Purchasing in the Information Age
Brian G. Caffrey
Brian G. Caffrey, President, Solutions Consulting Group, Jackson Heights, NY 11372, 718/457-3246
81st Annual International Conference Proceedings - 1996 - Chicago, IL
The Issue. "What used to be a corporate backwater is becoming a fast-track job as purchasers show that they can ad millions to the bottom line." - Purchasing's New Muscle - Fortune Magazine, February 20, 1995. By now, most NAPM members are aware of this Fortune article extolling Purchasing's value. Well, before we get too comfortable, it's time for a reality check.
As much as we talk about the "Purchasing Profession", we can not lose sight of the fact that purchasing is also a process. It is the means whereby an organization obtains the goods and services that it needs. As a business process, it is just as subject to re-engineering as any other.
Despite the rosy picture painted by the "new muscle" piece, a recent Fortune article, The Information Wars: What You Don't Know Will Hurt You, presents another picture. The author, Thomas A. Stewart, has a different perspective on purchasing -- that of purchasing as a business process. Talking about electronic links between companies, he says "Partners can eliminate duplicate functions like billing and purchasing, putting them on one side or the other of the partnership, even merging them." - Fortune Magazine, June 12, 1995.
As the "New Muscle" article points out, Purchasing has undergone a transformation to become a strategic business function. In the 1970's and earlier, Purchasing was generally viewed as a clerical function. It had a low place on most organizational charts and was often a subset of accounting or "operations". Performance measures focused on the past, quantitative efficiency and control of expenditures.
The 80's saw Purchasing being recognized as a commercial activity reporting to Management. Performance measures focused on the present, qualitative effectiveness and measures such as cost savings/cost reduction.
In the 90's, and hopefully beyond, Purchasing is considered as an integral part of the strategic planning process. Focus is now on proficiency, gaining present and future competitive advantage through integrated resource management and reduction of purchase and ownership costs.
When Tom Stewart wrote the Information Wars article for Fortune, he was not singling out purchasing. He was merely viewing it as a process by which one company communicates its needs to another. Of course, in Stewart's model, someone would have had to set up the relationship, established the electronic links, etc.. As a strategic, value-added, function we must be the ones to recognize the benefits of such integrated resource management and work toward its implementation.
The recently completed CAPS study, CEOs'/Presidents' Perceptions and Expectations of the Purchasing Function, found "there appears to be a large gap between what CEOs/Presidents want and what they think their organizations are receiving." If we hope to remain as a strategic business function, we need to close this gap. Since there are many more people involved in the purchasing "process" -- those who specify, approve and actually use what purchasing buys -- than in the purchasing "function" alone, we have to ensure that they come to rely on Purchasing's expertise to make their jobs easier. Functional "empire building" is a thing of the past.
Purchasing's Paradox. Although the importance of the Purchasing Profession is becoming more widely recognized, the size of the buying organization is generally being reduced. In the past, many companies had buyers that were specialists in the particular commodities that they bought. Today, many buyers are finding themselves being put in the role of generalists, with responsibilities for numerous, diverse commodities. As the size of the typical buying organization shrinks, the work load on those who remain grows.
Purchasing Professionals must use every tool at their disposal to help their companies to compete in the global marketplace. Fortunately, the Information Age has given us resources that can make this task easier.
The Internet. Everybody is talking about it, but what is it? One way to think about the Internet is "Everyone's Computers, Connected." It is the network of all networks -- the combination of all the large and small university, government, and corporate networks. This combination has emerged as thousands of formerly isolated networks have linked up with one another.
The Age of Electronic Commerce is looming on the horizon and we must position ourselves to be ready for it. At this time, a relatively small amount of commerce is actually taking place on the Internet. That which is taking place now is predominantly a consumer based activity. But make no mistake about it -- this will change! Once the Internet is de-mystified and the perceived obstacles to e-commerce are overcome, we will look back and wonder "Why didn't we do this sooner?" Here's what Jim Schacher, author of the forthcoming Harvard Business Review/University Press book -- Managing for Excellence, has to say on this subject. "Business reengineering, electronic marketing and the World Wide Web are rapidly being accepted as management revolutions of epoch proportions. They are management technologies the Industrial Revolution will not survive."
Electronic commerce may not be here yet, but we can prepare ourselves for its arrival by starting to use the information management tools that are at our disposal. Before we look at the specific resources that the Internet currently offers, we should familiarize ourselves with three of its most popular features: the World Wide Web, Gopher, and E-mail.
World Wide Web. The World Wide Web is a network of electronic publishing sites that allow Internet users to view graphics, listen to audio clips, view video clips on-demand and send electronic messages around the world. The Web is becoming a popular way to present and retrieve information on the Internet because it is dynamic and easy to use. You can move almost seamlessly from one site to another through a series of hypertext links. By simply clicking on a link, you are transported to the site that is connected to the link.
Web and other Internet sites have addresses, known as URLs for Uniform Resource Locators. World Wide Web addresses begin with the prefix http://. The period at the end is not a part of the URL.
Gopher. Gopher is primarily a text-based, menu-driven system that Internet users browse by category. Gopher sites can showcase a variety of once-printed and original materials that are digitized for distribution across the Internet. These sites can house press releases, transcripts, extensive catalogs and even entire books and libraries. Gopher URLs begin with the prefix gopher:// but, especially if you are using a software application that is designed specifically for gopher use, you may not have to use this prefix.
E-mail. Electronic mail, or e-mail, is one of the most popular and powerful features of the Internet. It combines some of the best features of traditional postal mail and those of telephone conversations. It is similar to postal mail in that you can include as much detail as necessary to convey the necessary information. In turn, the recipient has the ability to review the message as much as necessary in order to understand the message. Although the ways in which e-mail is written will, of course, vary by individual, it is generally less formal than printed memos or letters. In most cases, Internet users will have their own individual e-mail addresses. Although some commercial services use a different format, an e-mail address generally consists of the user's name, the @ sign, and the name of their host computer system. (For example, my e-mail address is email@example.com.)
E-mail is somewhat like a telephone call in that message transmission is virtually instantaneous. It is dissimilar in that both parties do not need to be on-line at the same time. The sender composes and sends a message when it is convenient to do so. Likewise, the recipient retrieves messages when it is convenient to do so. In this respect, it is similar to voice mail, but it is MUCH more powerful. Spreadsheets, reports, even presentations such as this one can be sent back and forth easily. Once you get used to using it, an exchange of e-mail can flow as easily and naturally as a conversation.
Internet Resources. This "network of all networks" that we are talking about offers the user access to the extensive amount of information that is housed on all of these computer systems. The Internet can seem daunting to a newcomer, or "newbie" in the slang of the 'Net. However, once you begin to explore, you'll soon discover how really easy it is to use. Today's software programs have made navigation as simple as "point and click".
Given the vastness of the Internet, there is no way for any seminar to take an in-depth look at all that it offers. What we will do is take you on a brief tour of a few of its more useful features and give you a list that contains the URLs for others. You'll be on your own after that. Hopefully, your interest will be piqued and you will continue your explorations. Let's get started.
What better place to start than at NAPM's own web site (http://www.instituteforsupplymanagement.org)? Here you will have the opportunity to learn about what is going on at the national level of your organization. You can easily access information about its educational products and seminars, the Center for Advanced Purchasing Studies, the NAPM Advanced Technology Institute, and its various publications to name just a few.
NAPM - Silicon Valley, Inc. maintains its own comprehensive web presence at http://catalog.com/napmsv/. (Remember not to type the ending period when entering a URL.) NAPM-SV uses its web site not only to communicate with its membership, but also as a means of promoting the value of NAPM membership. Their extensive web site is also meant to be used as a resource by Purchasing and Supply Management professionals. The Purchasing Pro's Reference Library, The Purchasing Professional's Purchasing Web of Articles, Career Enhancement Opportunities, and scores of links to related resources are just some of its very useful features.
Most buyers are familiar with using the Thomas Register of American Manufacturers as a tool in their sourcing efforts. This 29 volume reference set, with over 50,000 product and service categories, probably has a place on the shelves of most Purchasing Departments. The information that the printed version of the Thomas Register provides is also just a couple of mouse clicks away on the Internet at http://www.thomasregister.com:8000/home.html. Once there, you can register to use the service at no charge. By simply entering a search word or two, you can submit an electronic inquiry by procurement category that will return a list of potential suppliers for your review. At the time this is written, you will be given the suppliers' standard contact information (i.e., address, telephone, and facsimile numbers) and you will have to use more conventional means to actually contact them. In the not too distant future, as more companies come online, you will probably be able to e-mail your inquiries to suppliers directly from these pages.
Although it's unlikely to be needed for daily reference, the UCC (Uniform Commercial Code) governs the way in which companies do business with each other in 49 of the 50 states. As familiar as many of us are with its principles, I doubt that many of us can off-handedly quote its exact provisions. I was working at home about a year ago and my copy of the UCC was back in the office. I was reviewing the provisions of an equipment lease and, in return for certain considerations, my client was being asked to waive its rights under a particular section of UCC Article 2A. Rather than simply flagging the provision and waiting until I got back to the office, I was able to find the information that I needed online. By connecting to Cornell University's Law Library at http://www.law.cornell.edu:80/ucc/ucc.table.html and reviewing the UCC Article right then and there I was able to continue my work.
Buyers are often challenged with having to handle a one time purchase for a commodity with which they are not familiar. Since time is frequently limited, how can a buyer quickly determine the appropriateness of a supplier's asking price? The data base at the New York State Office of General Services (NYS/OGS) gopher site at gopher://ogs.nysernet.org may offer one solution. The NYS/OGS makes the full text of New York State's procurement contracts available for viewing or downloading through electronic access over the Internet. In addition to searching by commodity group, users can perform a full text search of the actual contract documents. The information provided can not only provide a basis for cost comparison, but can also help the buyer's sourcing effort since supplier contact information is also given.
Other Online Resources. In addition to the Internet itself, private bulletin board services (BBSs) and commercial online services can also offer valuable resources to Purchasing Professionals. Let's start by looking at NAPM's own BBS, NAPM Online. At NAPM Online, members and affiliates can access a number of data bases containing articles, career opportunities, NAPM bylaws, contact information for officers, e-mail addresses for NAPM's national staff and much more.
In some organizations, Purchasing may be charged with disposing of obsolete and surplus equipment. In deciding whether to sell older computer systems or donate them to a charity, buyers can consult Crain's Chicago Business that publishes a monthly listing of used computer prices. Unless you live or work in the Chicago area, you may not have this publication readily available unless, of course you have an America On Line account. America On Line provides a wide array of publications in electronic form including Crain's Chicago Business and Business Week. CompuServe members also have access to a number of electronic publications online. Included in their offerings are Fortune and Industry Week magazines that, in addition to electronic versions of the publications, have online discussion groups called "forums" in which members can discuss recent articles and other business issues of common interest. Industry Week even has a section of their forum dedicated to the "Supply Chain."
Purchasing's Challenge. Companies are gearing up to compete in the global marketplace and to be ready for electronic commerce. Purchasing's challenge is to stay ahead of the information curve, or risk being buried by it.
Additional Resources. The World Wide Web sites that we have visited all have links to other related resources. You may want to start your own Internet explorations by visiting these sites or by exploring some, or all, of the following sites:
Site Name and Internet Address (URL)
Electronic Buyers' News ... On-Line
IBM EPS: What is Electronic Purchasing?
Dun & Bradstreet - Managing Supplier Relationships
Institute of Management & Administration - Business Page
IOMA - Supplier Selection & Management Report
IOMA - Inventory Reduction Report
North American Free Trade Network
Oil & Gas Pricing
US. Bureau of the Census
The Library of Congress
Internet Business Connection
STAT-USA - US. Dept. of Commerce Statistics
Solutions Consulting Group