“Materials man.” That’s the title Charles Babbage used in the first English-language description of the function we know as purchasing or procurement. It appeared in his 1832 book, On the Economy of Machinery and Manufactures. He described the materials man’s duties as selecting, purchasing, and tracking the goods and services needed to complete a project.
Around 50 years later, railroad companies whose rapid growth led to complexity refined and extended the expectations for purchasing. Their organizing work to manage rapid growth started purchasing as a separate corporate function, with its own body of specialized knowledge and expertise. The selection of suppliers, inventory control and coordination of shipments were the early competencies.
In the years immediately after World War II, the Ford Motor Company pioneered a new set of competencies for purchasing leaders with the creation of the Purchase and Analysis Department. In this new organization, Ford’s purchasing people learned to gather and use data from across the company to make better procurement decisions. Their analytical competency gradually became the norm across industries. Following soon after Ford’s emphasis on analysis, General Electric began to systematically evaluate how changes in materials and specifications at the part level could reduce costs, thus beginning the coupling of purchasing and product development.
As globalization became the norm in the 1970s and 80s and the years since, purchasing competencies expanded to meet this new complexity. In these same years, advances in computing meant purchasing leaders needed growing competencies in information systems and their impact on purchasing decisions.
Now we’re in the third decade of the 21st century. What competencies are emerging for purchasing leaders? Recent research and discussions with top executives point to three: risk management, efficiency and product development partner.
Risk management. The events of the last three years brought the words “supply chain disruption” to the attention of millions who had never before thought about supply chains at all. The risks of ever more complex and more geographically dispersed supply chains have been mounting for decades, as products grew more complicated and suppliers more scattered. Understanding these risks and preparing for problems are key responsibilities for purchasing leaders; this understanding and preparation are the heart of resilience. Corporate leaders expect their purchasing organizations to manage risks skillfully and to have a well-thought-out crisis management process to implement when things go wrong (as they always will).
Efficiency. Purchasing leaders are being asked for major contributions to their organizations’ efficiency. Whether it’s transportation, substitution or packaging, companies increasingly look to purchasing for systemic improvements. One Midwest CEO of a midsize manufacturing concern explained, “Look, IT is about the same; all my competitors are running one of three ERP systems. Capital costs about the same for all of us. But since we’re spending 55% of revenue on goods to feed manufacturing, that’s where my hope for advantage has to be. Purchasing and all that goes with it is where we need to win.”
Product development partner. This emerging competency came up most frequently in talks with CEOs and general managers. They’re keen for purchasing to play a larger, more effective role in development of new products. They want reductions in cost and complexity through increased collaboration. The work General Electric began in the early 1950s to strengthen ties between product development and purchasing led to substantial improvements. When GE’s jet engine division began work on what would become the engine for Boeing’s 777 and other large commercial airliners, each of the 16 design teams included a buyer, a procurement engineer and a contract administrator. This collaboration, beginning at the blank sheet of paper stage of development, reduced design iterations by 50% and pruned costs 20% from expectations. In 2008, Ford altered its global purchasing strategy through “matched pairs,” linking product development and purchasing from the senior executive level on down. Changes like these are multiplying as more and more enterprises ask purchasing to play a growing role in product development and product lifecycle management.
Talking about emerging competencies in purchasing, the global procurement officer of a major tier-one supplier to the automotive industry remarked, “Thinking about what’s next makes me think about my own career. What we train our purchasing people on now is so much broader and more complex than when I entered the field 40-some years ago.” The discipline has come far from Babbage’s “materials man.” Expectations continue to grow.
Don Townsend is president of Donley Townsend Associates, LLC.
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