The evolution in procurement

• Procurement is a stage in the evolution of

civilized human relationship
• It is an ancient activity
• It can be analysed to have developed over
time through seven phases
 PHASE 1: THE EARLY YEARS (1850-1900)

• It was formally recognised in 1850 although various

signs reveals started before this date
• Charles Babbage’s book on economy of machinery and
manufacturers, published in 1832, referred to the
importance of the procurement function
• He said, the “material man” was responsible for several
different functions
• He proposed that the central officer responsible for
operating mines (mining was one of the major
economic activity) was a material man who selects,
purchases, receives, and delivers all the articles
required.
 PHASE 1: THE EARLY YEARS (1850-1900)
cont…
• By 1850s, early developments in procurement were
fuelled by the American railroad.
• By 1866, the Pennsylvania Railroad gave the procurement
function departmental status titled – SUPPLYING
DEPARTMENT
• The procurement function was a major contributor to the
performance of the organisation and the chief
procurement manager was given a top managerial status
• In the later days, it was realised that there was lack of
attention to select appropriate people to man that
function
 PHASE 2: Growth of procurement
fundamentals (1900-1939)
• The procurement function witnessed growth slightly before the
20th century till the second world war
• Articles addressing industrial procurement function began
appearing on journals
• Engineering magazines focused on need of qualified procurement
personnel and development of material specification
• During WWI, it gained importance because of its role in obtaining
vital materials needed to fight wars.
• Immediately after the war, focus was on raw material and little
attention on semi finished and finished goods
• Around the 1930s to 1950s, there was doubt on the recognition
of procurement as no periodical was published then – says
Harold T. Lewis
PHASE 3: THE WAR YEARS (1940-1946)
• The second war world introduced a new period in
procurement history
• The focus was on acquiring required and scarce materials
• Around 1933 only nine colleges offered courses related to
procurement and by 1945, the numbers increased to 49.
• By 1917, the National Association of Purchasing Agents was
created.
• The membership of National Association of Purchasing
Agents increased from 3,400 in 1934 to 9,400 by 1945.
• A study revealed that 76% of purchase requisitions
contained no specification of brand.
 PHASE 4: THE QUIET YEARS (1947-mid
1960s)
• After the war, awareness on procurement was not
intensified
• John A. Hill commented that procurement had not
yet received the attention and emphasis that it
deserves
• Articles started appearing describing what
procurement staff do
• Ford company was one of the first companies to
establish a commodity research department
• Ford created purchase analysis department to give
buyers assistance on product and price analysis
PHASE 5: MATERIAL MANAGEMENT (mid 1960s
to late 1970s)
• Growth in material management concept
• Late 19th century, many business applied this concept in US
• They combined functions like procurement, inventory control,
receiving and storing under the authority of an individual
• The emphasis on procurement was noticeable.
• Multiple sourcing was encouraged and there was the trend
towards competitive bid pricing
• However, suppliers were not seen as value adding agents
• Price competition was major factor to choose supplier
• When the economic recession of 1980 came, the strategies
and behaviour of local procurement agents were not sufficient
• That gave rise to foreign global competitors
 PHASE 6: THE GLOBAL ERA (late 1970s-
1999)
• The competition became so intense and fast changing
• Global firms increasingly captured world market share from US
companies and it was clear that they employ different strategies,
structures and techniques
• Technological developments changed the scene
• The ability to coordinate worldwide procurement activity using
international data networks and WWW
• This phase witnessed growth and transformation of supply chain
management
• Firms took a coordinated view of managing flow of goods, services,
funds and information from suppliers through to customers
• Managers view supply chain management as a way to achieve
intense cost reduction and other improvement pressures
 PHASE 7: INTEGRATED SUPPLY CHAIN
MANAGEMENT (beyond)
• Procurement and supply chain management today reflect a
growing emphasis concerning the strategic business
importance of suppliers.
• There is a shift to supplier cooperative approach
• A new mind set different from the traditional approach is
required to cope with new requirements.
• Supplier development, partnering, supplier-design
involvement, use of full-service suppliers, lifecycle costing, long
term supplier contracts, and relationships, integrated internet
linkages, and shared database are common features of current
procurement requirements.
• The challenges embedded in procurement is pushing the
function towards attracting high quality people.
 PHASE 7: INTEGRATED SUPPLY CHAIN
MANAGEMENT (beyond) cont…
• The role of the procurement function needs to
be reshaped to meet up modern competition
• Technological advancements to meet customer
expectations
• Impact of procurement function in business
competition needs future rethinking
• Procurement needs intense integration with
other functions of the organisation
• Professional developments and body to
reinforce knowledge and practice