Megatrends for Purchasing Profession
Brian G. Long, Ph.D., C.P.M.
Brian G. Long, Ph.D., C.P.M., President, Marketing and Management Institute, Inc., Kalamazoo, MI 49002, 616/323-1531.
82nd Annual International Conference Proceedings - 1997
We now face a transition between the new and the old, between the past and the future, between the less efficient and the more efficient, between products and services that just get by and those that are world competitive, and for some firms, between existence and non-existence. This is the essence of industrial change. Indeed, some say that the industrial revolution is over, and that the information technology revolution is just beginning. If this is true, then what is the role of an organizational product of the industrial revolution such as purchasing?
To most observers, the purchasing profession is one of the fastest changing professions. This presentation will concentrate on those major changes in the purchasing paradigm that will unfold in the years ahead, such as integrated supplier relations, team purchasing, supply management alliances, supplier managed inventories, internet purchasing, credit card purchasing, and self-directed suppliers. Other trends, such as cost plus pricing and negotiation presentations to suppliers will evolve more slowly, but will still become commonplace sooner than we think.
Many forces have come to bear to propel these changes, such as reengineering the corporation, team decision making, the reduction of staff functions, and the never ending drive for greater productivity. Purchasing managers who fail to adjust to these trends will likely find that they have either minimized or eliminated their own role in the organization of the future.
The Net. In about ten years or even less, purchasers will either have learned how to use the internet or be out of purchasing altogether. This blunt projection is based on the fact that almost every major industrial catalog is available on the internet today, and that most will not even be printed in just a few years. The only real exceptions may be the very largest of these catalogs, such as the "Thomas Register," which may still be available on CD-ROM as well as the Net. However, printed catalogs in the industrial market, for the most part, will be gone.
The next step will be advances in surfing software for purchasers. In general, the purchaser will plug in a commodity name, list a few specifi-cations, and wait for the Net to provide a fairly complete worldwide roster of sources. For a small additional charge, preliminary supplier evaluations will be added. Although seasoned purchasers will still note that there is plenty of work still to be done at this stage, the initial investigation will now be done on the Net.
Inseparability of Computer. As little as twenty years ago, purchasing offices were not computerized. However, the falling prices of hardware and software seemed to make purchasing a logical candidate for melding into the ever-widening integrated business computer system. Computerization soon became commonplace.
Today, most observers agree that we have only just begun. In addition to the expansion of traditional MRP and record keeping functions, purchasers of the future will use the computer for real-time information on suppliers, critical commodities, and news events. The same computer will be used for video conferencing as well as receiving sales presentations. The expanded use of Electronic Data Interchange (EDI) will result in the rapid movement of information, orders, and money.
Continued Merger of Functions: The bureaucratic model, complete with organization charts, job descriptions, and pyramid hierarchy, was characterized by assigning unique and specialized tasks to all functions in the firm. With the widespread use of MRP, firms were almost forced, formally or informally, to organizationally pull together all of the functions relating to purchasing and materials management. Reluctantly, some firms have adapted the buyer/planner concept in an attempt to close part of this communication gap. Once in place, buyers and planners praise the system. Traditional bureaucrats are still fighting a losing battle to keep their beloved functions separate.
Unfortunately for the traditional bureaucrats, the merger of the purchasing, materials, inventory, production planning, traffic, warehousing, systems, quality, and other supply related functions will continue. It is even possible that these functions, once unified, could be represented by one professional organization. Is it possible to foresee a National Association of Supply Management?
Supply Chain Management. In the age where requisitioners will be able to access most of the world's sources on the internet and place electronic purchase orders, the logical question must be raised regarding the exact nature of purchasing's contribution to the organization. This new task of the purchasing manager may properly be called "Supply Chain Management" to imply a much broader scope of contribution to the organization. In the supply management era, traditional purchasing will become a thing of the past. Indeed, a typical supply manager will probably be in charge of as many as fifteen but as few as one or two major contracts, and serve as a contract administrator for each. The supply manager will search backward in the entire supply chain in order to identify unnecessary or no-productive costs that can be taken out of the system and passed along in the form of lower prices. At the same time, the supply managers will work with the entire supply chain to continuously improve quality, service and delivery time.
SOME In-Home Purchasing. If we accept the use of the computer as an indispensable tool for modern purchasing, then the thought of locating the computer at home is not a quantum leap. Home office purchasers will tap into the purchasing department computer and conduct business much like they would if sitting in a formal office. Purchasers who are already working out of their homes for major corporations report that the absence of the usual office distractions make it easier to concentrate. One of these purchasers even noted that she is now geographically closer to her suppliers, and that regular supplier meetings are now more feasible than in the past.
Other purchasers will operate in a split mode. They may spend three days per week in the formal office, and two day at home. In the age of global purchasing, this may be the only logical means of keeping communications channels open in multiple time zones on a real time basis.
Relationship People. Traditional purchasing discouraged relation-ships. Most managers felt that relationships worked in favor of the seller at the expense of the buyer. To make matters worse, purchasers were actually encouraged to be remote, aloof, arrogant, and even downright mean.
Tomorrow's purchasing person will be just the opposite. Indeed, the nature of team decision making, intercorporate team building, early supplier involvement, and other concepts call for much more of a team leader personality than a unilateral dictator. Technical training will be stressed more than ever.
The Demise of Paper. The traditional corporation of the 50's and 60's loved paper. People at all levels of the organization adorned their desks with traditional "IN" and "OUT" baskets. Bosses made sure that the paper kept moving. Auditors checked the paper to make sure that it was completed correctly. Signatures and authorizations were all on paper. Paper was evidence that something was happening.
Today, we speak of moving toward a paperless society. This does not imply that paper will no longer be used, but rather that traditional functions performed by paper will probably be performed by some kind of an electronic means. Hence, most purchases in the future will be cashless, and most payments will be checkless. Electronic funds transfer, now just in its infancy, will grow to encompass most or all financial transactions between buyers and sellers. For some firms, this day is already here. For others, it will soon come to pass.
The traditional purchase order will soon follow once the electronic fund transfer becomes widespread. Granted, Electronic Data Interchange (EDI) has been around for many years. EDI will come into its full potential some time after the current round of upgrades in computerization becomes complete.
Probably just as important is the eventual redefinition of the purchaser as a contract manager. With supplier consolidation, supply management agreements, and outsourcing, purchasing managers will become contract managers who write only a limited number of contracts per year. Terms and conditions on the back of purchase orders, dutifully written by corporate attorneys to protect against every conceivable misgiving, will also become part of purchasing's heritage.
Reapplication of Value Analysis: Value Analysis (or VA as we once called it) was one of the hottest topics in purchasing about thirty years ago. Unfortunately, like many other good concepts, we overapplied the concept to the point that its purpose -- improving value -- was lost in favor of myopic cost saving. In the quality revolution of the 1980, value analysis was blamed for cheapening products, reducing quality, and handing market share to foreign competitors. Management threw out the whole concept.
We are now taking a revised look at the VA concept, and some firms have actually reinstituted limited forms of the same value analysis teams as were used in the past. The "new" value analysis managers will avoid the abuses of the past and integrate their thinking with the overall goals of the firm. The purchasing/supply managers of the future will be expected to manage this function.
Supplier Base as an Asset. As the supply base of the average firm continues to shrink, the contracts which a purchasing person will administer will become larger. Suppliers will be brought into the product development stage sooner and sooner. Firms will become more dependent on their suppler base for everything from engineering talent to JIT inventory to emergency production expansion. It will take the financial community about another fifteen years to figure out that the financial strength of a company is becoming increasingly dependent on the quality of supplier base. Hence, financial reports such as SEC 10-K and annual reports will soon feature at least some attention on the firm's suppliers as one of the firm's latent assets.
Continued Gender Shift. A little over 30 years ago, the charter of the National Association of Purchasing Management was changed to admit women for the first time. Ever since, the Male/Female ratio of NAPM has continued to shift at the rate of about 1-2% per year. This shift will continue over the next decade until women are about 70% of the ranks, and then taper back to about 60% over the next couple of decades.