In our last post, I talked about the rise of the purchasing department, starting with the railroads in the 1850's and tracing the role's growing importance during the World Wars. Today I'm going to take us from the 1950's through today.
If you remember, we left off saying that after WWII, purchasing and procurement departments were making an impact within companies, and universities across the nation were increasingly offering academic courses of study in the purchasing area. Still some weren't convinced. During the post-war years, according to the book Purchasing and Supply Chain Management by Robert M. Monczka, Robert B. Handfield, and Larry Giunipero (my source for the rest of this post as well), "some executives found it hard to visualize a company becoming more successful than its competitors because of its superior procurement."
This belief was blown out of the water, however, when Ford began to amass and analyze data, which they then based their purchasing decisions on. Ford was the first company, in fact, to create "a purchase and analysis department to give buyers assistance on product and price analysis." General Electric took this step down even lower, to the part level: they were amongst the first to concentrate "on the evaluation of which materials or changes in specification and design would reduce overall product costs."
As we can deduce from Mad Men, it's obvious that marketing and finance overshadowed purchasing in the late 50's/early 60's. By the mid 1960's, however, purchasing really came into its own with standardized practices: "inventory control, receiving, and stores" were increasingly conglomerated under one functional area. World events affected the supply chain, be it upward price trends and materials availability due to Vietnam to oil shortages and embargos. These hardships actually produced greater efficiency, particularly "in the purchase and control of materials."
In the mid to late 60's, competitive bid pricing began to take center stage, although Technology-based e-sourcing and reverse auctions would not come for over thirty-five years later. "Price competition was the major factor determining supply contracts," but all this quickly became obsolete (and inadequate) through the 70's and early 80's, when "severe economic depression ... and the emergency of foreign competitors appeared." In fact, Dean Ammer, in an article in the Harvard Business Review, said that top management viewed purchasing as "passive, risk-averse, and a dead-end job." Ammer went on to say that to reverse that perception, that purchasing must be seen as an active and essential role within the company, and that "the entire organization loses when purchasing is not part of ... the consensus on major decisions." Despite the obvious logic behind such thinking, only 37% of the companies that Ammer worked with actually set up the purchasing department in a structure that reported directly to top management.
Through the late 70's and into the 80's and 90's, things drastically changed as supply chains went global. In this time, "global firms increasingly captured world market share and emphasized difference strategies, organizational structures, and management techniques compared with their American counterparts." Competition abounded, and with it, the boom of "supply chain management." Now more than ever before, companies began to truly see the importance and potential cost savings that came with "managing the flow of goods, services, funds, and information from suppliers through end users."
And here we are today, integrating lessons of the past into long-term supplier relationships, the storage, management, and analysis of data, hundreds of software solutions to choose from, responding rapidly to a quickly changing and unpredictable global landscape, and even floating through digital clouds. The gradual growth of purchasing from a railroad-specific industry into the backbone of how things get from here to there at the best possible total landed cost shows an unprecedented appreciation for the necessity of the profession. So pat yourselves on the back, and keep solving problems. There's always another commodity price spike, deep freeze or unpronounceable volcano around the corner to trip you up.