What’s new in Procurement? Not a lot, suggests New Jersey in the 1920s

So, Chief Procurement Officer. You think you’re pretty clever, don’t you? With your aggregated sourcing strategy, category management, centralised shared services infrastructure, internal stakeholder engagement process. All very modern, cutting edge, and of the moment.

Well, I’ve got news for you. Somebody got there before you. A long time before you.

Thanks to Christopher Lonsdale, who runs various procurement related Masters courses at Birmingham University, for sending us two documents recently. He was carrying out a literature review for a project and came across historical reports relating to centralisation of purchasing, although they both go somewhat wider than that really. I found them fascinating, so we thought it was worth giving our readers a taste of procurement thinking from almost 100 years ago.

The first is a paper from the Annals of the American Academy of Political and Social Science 1924 113: 291 written by Joseph M. Coyle and titled Operation of Centralized Purchasing in New Jersey.

In 1916, New Jersey legislated to put the power to purchase pretty much everything, across all state institutions, into the hands of a central State House Commission, consisting of the Governor, State Treasurer and the State Comptroller. Whilst this covered all purchasing, the Commission could exempt items where it felt that was reasonable. So how did the Commission go about their task?

Well, they went for what we would recognize as a category management approach, dividing their spend into 8 areas:

1. Food supplies

2. Clothing Supplies, Material and Equipment

3. Household Supplies, Material and Equipment

4. Medical and Surgical Supplies, Material and Equipment

5. Farm, Stable and Grounds Supplies, Material and Equipment

6. Fuel, Light and Power Supplies, Material and Equipment

7. Repairs Supplies, Material and Equipment

8. Miscellaneous Supplies, Material and Equipment

The Commission found that suppliers were looking to cream off the easy- to-supply sites, so they introduced a system whereby suppliers had to agree to supply all the facilities in a particular area at the same price. Sounds like a familiar tactic - I certainly remember those discussions when I was CPO of large national organisations!

There were also issues of supply shortages post the World War, so a central warehouse was established to hold certain key items. And what about this as an issue that still resonates today – how to make government business attractive to the market?

“... the best sources of supply could not be interested in state business because there was nothing about the business to make it desirable; conditions were so exacting as to be in conflict with modern business practice, payments of bills were delayed beyond a reasonable time, and other features entering into the business made it wholly one sided, every protection being given the state and no consideration being given the sources of supply. This charge is true of nearly every public purchasing agency. The makers of the laws, in their anxiety to protect the treasury, see fit to so hamper and restrict, by statutory regulations, the operations of the buying power as to almost nullify any effort made along good business lines”.

So a fund for prompt payments was established, and specifications were aligned with the market:

“In this connection, the state of New Jersey learned that the manufacturer knows better than the consumer of what component parts his products should be manufactured and, therefore, in adopting a standard or writing a specification, this Department not only calls upon its own technical advice, but also requests the assistance and advice of the sources of supply”.

Fascinating stuff, and still so relevant today. And in the next instalment, we’ll look at how New Jersey’s Purchasing Department went about managing stakeholders.

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