Procurement MGT 2 - Evolution of Procurement

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

Procurement MGT 2 - Evolution of Procurement

Uploaded by

Copyright:

Available Formats

Procurement MGT 2 - Evolution of Procurement

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Procurement MGT 2 - Evolution of Procurement

Uploaded by

Copyright:

Available Formats

The evolution in procurement

• Procurement is a stage in the evolution of

• It was formally recognised in 1850 although various

You might also like