American business feels what it's like to be the free world's leader
By Jim Morgan -- Purchasing, 11/18/1999
The outbreak of the Korean War in 1950 served as a coda to World War II and a milestone on the way to America's new world role. In the late '40s the U.S. gradually changed its thinking about it's place in the world. This change in thinking was a major reason the country did not slide back into a depression at the end of the war. For starters, the U.S. was unable to demobilize at the rate it did after World War I, because almost immediately after the cessation of hostilities, the U.S. was thrust into the role of military defender of the free world.As it faced off against the USSR in the Middle East, Eastern Europe, in Turkey and Greece, and Berlin, it became clear that the United States could never return to its insular economy of pre World War II. As the extent of the country's military commitment grew clearer it also became clearer that it would be necessary to bankroll the free world so that it could not only defend itself, but also feed and rebuild.
How well the U.S. had been able to assume this transformation to the preeminent economic power in the world was demonstrated in 1950 with the outbreak of the Korean War. The initial business surge at the end of World War II had settled out into a long period of steady growth and relatively modest inflation for the U.S. economy. As the only undamaged economy among the war's participants, the U.S. was able to take on the Korean War with hardly a ripple--and it did.
The Eisenhower years, as many people characterize the 1950s, was a long period of economic stability. To be sure, there were many military actions and threats of action. Military spending remained high. But still, the economy was buoyant enough to absorb the high rate of military spending without even disturbing the consumer sector.
However, by the late 1950s competition from the businesses rebuilt with U.S. aid were beginning to be felt. Import competition, especially in such industries as steel, chemicals, plastics, aluminum, and low-priced durable goods, was building.
By the late 1950s some moderately disquieting warning signs were showing up in different places in U.S. industry. In some companies profits were seen to be dropping--despite relatively low levels of competition. In many more companies earnings retained in the business appeared to be dropping. Conglomeration (the melding together of a number of dissimilar firms into a single large company) became the darling of investors. Investing in non-related businesses rather than expansions of their own businesses became the badge of astute corporate managers. In fact, it was almost axiomatic in the late '50s to talk about the ability of good fiscal managers to manage all types of business under the same roof and to grow companies so that their worth was greater than the sum of their parts.
At the height of the conglomerate craze, many purchasing departments were tapped for their knowledge of potential merger candidates among their supplier bases. Fortunately for their businesses not that many purchasing managers got the conglomerate bug. Most had more pressing problems. For instance, as the '50s were drawing to a close many purchasing departments came under progressively greater pressure to deliver greater cost savings. Managements that had witnessed significant contributions turned in by purchasing's use of strategic negotiation skills in the war years were demanding greater savings via tougher negotiation. As they saw it, sales were continuing to grow, but not profits.
While many a purchasing agent was forced into hard-nosed price negotiating, a growing number of purchasing professionals were beginning to press for greater freedom in the way they delivered savings to the company. Buyers were taking greater interest in forecasting raw materials prices, in hedging price-sensitive raw materials, in cost/price analysis, and competitive analysis. Most important, they were looking farther afield than the obvious one-time price shootouts characteristic of industrial purchasing of the day. Just as a young purchasing engineer at GE had raised the horizons of the function in the '40s to develop value analysis and value engineering, purchasing professionals were looking for new strategies that would deliver fundamental changes in the cost structure.
Perhaps the most significant of the new strategies to emerge in the '50s came in 1957. The director of purchasing at Brown & Sharpe Co., of Providence, R.I., Ernest L. Anderson, developed a concept called systems contracting. Originally thought of mainly as a way to reduce the many costs associated with buying maintenance, repair, and operating (MRO) goods, it was soon found to have wider application in the purchase of production goods and services.
In essence, Anderson's systems contract committed the supplier to furnish all of a family of goods at specified service levels, for a specific time period, at specified prices, with little day-to-day involvement by the purchasing department in the transaction. The contract committed purchasing to buy a line of items exclusively from a supplier. In return for this assured business the supplier promised to stock and deliver the items as needed. Object of the agreement was elimination of paperwork and transaction processing, reduction of inventory, improved material flow, and best overall pricing for the goods.
In many respects Anderson's most important contribution was his development of the discipline of systems analysis. Buyers following his lead developed comprehensive methods for examining the procurement system, searching out waste, and streamlining the procurement system. Much of the work done at this time would prove to be invaluable two decades later in adapting computer power to purchasing's needs.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
