Out On Purchasing's Wild Frontier
Peter Stannack, Performance Sourcing Ltd, Ashington, Northumberland UK, Tel 0(+44)1670 815258, email email@example.com
Martyn Osborn, Performance Sourcing Ltd, Ashington, Northumberland UK, Tel 0(+44)1670 815258, email firstname.lastname@example.org
83rd Annual International Conference Proceedings - 1998
This paper is a relatively light hearted attempt to make a serious point. It steps back from the day to day problems faced by purchasing professionals, and consider the more global - strategic - elements of the discipline. The literature suggests, there is an evolutionary - or revolutionary (Rozermeijer and Van Weel 1995) - change occurring in purchasing. If this is so, this paper will argue that it would be useful to determine the actual nature of that change and provide a 'roadmap' which will help the practitioner choose between competing views of the way in which purchasing 'should' be moving.
Introduction. In 1990, Meyer and Zuckerman developed their theory of 'Permanently Failing Organisations'. They suggested that many organisations may in fact be locked into continuous 'low performance' and posed the following hypothesis.
"Why do organizations become frozen into patterns of low performance? Phrased somewhat differently: Why cannot interests be easily aligned around performance? The answer, we suggest is this: Most people are more concerned with maintaining existing organizations than with maximising organizational performance"
(Meyer and Zuckerman 1990 p.23)
On the basis of this theory, they considered two dimensions upon which organisations could operate. The first dimension was that of performance by which we might loosely mean 'optimal use of resources'. The second dimension they labelled 'persistance' which we may interpret as 'stabilising or maintainence effects'.
In 1960, thirty years before Meyer and Zuckerman advanced their theory, Thomas Schellings worked on the strategy of conflict (Schelling 1960). He suggested that the need for co-ordination within groups and organisations must, of itself, create stabilising forces as entities seek a point of agreement in the iterative process of expectation management. Schelling even went so far as to say that
"The co-ordination game probably lies behind the stability of institutions and traditions" (Schelling p 91)
This paper considers the history and present position of the purchasing profession in the light of this theory. The paper suggests that 'permanent failure' may not be limited to organisations, but may also be applicable to professions. It addresses the question of whether purchasing needs to change, and if it does, in what direction it should change.
Purchasing certainly faces challenges in maintaining and developing it's existing position. New business drivers and new technologies have made inroads on traditional tasks. Process based organisational design means that old 'functional silos' or specialisms lack the flexibility and speed of response required in the modern enterprise The real effects of these shifts is difficult to gauge, but certainly implies a change.
Changes in role imply changes in professional identity and function. We are told that purchasing is becoming 'supply chain management' (SCM). This is a 'strategic' role which will enable 'supply managers' to have a much greater say in the running of the organisation. Purchasing, according to some authorities will have a 'leadership' role (Schorr 1992) or strategic (Gadde and Hakansson 1993) 'These 'new' professionals have new skills and new tools which can make a real impact on the organisations in which they work.
Despite this picture of a brave new world there are a number of real concerns both within and outside the profession. Can purchasing transform itself? Is the profession suffering from an 'identity crisis' (Ericson 1957) as it moves from adolescence to maturity ? In talking to purchasing professionals we can sense a disillusion - or even disbelief - with regard to this new role. Some professionals speak of 'having lost their way', of 'not being sure what they are supposed to do any more'. Others talk of 'sticking to contract design - where you can really make a difference'. Many express themselves as profoundly sceptical about SCM.
And yet within the literature the picture is clear. Purchasing is portrayed as a ghost town. The population have -allegedly - embarked on the 'gold rush' to supply chain management. Nonetheless, if the gold rush - and the gold -exist, we can identify some problems. Despite roadshows, articles, and conferences, SCM still shimmers before practitioners like a mirage in the desert heat. The difference between what is claimed, and what actually takes place in supply chain management often makes it hard to see. The practitioner may wonder whether gold exists in 'them thar hills', or whether only the mule selling consultants or the saloon keeping academics are getting rich in this particular gold rush.
In order to reach the 'mother lode' of SCM, a map would be useful. This should tell us where the gold is, how to reach it, and how to recognise it when we find it. Many maps are available. Indeed, ex-prospectors, preachers and get rich quick artists are visiting purchasing in their hundreds. In the once quiet streets you can hardly walk ten yards without being offered a sure-fire map which will take you to supply chain management.
Unfortunately, there is no way of telling which is the 'right' map. Different practitioner 'wagon trains' seem to be heading off in different directions. Some are heading towards 'Partnership Peak' - a place where the laws are so alien to many practitioners that they are not sure they can live there. Some are moving towards 'Relationship Management Hollow' which seems a little better because it allows normal behaviour. A small group of megalomaniac purchasers are moving towards Lean Supplyville where the purchaser turns into the Chief Executive of a 'super organisational' Keiretsu.
For those practitioners still waiting to set off on the journey, this variety of directions is bewildering. Which way do they go ? The journey to SCM is not without spectators. Chief Executives and other professions are looking on with interest -'Will purchasing make it ? - and is it worth getting there?
Purchasing a Map. W Edwards Deming pointed out the dangers of faddism in management in the 1980's. He said that unless you understood the underpinning theory about a movement or practice, following it would only lead to chaos. More recently, Shapiro (1996) has reinforced this viewpoint. We can ask whether the current maps available are merely faddism.
Fortunately, purchasers are traditionally sceptical. They have a way of determining whether the map is a good one or not. They can write a specification for the maps which they buy, so that they aren't taken in by dishonest or incompetent map makers. After all, no purchaser worth their salt would buy a map without being clear about its characteristics and purpose - would they ?
Writing the Specification for Supply Management. When we write the specification for an SCM map we can identify a number of issues. The first thing that we need from or map seller is provenance or certification. In the day to day world, when we buy a map, we go to a reputable map or chart seller. In the United Kingdom this would be the Ordnance Survey or the Admiralty. In the USA, we might approach the Department of Defense. The reputation of these map makers assures us that we can trust their maps.
SCM maps are often much less trustworthy. Without history, these maps cannot be verified. Not only do they describe unknown territory, they often rest upon the reports of travellers who have not made or have yet to complete the journey. In other cases, they are being sold by people that will never have to make the journey Such people have no stake in the failure or success of the journey - no sunk costs. They can't swim but understand swimming.
In 'selling' the maps, a variety of strategies are used. Some are sprinkled with Japanese terms to lend credibility: Shindan -supplier assessment; Kyryoku Kai - supplier associations; Ikusei seisaku - suppier development. The seller implies that Japanese companies know exactly where they are going - a claim few would make. Others rely on supposed 'successes' by 'world class' organisations which show that, for instance, Unilever has achieved 27% cost savings on bought in products. Buying maps on this basis seems potentially problematic. But with a map, we can walk the territory - as long as we know where it is, and where we are. And this leads us to the second criteria.
The map must show us a starting point that we recognise. Without such a point the map is useless. How do we situate ourselves on such a map? Many maps which claim to take us to SCM seem to be based on the presumption that all travellers start from 'Point A' with huge wagon trains full of provisions and trade goods. In some cases, - particularly in Japan - these goods are provided by 'the Guvernmint' but for the lone prospector - the ordinary company - the journey is very different.
Another criteria, stupid as it might seem, is that the map needs boundaries. In SCM these are very difficult to define. Internally if we take the discipline to it's logical - or illogical- conclusion, SCM impacts upon every area of the business. It has to be a strategic function because it will co-manage - or even manage - every function that involves bought in goods and services (BIGS). SCM would, in theory, manage the Chief Executive, as a piece of bought in human capital. Externally SCM seems like a black hole into which time, money and effort are thrown to little advantage. Andersen Consulting (1995) define supply management as 'managing your suppliers' suppliers and your customers' customers'. Using such an approach first tier management is folllowed by second tier management, and so on, and so on. The OEM becomes a hostage caught between the supplier and the ever demanding customer.
This leads us to the fourth criteria for a 'good' map. It should be accurate in a number of different dimensions. The first of these is that it should be complete. It should exactly describe the territory, with all it's swamps, deserts and forests. Many of the maps on sale seem more like holiday brochures. The skies are always blue, the people are always happy, and the hotels are always ready for the eager visitor. Those unfortunates who dare to say that it may rain or that the hotels may not be built are cried down.
The map should also be sufficiently fine grained so as to allow the users to recognise the territory. Many of the maps to supply chain management are very broad indeed. They treat organisations as single entities which behave in coherent, consistent ways. In practice this is far from true. When we look at these maps, we are left with the impression that the map maker has only flown over the territory in an aeroplane - 'Oh look, that mountain range isn't very high, easy to cross'. For the poor purchaser struggling to cross the inaccessible pass to Partnership Peak or falling through the ice at Supplier Development Crevasse, this is no comfort.
The sixth criteria for a 'good' map is dimensionality. On 'normal' two dimensional maps we at least have contour lines to tell us where the mountains and ravines exist. Many of the SCM maps have one thing in common. They present a two dimensional world of constants, rules and seamless connections. They treat disorder and improvisation as exceptions. For the practitioner trying to develop the 'extended enterprise', disorder hides around every corner and improvisation is the only means of survival. Here, we might wish for a multi dimensional computer generated map which not only shows the mountains and swamps, but also gives us regular updates on the weather and the current attitude of the tribes in 'Injun territory'.
When criticised for oversimplifying, the map maker tells you that there is no point in making the map too complicated. The simple minded practitioner needs a simple map. 'These guys' they say 'are so desperate to hang on to their jobs that they will take any piece of paper at all'. This 'dumbing down' of supply management is worrying when there is often already little correspondence between the map and the territory of the practitioners experience.
The final - and perhaps most essential element of a map is a consistent scale. There is little consistency of approach in our maps. Sometimes the route is measured in defective parts per million. Sometimes in response times. Sometimes in cost. This lack of consistent milestones means that progress on the journey is difficult to gauge. Existing measures are often crude. Some mapsellers seem to think that defects or time based management are the only milestones. A map which does not contain a consistent scale means that we can set off on the journey with no idea how long it is going to take or how much we will need in the way of provisions. Perhaps most practitioners have too recently set out on the journey for us to see the bleached bones of their companies on the road. They may well be there soon.
Leaving Purchasing. So, we've sourced and selected our map and we're about to head out on to the prairie. Why should we go? The maps are vague, the route is (probably) difficult and (certainly) expensive. There are (definitely) Injuns out there. There might not even be any gold. Let's stay where we are - it's safer. Well, there are reasons. The traditional purchasing role and mindset has been about gatekeeping resources - making sure that company funds are spent prudently or not at all. New times call for new roles and mindsets, new tools and the skills to use them.
Organisational competitiveness is achieved by accessing and deploying resources more effectively than other companies or, indeed other professional groups. These resources may be customers, staff or suppliers. SCM gives us an opportunity to access and deploy supply resources using a range of methods.
There is a chain here. The more effectively practitioners can access and deploy resources, the greater the contribution they can make to organisational competitiveness. The more contribution they make, the more rewards will be available to them and the more say they will have. Without defining a new role, purchasing will be left fighting with 'supplier development' or general management for the bones of the traditional purchasing function. These bones have very little meat left on them.
When moving to a new role, it is very tempting to describe it as revolutionary. The term 'paradigm shift' is used extravagantly. This is, I would guess, a motivational 'sales' aid. Unfortunately such a strategy has a downside. It can completely confuse the potential 'buyer'. The move from purchasing to SCM may, in some cases, be quite short. Synthesising the maps, we can see certain core skills and strategies which will assist the practitioner in managing supply.
The first of these is a broader set of objectives. Limited traditional objectives such as 'cost reduction' or 'lead time reduction' may well enable purchasing to justify it's existing position, but are unlikely to lead to growth.
The second is better information acquisition. Without good 'intelligence' we cannot manage supply. Traditionally purchasing can, at best, tell you what suppliers have done. It needs to tell the organisation much more than this. It should describe as a minimum, with relative accuracy, what suppliers have done: what they are likely to do: and why. Existing vendor and supplier assessment methods are largely ineffective in this area. Some companies are taking steps in this area. 'Partnership' as one method of improving information acquisition can be dangerous.
In order to obtain intelligence we need to communicate effectively across organisational boundaries. This is very difficult. It can be achieved in a variety of ways. These include personal contacts, flexible forms of contract, time limited joint project teams and multi -disciplinary teams. Communication needs, however, clear and realistic objectives.
The third core strategy is better information management. Once we've acquired the right information we need to put it to work. Purchasing - or supply management - cannot work in isolation. In order to draw on all disciplines, we need a strategy for managing integration within the company or organisation as much as we need a strategy for managing suppliers.
Finally, having gathered our information in line with objectives, we need a range of flexible management strategies to achieve them. These strategies may be motivational such as John Neil's 'shared destiny' approach within Unipart's supply base or Rover's highly visible supplier certification programme . They may be target based in the form of cost objective setting or process based to improve supplier accountability.
To support the journey SCM also badly needs an integrated approach to research and development. We need to co-ordinate our maps, and perhaps pool our provisions. Competitive advantage may well accrue to those map sellers who can persuade the denizens of purchasing that their map is 'best'. Little competitive advantage will accrue to the map users. Like Japans VLSI or the USA's MCC research project (Gibson and Rogers 1994), we need to a large scale research strategy in order to safeguard purchasing and help it grow.
Journey's End. Perhaps this paper stretches a metaphor too far. There is, nonetheless, an imperative for purchasing professionals to develop their role. This new role requires a clear, credible direction and objectives. With this clear direction will come new competences. There is also real danger. Without a clear direction practitioners may not bother leaving. Even worse, purchasing professionals may set off on the journey and keep moving in circles until the water- Chief Executives' patience - really does run out.
The choice of map - which is in fact a choice of strategic role - is one which is crucial to professionals. Those practitioners who choose badly may well find that their function is increasingly sidelined. This will have an impact not only upon their own status and position, but also upon the overall competitive effectiveness of their companies.
Gadde L and Hakannson H Professional Purchasing Routledge London
Gibson D and Rogers E (1994) R&D Collaboration on Trial. Harvard Business School Press Cambridge Mass.
Meyer L and Zuckerman L(1990) Permanently Failing Organisations SAGE Berkeley CA
Shapiro E (1996) Fad Surfing in the Boardroom Capstone Press London England
Schelling T (1960) The Strategy of Conflict The Free Press New York
Schorr J (1992) Purchasing in the 21st Century Oliver Wight Vermont USA