Buyers take keener interest in capital goods spending
James Morgan -- Purchasing, 5/6/2004 2:00:00 AM
Hidden away among the many changes taking place in corporate thinking over the past few years has been purchasing's growing involvement in capital goods, services, and equipment purchases. Only 10 years ago purchasing's role in capital goods and services procurement involved mostly just paper pushing and transaction processing. Today more and more purchasing executives are making strategic supply decisions about what capital goods and equipment are needed, whether and how they should be bought, and from whom. Simply put, purchasing is gaining responsibilities it seldom had before.
That fact emerges from a recently completed PURCHASING magazine study of capital goods, services and equipment procurement. Five years ago, a similar survey found that survey participants claimed to be involved in 62% of capital goods decisions, but by the beginning of 2004 that figure has risen to 80+%.
Strategic decisions
More significant, though, the survey finds that procurement professionals, in addition to being more involved in capital spending, are taking a larger part in the strategic decision making that usually surrounds capital goods procurement. And in many cases purchasing executives appear to be aggressively inserting their management skills into capital goods procurement decisions.
In a number of telephone interviews, for example, it becomes clear that purchasing professionals are often taking part in decisions that in the past were considered outside of their responsibility. Many, for instance, are being consulted on need and availability matters, on demand and pricing matters, on lease/buy decisions involving capital goods, on outsourcing decisions, and on commercial facets of offshore procurement of capital goods and services.
Survey respondents reported they are deeply involved in sorting out financial and economic considerations for capital goods lease/buy decisions. For instance, while Patrick H. Burk, director of purchasing for MTC Holdings in Oakland, Calif. and Phil Cissell, vice president of purchasing at Barton Brands in Owensboro, Ky., are focusing on cash flow limits, Dave Fisher, director of materials/sales at Electro National Corp., Canton, Me., focuses more sharply on such things as "cost of money, period of performance, cost of item amortization across programs."
Shared responsibilities
Most capital equipment buyers emphasize that their responsibilities in capital goods purchasing more often than not are shared with representatives from executive management, design, manufacturing, and other members of some sort of corporate capital spending team. Typically, says Henry J. Koci of The Plastics Group in Willowbrook Ill., purchasing looks closest at cost, quality, service, and reliability. In most cases, notes Michael Duzzo, director global purchasing at CFC International, Chicago Heights, it gets down to "selecting the most qualified supplier"—the one with the most plusses.
Respondents also said functions represented on corporate capital spending teams vary widely from firm to firm. In general, though, most capital spending is overseen by a team made up of corporate or divisional managers and assistant managers with responsibilities and understanding in such fields as general management, sales, purchasing, finance, engineering, manufacturing, and product design.
Despite the obvious pride that many purchasing professionals express about their newfound responsibilities in capital goods buying, there are others that remain less than enthusiastic about their roles. In blunt terms, for instance, Patricia I. Magnafichi associate director of purchasing and logistics at ICOS Corp., in Bothell, Wash., suggests that purchasing often plays a relatively small role in such areas as sourcing capital equipment to be used by contract manufacturers. "Ours is a very small role. We provide some economic assistance and consult on specifications and provide qualification and validation support. But mostly we do not source or dictate capital equipment purchases."
Still, says Koci, "as our abilities are more recognized and we are more involved, our abilities to analyze, organize, and negotiate also become better appreciated." His optimism about purchasing's rising involvement seems to be born out by the numbers. Since 2002, purchasing's role in capital goods spending has risen by just under 45%.
Why purchasing?
Perhaps the most intriguing questions for many survey participants had to do with their increased involvement on capital goods buying teams. Many, like the director of purchasing at a Cincinnati manufacturing company, say the answer is simply the "need to bring a more professional approach to the process."
A. Wesley Balley, director supply chain at Crossman Corp., East Bloomfield, N.Y., tends to agree, suggesting that, "engineers too often don't consider all pertinent aspects of a business transaction." Barton Brands' Phil Cissell, has few qualms in noting that "buyers usually get better results and examine the alternatives more systematically."
Almost as intriguing were respondents' answer to a question that asked about fundamental weaknesses in current capital goods buying. Among the least liked weaknesses cited by survey participants:
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Attempts at negotiating on (usually small) pieces of equipment without consulting purchasing
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Lack of understanding of total price concept
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Leadtimes too short for proper evaluation
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Engineering has limited abilities for evaluating sources and costs
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