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Procurement (Purchasing) Evolution, -1970-2012

Posted February 22, 2012 9:00 AM by larhere

Editor's Note: CR4 would like to thank Ed Eisermann of GEA Consulting for contributing this blog entry.

What follows relates to the history of PROCUREMENT (once called Purchasing) in a manufacturing environment from 1970 to 2010. The business in 1970 included centralized procurement tied to multiple locations (branch plants that focused on manufacturing).

The key changes observed during these 40 years, in historical order:

  • The 70's -Central control of procurement for all corporation manufacturing locations. Orders made from forecasts with inventory turns in the range of 3 to 4 turns per year. Multiple suppliers for all commodity type materials and components. Annual bidding between suppliers for business to extract the lowest possible price.
  • The 80's - A move to decentralize procurement control (forecasting and order generation tied to MRP) by manufacturing location coupled with joint location negotiation of price based on the combined material or component volume which also included the philosophy that one supplier is acceptable based upon performance. A move to demand flow manufacturing tied to increasing inventory turns and a demand for more frequent and smaller order quantities focused on increasing of annual inventory turns from under 5 to over 10.
  • The 90's - Continuation of the strategies initiated in the 80's such as Just in Time requiring inventory that arrives on site at the optimal time it's required for the production process. The additional supplier responsibilities for delivered quality and quantity on time also included:
    • VEQ-verifiable evidence of quality with each shipment
    • Shipment in reusable containers
    • Shipment in containers that would hold a specific number of components for example one hours production, 4 hours, one shift, one week etc.
    • Elimination of receiving inspection except for CODE materials requiring special handling such as pressure vessel code items.
    • Receiving limited to verification of part number, package damage and count (boxes with known number of parts.
    • First In, First Out combined where practical at site of use rather than warehousing...
  • The 2000 Decade - Continued improvement of processes initiated in the 90's with the following additional changes:
    • Reducing the total hours of build content in a product but outsourcing non-critical components such as wiring harnesses, control panels, small machined parts
    • Having a staff person from key, high dollar volume suppliers housed on site to work closely with production control to ensure flawless communication, delivery and problem solving.
    • To show continued inventory turn growth, requiring suppliers to warehouse product close to the use plant with the supplier owning the items until delivered.
    • Suppliers expected to deliver inside the manufactures build cycle to eliminate forecasting.
    • Orders to suppliers driven by computer driven MRP
    • For small components such as fasteners, supplier (keep fill bin process). Example; a fastener supplier once each week checks and fills all fastener bins on the production floor and maintains each to a defined level. If the manufacture is build monthly, the supplier is paid monthly. Quantities billed for each component is based on the periods usage based upon the production unit build for the period.
    • For key engineered supplied components, including suppliers in the product developments chain with the goal to us their expertise to provide components that add to the value of the product rather than using commodity generic components.
    • Annual increased sourcing of components and materials overseas with a negative impact on inventory turns, but cost effective. (I personally question whether all the negative costs are taken into account with overseas sourcing).

The 2010 to 2012 period:

  • Consideration for sourcing domestically tied to the issues of the past several years
    • Natural disasters experience by companies in the past 2 years
    • Activism, tie to overseas supplier, environmental and Labor related issues
    • Supplier interaction, quality issues and problem solving.

Companies as they focused on meeting the customer's needs, grew their business size, decentralization manufacturing and management control to global out sourcing While at the same time moving to lean manufacturing and inventory turns of 3 to 5 per year to 15 to 50 inventory turns annually.

Changes during these 40 years complimented those companies driven to stay one step ahead of competition in providing a quality product at a competitive price delivered when the cost needed the product.

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