensional definitions, suppliers can limit the amount of time they lose as a result of changes in specifications.

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Outsourcing is one of the top priorities on the strategic agenda of Original EquipmentManufacturers [OEMs] in many industries. The decision of outsourcing an activity as opposed to doing it in-house and the development of a part or parts system is one of the most complex decisions facing today's industrial managers. Several models have been developed in order to aid in this process. The present paper analyses some of these models, and proposes an extension based on the role that specifications might play in outsourcing decisions. Based on how the specification is generated and on the nature of the data it contains, it can be of significant help in outsourcing decisions. The research reported in the paper is based on a longitudinal study of one automotive OEM [global family], one truck OEM and four medium sized expert supplier, all located in Europe. A procurement matrix is developed in which guidance for outsourcing decisions is provided in terms of specification generator, type of supplier, and contract relationship.