When the future looked much better than it would be
By Jim Morgan -- Purchasing, 11/18/1999
Most mental pictures of the "Roaring '20s" probably owe as much to the movies as they do to what was really going on. As the story is rolled out in the movies: The country was on a tremendous roll that suddenly ended with the crash of the stock market in 1929. In between people made fabulous fortunes and lived in fabulous opulence. This period of wonderful opulence was followed by a decade in which people alternately bought or sold apples on street corners.Acceptable versions of the Great Depression tell us very little about why the crash of the stock market in 1929 caused so big a depression. For that matter, most explanations of the Great Depression tend to gloss over the fact that the real depression didn't immediately follow the crash in late 1929, but came in 1931 and 1932 after the passage of the Smoot-Hawley tariff bill. But then, a piece of tariff legislation is hardly a match for the excitement of a stock market crash!
Nor is much said--either in or out of the movies--about the severe depression that hit the farming population of the United States in the 1920s--about the torrents of farm foreclosures or the abject poverty experienced by much of rural America. Today we see scenes of the Dust Bowl of the '30s on TV, but little is said about the hard times of the '20s farmer.
In point of truth, the mid-1920s were not nearly so roaring as we picture them. Speculators were "making a bundle," but for many industries the '20s were a period of "profitless prosperity." Sales were reasonably good, but profitability was spotty. A great deal of U.S. industry had become less productive, labor had become restive, spendable income was shrinking, and imported goods were reportedly seeping into the country--over already high tariff walls.
Ironically this was a period in which great paper fortunes were being made, but profits and investment in plant and equipment were weak. Manufacturing industries were especially hard hit by their seeming inability to control inventories.
Into this gap, more and more purchasing specialists were beginning to step--taking on greater responsibilities for inventory and control. Many were looking for some strategic principles to apply and in the process more and more buyers were taking on and examining the tradeoffs inherent in the application of price and quantity discounts. More important, a growing number of purchasing specialists were moving the consideration of these tradeoffs earlier in the negotiating and transaction processes.
One particularly popular approach to inventory control was the use of Economic Order Quantity equations. As proponents of EOQ put it: the average buyer with some basic information about times, costs, and quantities could select the exact best order quantity for his or her company.
Order quantity tables were initially developed at such companies as Westinghouse and Bell Telephone Laboratories as a means for eliminating material shortages among stores items and later adopted for a wide number of items that get reordered on a periodic basis. Gradually EOQ formulas began to be adopted as tools for use in purchasing decision making.
Most EOQ equations seek to calculate the optimal order size by balancing the cost of carrying inventory against the cost of placing an order. The models on which equations are based describe the relationship between the cost of placing orders, the costs of carrying inventory, and the order quantity. Most EOQ formulas also make assumptions that demand rate is constant, costs are fixed, and production and inventory capacity are relatively unlimited.
The use of EOQ was popular for a number of years in the 1920s and again in the '40s--especially in manufacturing plants. But by the late '60s EOQ formulas were gradually abandoned in favor of more broadly based strategic tools.
The mid-1920s also saw many of the first attempts by purchasing professionals to develop scientific evaluation of prospective vendors. A major struggle in the adoption of evaluation standards was the establishment of the place that price plays in the overall evaluation. Also in play were some of the earliest attempts at establishing performance for rating vendors.
At the start of the "Roaring '20s" the outlook for buyers--especially those in technically oriented manufacturing industries, seemed like clear sailing as far as the eye could see. But as the good times gradually sputtered and died, so did the hopes of many rising young purchasing professionals. By 1932 much of the progress made in the advancement of scientific purchasing was only a memory. Salespeople, made desperate over falling sales, were once again making innuendos about bid rigging and graft. Internally many of the turf wars from before the Great War, were breaking out again. At best, the outlook for most young purchasing professionals was dim.
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