The Rediscovery of Modern Purchasing

INTRODUCTION The purchasing function should play a major role in corporate strategic planning. After all, purchases are known to make up a major portion of the cost of goods sold for many industries. In manufacturing, for example, purchases average 63 percent of a firm's revenues. As shown in Figures 1a and 1b, the percentages for purchases are even greater in the wholesale (86%), retail (78%), and utility (86%) industries.|1~ In spite of these high percentages, senior management historically has given the purchasing function only cursory attention. Consider the following statement that appeared in a recent research report. A careful review of the purchasing management literature shows that the importance of the purchasing function in corporate performance has not been fully recognized in the United States. Traditionally, purchasing has been treated as a lower level operating function that has little to do with overall corporate competitive strategy.|2~ In this century, when senior management has taken an active interest in the purchasing function, it has more than likely been during a period of intense business upheaval. The following situations fall into this category: (1) war, (2) supply shortages, (3) high interest rates, and (4) intense competition. Unfortunately, the elevated interest in purchasing by senior management is usually ephemeral. Hence, the importance of purchasing in many firms has been cyclical over the past 75 years--importance fades into obscurity, then is followed by rediscovery. MANAGEMENT AND THE PURCHASING FUNCTION Today, the purchasing function is once again in the forefront of corporate attention, due largely to the pressure of intense foreign competition. To meet this challenge, management is directing its attention to several critical purchasing strategies. These include: Quality Purchasing. Too often the question of price is the determining factor in buying. Little consideration is given to other phases of the transaction. The buyer must consider price and quality together. For one's special and particular needs. the highest quality may be the cheapest. Profit Purchasing. This country has traditionally solved the problem of getting more profit by making more sales. Conservation of natural resources and competition have forced a realization. An increase in advertising and marketing will not increase profits in proportion to the increase in expenses; hence, the need for reducing costs. Strategic Purchasing. The purchasing department makes a large proportion of the expenditures for a business. The success of a business is a function of the amount of thought given to this department and the judiciousness with which the purchases are made. The success or failure of a business may be the direct result of good or bad buying. Just-In-Time Purchasing. The buying function should furnish the goods and materials at the time and in the quantity required. Buying at inopportune times or in excess of requirements is liable to entail severe losses. An accumulation of goods and supplies beyond what is required means the following losses are incurred: depreciation, insurance, value of space occupied, and loss of interest on investment. While the above topics are current, the discussions that follow them are not. In fact, all the narratives come from the book, Purchasing, Its Economic Aspects and Proper Methods, written by H.B. Twyford in ... 1915!|3~ Twyford was not alone in establishing purchasing fundamentals. Clifton Field made similar contributions to the purchasing profession in his 1917 book, Retail Buying. Field began his book with a very simple premise: "Goods well bought are half sold." This old adage, even in 1917, simply meant that carelessness or inefficiency in buying will complicate the selling function. According to Field, "It doesn't matter whether the buying is done entirely by a proprietor or by a staff of a hundred or more buyers; the methods of good buying are fundamental. …