Developing purchasing's foundation

Journal of Supply Chain Management, Spring, 2008 by Michiel R. Leenders, Harold E. Fearon

In 1887, the first book devoted specifically to purchasing appeared. The railroads around the turn of the century were probably the largest organizations in the United States. The author, Marshall M. Kirkman, Controller of the Chicago and Northwestern Railroad, recognized the crucial impact of purchasing: "The intelligence and fidelity exercised in the purchase, care, and use of railway supplies, influence directly the cost of construction and operating, and affect, therefore, the reputations of officers and profits of owners ..." On the potential contribution of a savvy purchasing agent, the author stated: "To be able to buy its supplies at the lowest possible figure is of enormous value to a company, and a capable purchasing agent, it is probable, can save his employer a greater sum through the exercise of experience and intelligence, than any other officer of like grade" (Kirkman 1887).

During the 1890s several articles appeared in the Railroad Gazette discussing subjects such as the duties of a purchasing agent, benefits of standardization, inventory quantities, disposition of surplus, and analysis of value. And at the end of the 19th century, J. Slater Lewis emphasized the importance of purchasing when he wrote in his book on factory organization that, "The economical purchasing of stores is one of the most important factors in the successful administration of a manufacturing establishment." He also warned that "... the lowest price is not by any means always the cheapest" (Lewis 1896).

Therefore, it is clear that, even before the year 1900, the need was evident for a supply function, with appropriate roles and responsibilities, staffed by knowledgeable individuals who were guided by more than price considerations alone. The seeds that would give birth to specialization, value, total cost of ownership, profit leverage, market analysis and overall contribution to the organization had already been sown over one hundred years ago.

THE 1900-20 PERIOD

The 1900-20 period was particularly interesting from the evolutionary perspective on the supply field as it introduced materials management, centralization and outsourcing of the purchasing function. The latter part of this period also included the start of the N.A.P.A. as well as World War I and its immediate aftermath. (N.A.P.A. was changed to NAPA, then to NAPM and ISM decades later.)

A 1900 article commented on (1) the need for buying personnel to have a knowledge of business methods in addition to technical or shop training, (2) the need for tact on the part of the purchasing agent and (3) the tendency to give the buyer an excessive workload, by insisting his job include analytical purchasing (Diemer 1900).

Diemer also commented on the importance of proper purchase specifications, supplier relations, and centralized purchasing. For example, "In the recent 'integrated' mode of organization in many industries, involving the combination under one director of a number of geographically separated plants, it has seemed wise to form a new basis for buying, consisting in the establishment of a centralized purchasing department, which takes direct charge of the buying of the larger and repetitional items, supervising at the same time the local purchasing of smaller items at the various plants" (Diemer 1900).