Is materials management the answer to the new competition?
By Jim Morgan -- Purchasing, 11/18/1999 7:00:00 AM
By the 1960s the rebuilding of the economies of Japan and Europe was virtually completed. Europe and Japan had replaced bombed out basic industries with the newest in plant and equipment. Ironically many of their production facilities were, in fact, far more efficient than those owned by their U.S. competitors. (Where U.S. firms had upgraded most of their productive capacity after the war, the Japanese and European firms had to rebuild from the ground up. As a result they often were competing with state-of-the-art technology.)
For the first time in more than two decades, American industries began to complain about imported goods entering the U.S. and for government help in keeping them out. More than simply worrying about the fact that imports were beginning to compete in the U.S. marketplace, industry representatives of such industries as steel, aluminum, chemicals, and plastics were fretting about unfairly low imported goods.
Labor economists were particularly concerned that the mix of imports coming into the U.S. were changing in character. More and more often they charged, imports into the U.S. were highly sophisticated goods--goods representing the addition of large amounts of value-added labor. On the bargaining front, labor was outwardly pretty quiet. Steel, auto, and machinist unions were coming up with their periodic demands and winning them and producers were managing to pass them along. But imports and the need to hold the line on costs were beginning to change the outlook--for labor and business in general.
On top of these worries, the cost of the war in Vietnam and "Great Society' initiatives were starting to boost the inflation rate. The '60s were generally good times for industry, but for many the gates to opportunity were closing in on them.
Into all of this concern about competitiveness, many purchasing professionals were presenting their own take on the needs of industry. In many companies across the country the principles of materials management were being promulgated as a major correction needed to improve competitiveness. In essence, the call for materials management was a call for the creation of a new functional center called materials and to be headed up by a materials vice president or corporate equivalent.
The reasoning behind the need for the creation of a materials management department went something like this:
1) Most of the dollars that a company spends are for goods and services (35%-65%).
2) There is not enough integration of such functions as production scheduling, purchasing, transportation, and distribution.
3) Leverage and integration in the supply area can only be brought about with the creation of a position of materials manager.
For a while the idea of a materials management department headed by a materials management Tsar was greeted with enthusiasm. By the early '70s, in fact, many vice presidents of materials management were being appointed to drive this end of the business. In fact, many of these materials management departments and the positions that go with them continue to function. Unfortunately, the net result of many moves by companies into materials management have proved to be more promise than action. Especially disappointing has been the adoption of materials management by the manufacturing segment. Instead of leveraging purchases and driving integration, materials management in many cases seems to have resulted in little more than the creation of more functional silos.
As seen by Ken Stork, a former director of purchasing and materials at Motorola, the main problem with materials management was that few companies were ever able to get beyond the creation of positions and departments. Why? curiously many of those now wrestling with the much more complex concept of supply chain management are running into the same problems. Many--maybe most--companies have never mastered the knack of using multi-functional teams to effectively solve flows of materials. Notes Stork, "Key measures and systems were, in most cases, inwardly focused. Few individuals or organizations were concerned or focused on chains of suppliers for their products. In fact, the strategic approach to materials has been uncommon."
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