20/20 Vision: Do We Need Bifocals?
Rene A. Yates, C.P.M.
Rene A. Yates, C.P.M., Materials Manager, B. A. Ballou & Company Inc. East Providence, RI 02914, 401/438-7000.
80th Annual International Conference Proceedings - 1995 - Anaheim, California
INTRODUCTION. Much has recently been written about the nature of the purchasing profession and the changing role of acquisition personnel in the year 2000. That milestone -- and, in fact the turn of the century, is now only five years away. It would seem appropriate to the author to take a more long range view of the profession, perhaps as much as twenty-five years away. That perspective would bring us to the year 2020; an optimal point at which we should be able to view the profession with "perfect" vision. It has been said that the more things change, the more they remain the same. In many ways, we have seen the "return to basics" in many of our industries, adding credence to this clich in the business world. The next decade will see many changes affecting our personal and professional lives, and in both cases a solid understanding of basic trends will allow us to better manage change and the challenges or opportunities it may present.
CHANGES IN PERSONAL LIVING. It is interesting that the term "technology" was coined in the year 1625, yet we have only seen major change in the last forty or fifty years. In that short period of time, we have seen the world move from a norm of primitive television and a UNIVAC computer to jet planes, nuclear weapons, space travel, and biotechnology. The Information Age is upon us with video games, cable TV, cellular phones, and the Information Highway. We have only begun to enter this new age, the magnitude of which will affect our lives in a way not seen since the 1880's. Automobiles will offer digital dashboards offering maps and list of hotels, restaurants, and service stations. Satellite links will provide weather and traffic information, as well as suggestions for alternate routes. Television will carry 50 megabytes of memory which will allow personalized viewing and interaction. The term "Broadcatching" will be commonplace, since our preferences will be stored in memory and our television will scan cable channels 24 hours a day, gathering information on our interests. This information will be ready for playback at our convenience. Digital technology will allow us to mix our own sound, deleting or adding instruments; movies will allow choice of running time, rating, language, and endings. The Information Highway will provide the availability of all text sound, and film in our homes. The most exiting area will be biogenetics which will allow the growing of spare body parts, and the reprogramming of genes to correct birth defects. Considering health and medical advances to date, it is not surprising that two-thirds of the people who have ever reached age 65 are alive today.
IMPACT OF CHANGE. These changes have, and will continue to affect all of us in both our personal and professional lives. We will continue to see a move toward a service economy. Consider the fact that as far back as 1986, video rentals exceeded box office receipts. Fifty per cent of consumer dollars today are spent on products that did not exist five years ago, and better than half of profits from major corporations today come from products not in existence only five years ago. Today's musical birthday cards contain more computational power than that available to a 1950's corporation.
This trend has made a subtle change in our developmental process. Since the days of the Industrial Revolution, technology has amplified our ability to do work. We now our amplifying our ability to think. This was probably best said by former President Reagan when, referring to the development of superconductors, he stated that we were moving from an age of things to an age of thoughts, a new age where it would be the human mind free to think and invent that would be our greatest resource.
As business professionals, we need to look ahead as well, for rapid change will increasingly challenge our knowledge and ingenuity. Our ability to deal with the future will be a function of our understanding, identification, and readiness for the opportunities presented. A recent survey of US business executives, for example, showed that most believed quality to be the fundamental source of competing in the next century. Their Japanese counterparts, however, considered the capacity to create new products as the key to competitive advantage; quality will be expected, and as such, will be a price of entry into the market.
MAJOR PURCHASING TRENDS. When considering the above background, a look to the future might appear frightening. But it need not be, for as mentioned, basic principles will still apply. In many ways, the future can be controlled -- or at least understood -- by focussing on major trends.
When considering these trends one must be careful to differentiate between trends and fads. The latter are the bandwagons that continually surface, all too often jumped aboard without adequate comprehension or commitment. Many of these result in acronyms that become clichs in the business environment: MRP, MRPII, JIT, Quality Management, Supplier Certification, and World Class Manufacturing. This is not to imply that any of these concepts are bad; on the contrary they each have made significant contributions to profitability, competitiveness, and customer service. They are however, a method of reacting to a trend, rather than actual trends themselves. They might be considered methods of getting the job done once a trend has been identified.
The first major trend to be aware of is perhaps the most obvious. The purchasing function will continue to gain in importance. As organizations struggle to contain cost, they will most naturally focus on those areas where significant dollars are expended. Since some 40-60% of sales dollars flow through the purchasing arena, control and efficiencies in this discipline are essential. This will heighten awareness of the acquisition function and those who are responsible for its management and execution.
Secondly, we will see a change in the competitive arena, with a shift toward stronger domestic competitors. US corporations have turned around in many industries, so much so that an article in the October 10, 1989 Wall Street Journal stated that US presidents now fear domestic competition more than foreign. This can so readily be seen with companies such as Compaq, Lens Crafters, and Domino' Pizza who made substantial inroads into established markets by changing the rules of competition: focussing on a quality product distributed to satisfy customer needs.
The third major trend will be a continuing focus on customers. Into the next century, customer characteristics will become even more demanding as quality will not only be expected but available from a variety of sources. This will extend beyond the product itself into the level of service and technical support provided. Where years ago, we might have said that the customer is "king", they will now be the emperor or even the dictator! This will have particular impact on purchasing personnel who must realize that they, too, serve customers. Purchasing is, in fact, a service business. These internal customers, and their perception of how their needs are satisfied, in large part determine the perception of purchasing effectiveness in an organization.
For those who have not yet done so, an internal customer survey is an invaluable tool for determining what is important to internal customers. An article in the Summer, 1993 International Journal of Purchasing and Materials Management, for example, showed that Purchase Order Cycle Time was considerably more important to internal customers than purchasing personnel. Knowledge of this fact, could impact significantly on the perception of purchasing's effectiveness in an organization. As in the outside world, an understanding of customer priorities leads to the rewards of customer satisfaction.
The fourth trend, and the one with the greatest impact on the future role of purchasing professionals, will be partnering. While we all are familiar with the term, the implications will be far more reaching than the definition implies. In effect, this trend will mean that single functions acting independently in an organization will no longer exist. Marketing will no longer be the sole contact to customers, and purchasing will no longer be the sole contact to suppliers. This will signify the end of the "Purchasing Manager" as we now know that function. Cross functional teams will replace these former singular activities, and members of the teams - especially team leaders - will gain new dimensions within the organization. This trend has begun, and will be the order of the day in the next century. Those not accepting that fact will only limit their effectiveness in their organization, and perhaps their own careers.
PREPARING FOR THE FUTURE. When considering the above trends, what must purchasing professionals do to become ready for the future and the challenges that it will bring? The first requirement will be to become more customer sensitive in all that means. This will require a shift from reactive purchasing toward proactive and strategic purchasing --rather than reacting to customers needs, anticipating them. Quality Management often refers to a goal of "Customer Delight." The understanding that if we are to delight someone, they must be pleasantly surprised. The term also carries the concept of continuous improvement, since once an action has delighted someone, the same action will not delight again. Rather, it takes a different or improved response. That can only happen by understanding and developing a continuing relationship with those that we serve, and anticipating what is considered value.
Another area of preparedness will be cycle time reduction. In a world of better educated, less gullible, and increasingly impatient customers, a true understanding of this concept and its meaning in the eyes of the customer will be paramount. The Summer, 1993 article in the IJPMM referred to earlier listed disparities in this concept as well. While some purchasers considered cycle time to be from the time of requisition to the time of order placement, purchasing's customers considered it to begin at the time of need determination and continue until need fulfillment. Without a doubt, the future will require increased flexibility and response. Purchasing's reaction and preparedness to meet requirements as described by their customers will be an important requirement to fulfill.
As organizations will continue to downsize and reengineer, demands on purchasing's time will increase. If purchasing professionals are to anticipate needs and become more proactive, another required change will be a move away from transaction based purchasing. All too often, the same process is used to execute a $50 order as one for 100 or even 1000 times that value. These singular systems have caused 80% of purchasing's time to be caught up in these non value added activities. In order to be proactive, time must be reallocated away from these kinds of activities and toward those that customers consider important. In 1988, the Center for Advanced Purchasing Studies predicted that such activities as MRO supplies would be subcontracted by the year 2000. One can easily see that trend with terms such as "outsourcing" and "privatization" becoming commonplace. The recent popularity of procurement cards is another confirmation of the importance to move away from the volume of transactions that limit time for strategic purchasing.
Administrative costs, and their crippling effect on a company's competitiveness will lead a trend toward changing the purchasing function and the way it conducts business. Consulting firms are increasingly being brought into organizations to focus on those activities where most of sales revenues pass. If purchasing professionals are to preempt this outside influence, it will require up to date skills and commitment to change; to begin to focus on those activities that do not add value to the process. Many opportunities are present. They can be found by those inside the organization, or by outside specialists brought in for that purpose.
Partnering has already been mentioned as a trend, but it also is an area requiring increased understanding and skill development. The concept can be associated with the agricultural phase of human development, where the food source could now be controlled through cultivation and planning. This required the organization and sequencing of many elements, and success depended upon combined performance. This is similar to today's concept of managing the supply chain; the realization that predictable performance cannot be achieved without planning, communication, and commitment from all who support that goal. In the world of purchasing, it has also required adoption of Early Supplier Involvement (ESI). Organizations have realized that 70% of a product's cost cannot be changed once the product is in production. They have come to understand that a supplier can provide substantial advantages to the value engineering/analysis process. Also, given flexibility rather than specifications, early supplier involvement could lead to substantial cycle time reduction and savings for all involved, including the ultimate customer.
IMPLICATIONS. With the advent of the year 2000, we will move into the 21st century. The number "21" has many implications. One of them is maturity. As we have all moved into adulthood we have realize that with maturity comes increased expectations. In the past three decades, we have seen management expectations of purchasing grow from merely continuity of supply, to how the purchasing function can enhance organizational competitiveness. Tomorrow, purchasers can expect to be evaluated on the such factors as the professionalism of their staff and/or suppliers, and their ability to deal with the future. The purchasing profession is changing. That should not be a concern to those in the field, since their importance will only become stronger. They will become managers, leading and coordinating efforts for improvement. That role, with its increased maturity, will require new skills, technical literacy, and an overall knowledge of a business enterprise. The CAPS "PET" report lists a number of the skills required and the gaps in the knowledge base. These include areas beyond purchasing and point to the new, broadened role for that function. Typical skills have been replaced with such abilities as managing change, supply chain management, analytical skills, creative problem solving, and computer literacy. The 21st century will accentuate the "management" aspects of the purchasing function, more than ever forcing a move from a practitioner to strategic leader. Unfortunately for some, that change in focus has already begun, and the skills required are already in demand. Just as cycle time is important to those that we serve, so is the ever increasing need for leadership capable of managing change and dealing with the future. For those accepting the challenge, however, there is no short cut to obtaining the skills required. Attention to trends and continuous, professional development require time. Time applied in small, continuous increments which lead to the level of professionalism required. Keeping in mind the trends mentioned, and using "bifocals" to identify and fine tune personal and professional skills will lead to the "20/20" vision required for the next century and whatever challenges it might bring.
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