Strategic Purchasing: Implications for Northern Ireland Business

Paul Humphreys, Eddie McAleer and Ronan McIvor* Introduction Increasing the proportion of goods (and services) which are sourced locally by multinationals and other large companies in Northern Ireland and the Republic of Ireland has long been advocated as an employment generator. To enable this to happen requires as Harrison and Brady (1993) state ' an understanding of what factors influence the buying process and how this process can be influenced to the advantage of potential supplier businesses in both parts of Ireland'. For some time now large manufacturing companies have been moving toward the incorporation of the purchasing function as a key component in manufacturing strategy whereas previously it was regarded as tactical/operational in nature. The purpose of this study was to investigate the extent to which large firms within Northern Ireland are moving in this direction and the likely implications of such movement for local suppliers. This is an important issue since it is necessary to determine if large firms are adopting new ideas so rapidly that local small companies which one would have expected to be suppliers cannot deliver in terms of the more collaborative and complex relationships of modern purchasing. This has important implications for the local economy in terms of maintaining competitiveness to ensure employment and in identifying strategies for the development and growth of local suppliers. Manufacturing industry, since the 1960s, has had to face an increasing range of pressures and problems. These have included the introduction and application of new technologies, the strengthening of domestic and international competition, and increasingly volatile trading conditions. Manufacturing organisations in the UK have been repeatedly criticised for failure to emulate the apparently more efficient manufacturing methods of overseas competitors in Europe and Japan (Kirosingh 1989). UK industry has therefore found itself forced into a reappraisal of its production processes, working practices and labour relations (Nolan 1989). The recent Technology Foresight (1995) Report provides further evidence to support these views and indicates that even though manufacturing employment in the UK showed a reduction of 30 in the 1980s compared with reductions of 17 in France; 5 in the USA and an increase of 13 in Japan, labour productivity is still well below that of the other major industrialised nations. For example, with regard to labour productivity measured in terms of manufacturing output per head, the UK lags Japan by 38, France by 62 and the USA by 100, based on 1991 figures. It should be noted that similar statistics for Northern Ireland indicated that manufacturing output per head in 1989 was only 73 of the UK figure (Hitchens et al (1993)). The introduction of new manufacturing techniques (for example, just-in-time, quality circles and material requirements planning - MRP) has attempted to stem the relative decline of UK manufacturing industry. Concurrently, organisations have embarked on two change processes of major importance to the purchasing function, by reducing the number of firms in their supply base (Womack ( 1990)) and at the same time changing the way they do business with the remaining suppliers (Lamming ( 1993) and Macbeth and Ferguson ( 1994)). Consequently, over the last twenty years a new view of purchasing has gradually emerged from that of being considered a clerical function with the short term goal of buying as cheaply as possible to that of being regarded in many companies as a major strategic function. This new attitude towards purchasing is not surprising, as it is responsible for more than half the total costs in many companies. Nevertheless, the scale of the recent change is so considerable that an analysis of its evolution is of interest, due to its likely implications for customer/supplier relations. In terms of the traditional view of purchasing, or adversarial model, Shapiro (1986) argues that the primary goal is to minimise the price of purchased goods and services. …