When was procurement born

There have been more changes affecting purchasing over the last 15 years than over the previous 125 years. To appreciate how we arrived at where we are today requires a brief understanding of the evolution of purchasing and supply chain management, although some might argue the last 15 years resembled a revolution. This evolution covers seven periods spanning the last 150 years.

Period 1: The Early Years (1850–1900) Some observers define the early years of purchasing history as beginning after 1850. There is evidence, however, that the purchasing function received attention before this date. Charles Babbage’s book on the economy of machinery and manufacturers, published in 1832, referred to the importance of the purchasing function. Babbage also alluded to a “materials man” responsible for several different functions. Babbage wrote that a central officer responsible for operating mines was “a materials man who selects, purchases, receives, and delivers all articles required.” 19 In the textile industry, the selling agent often handled purchasing and was also responsible for the output, quality, and style of the cloth. The selling agent was responsible for all purchasing decisions, because the grade of cotton purchased was a factor in determining the quality of the cloth produced. Customer orders were transformed into purchase orders (POs) for cotton and subsequently into planned production.20 The greatest interest in and development of purchasing during the early years occurred after the 1850s. During this period, the growth of American railroads made them one of the major forces in the economy. Railroads were vital to the country’s ability to move goods from the more developed Eastern and Midwestern markets to less developed Southern and Western markets. By 1866, the Pennsylvania Railroad had given the purchasing function departmental status, under the title of Supplying Department. A few years later, the head purchasing agent at the Pennsylvania Railroad reported directly to the president of the railroad. The purchasing function was such a major contributor to the performance of the organization that the chief purchasing manager had top managerial status.21 The comptroller of the Chicago and Northwestern Railroad wrote the first book exclusively about the purchasing function, The Handling of Railway Supplies—Their Purchase and Disposition, in 1887. He discussed purchasing issues that are still critical today, including the need for technical expertise in purchasing agents along with the need to centralize the purchasing department under one individual. The author also commented on the lack of attention given to the selection of personnel to fill the position of purchasing agent. The growth of the railroad industry dominated the early years of purchasing development. Major contributions to purchasing history during this period consisted of early recognition of the purchasing process and its contribution to overall company profitability. The late 1800s signaled the beginning of organizing purchasing as a separate corporate function requiring specialized expertise. Before this period, this separation did not exist.

Period 2: Growth of Purchasing Fundamentals (1900–1939) The second period of purchasing evolution began around the turn of the 20th century and lasted until the beginning of World War II. Articles specifically addressing the industrial purchasing function began appearing with increasing regularity outside the railroad trade journals. Engineering magazines in particular focused attention on the need for qualified purchasing personnel and the development of materials specifications. This era also witnessed the development of basic purchasing procedures and ideas. In 1905 the second book devoted to purchasing—and the first non-railroad purchasing book—was published. The Book on Buying contained 18 chapters, each written by a different author.22 The editors devoted the first section of the book to the “principles” of buying. The second section described the forms and procedures used in various company purchasing systems. Purchasing gained importance during World War I because of its role in obtaining vital war materials. Purchasing’s central focus during this period was on the procurement of raw material versus buying finished or semifinished goods. Ironically, the years during World War I featured no publication of any major purchasing books. Harold T. Lewis, a respected purchasing professional during the 1930s through the 1950s, noted that there was considerable doubt about the existence of any general recognition of purchasing as being important to a company. Lewis noted that from World War I to 1945, at least a gradual if uneven recognition developed of the importance of sound procurement to company operation.

Period 3: The War Years (1940–1946) World War II introduced a new period in purchasing history. The emphasis on obtaining required (and scarce) materials during the war influenced a growth in purchasing interest. In 1933, only nine colleges offered courses related to purchasing. By 1945, this number had increased to 49 colleges. The membership of the National Association of Purchasing Agents increased from 3,400 in 1934 to 5,500 in 1940 to 9,400 in the autumn of 1945. A study conducted during this period revealed that 76% of all purchase requisitions contained no specifications or stipulation of brand. This suggested that other departments within the firm recognized the role of the purchasing agent in determining sources of supply.23

Period 4: The Quiet Years (1947–Mid-1960s) The heightened awareness of purchasing that existed during World War II did not carry over to the postwar years. John A. Hill, a noted purchasing professional, commented about the state of purchasing during this period: “For many firms, purchases were simply an inescapable cost of doing business which no one could do much about. So far as the length and breadth of American industry is concerned, the purchasing function has not yet received in full measure the attention and emphasis it deserves.” 24 Another respected purchasing professional, Bruce D. Henderson, also commented about the state of affairs facing purchasing. In his words, “Procurement is regarded as a negative function—it can handicap the company if not done well but can make little positive contribution.” 25 He noted that purchasing was a neglected function in most organizations because it was not important to mainstream problems. He went on to say that some executives found it hard to visualize a company becoming more successful than its competitors because of its superior procurement. Articles began appearing during this period describing the practices of various companies using staff members to collect, analyze, and present data for purchasing decisions. Ford Motor Company was one of the first private organizations to establish a commodity research department to provide short- and long-term commodity information.26 Ford also created a purchase analysis department to give buyers assistance on product and price analysis. The postwar period saw the development of the value analysis (VA) technique, pioneered by General Electric in 1947. GE’s approach concentrated on the evaluation of to Purchasing and Supply Chain Management 23 which materials or changes in specifications and design would reduce overall product costs. Although important internal purchasing developments occurred during this era, there was no denying that other disciplines such as marketing and finance overshadowed purchasing. The emphasis during the postwar years and throughout the 1960s was on satisfying consumer demand and the needs of a growing industrial market. Furthermore, firms faced stable competition and had access to abundant material —conditions that historically have diminished the overall importance of purchasing. The elements that would normally cause an increase in the importance of purchasing were not present during these quiet years of purchasing history.