The role of the purchasing professional is undergoing radical change—in terms of responsibilities, expectations, and the part purchasing is playing in corporate competitiveness. Just how radical this change is was explored in a recent conference of PURCHASING Magazine's Editorial Advisory Board.

In a six-hour session, the panel, made up of heads of and former heads of corporate procurement organizations, pinpointed the most important changes and what they probably mean. Board members traced, for instance, how in a matter of just 30 years the procurement function has abandoned its traditionally passive role as "master shopper" and implementer of other people's corporate strategies to become an active participant in the development of corporate strategies.

Perhaps the most visible part of the transition is purchasing's move from shopper and transaction processor to materials manager. Under the materials management umbrella, procurement, distribution and production control functions were placed under one head for the purpose of coordinating and planning the use of goods and services. It was a step in the right direction in the eyes of panel members, but mostly a symbolic one. In most cases a few titles were conferred, but relatively little action was taken to make use of the potential power in using sourcing, supply and procurement as the center of competitive strategies.

Of more dynamic impact, note members of the panel, is the growing number of purchasing operations that have been turning to supply chain management theories as they seek to win economic advantage through expert deployment of their companies' supply chain resources. In growing numbers, say board members, alert procurement professionals are seeking out best practices in supply chain management and elsewhere and applying them in ways that formerly seemed to be out of their ken.

Indeed, board members feel that even deeper change is underfoot in supply and procurement organizations across the country. In most cases it is eluding the didactics of business theory and focusing directly on how they can translate what they do in sourcing, purchasing and supply into corporate competitiveness. In addition to being implementors of other departments' competitive strategies, purchasing executives more and more are developing strategies that can later be adopted and/or adapted as parts of corporate gameplans.

Although no two board members share exactly the same view of the challenges and problems, panelists generally agree that future successes and failures will be determined by performance in these areas:

1. The absolute need for linkage of sourcing, purchasing and management of the supply chain to financial plans. Factors such as inventory, sales, supplier performance, material availability need to be related directly to profits and losses.
2. The need for complete utilization of e-business tools to reduce the inefficiencies of sourcing, purchasing and management of other supply functions.
3. The need that many companies have to develop purchasing, sourcing and supply management practices on a global scale.
4. Development of insourcing/ outsourcing decisions in terms of corporate strategies rather than tactical considerations.
5. The long-range need for broadly based strategies aimed at controlling costs. Especially important is the need to attack costs cross-functionally.
6. The ability of individual companies to determine which values—e.g. technology, responsiveness to customers, cost, quality—are strategically critical to them in gaining competitive advantage.

Long term, panelists expect to see a new emphasis on reaching breakthrough shifts in strategies involving sourcing and supply activities. These new strategies, most emphasize, will require people with broad understanding of the commercial, technical and functional factors involved in supply/sourcing processes at the executive level as well as in the trenches. How these insights play out in real companies with real, and often divergent, needs is demonstrated in the eight short sketches of the panelists and their worries and concerns.

Intel's Roger Whittier notes that his company is on a big "diversification kick," which is bringing change not just in commodities purchased, but also geographic change. Where in the past Intel was not a major player in Europe, it now is doing a great deal of growing by acquisition (40 new locations in Europe in the past few years). In short, "We're coming off two to three years of significant growth and adjusting to growth and technology shifts."

To stay on top of the growth purchasing is "moving at breakneck speed into the use of e-business tools. Right now, well over 50% of our procurement is through the Internet." Intel has moved most of its direct business onto the Internet—ordering, billing, paying. Whittier sees many reduced overhead costs as the result of using Web-based systems. For instance, better Web forecasts are resulting in more accurate control of inventory, which is of major importance for a company like Intel where price deflation can be as much as 30%.

If Intel is growing fast, Celestica, a contract manufacturer servicing predominately the telecom and IT industries, is growing at supersonic speeds. A spin-off from IBM in 1996, Celestica went public in 1998 and is spreading out beyond simple manufacturing into services. Sales, says Andrew Gort, are five times those of 1996. Plant locations are up from two with 2,500 employees to 35 and 35,000 employees.

In addition to manufacturing, Celestica offers various types of engineering services such as component engineering, supplier qualification and data management. As employees of a contract manufacturer, Gort and his crew need to put unusually high stress on low costs and high productivity. In fact, procurement is set up to reflect the ability to make fast changes in its business. Margins are thin, changes fast and furious, so procurement is heavily involved in inventory management (eight turns a year), logistics management, return-on-investment capital, acquisitions, and the setting up of a global supply network. How well Gort and company master these issues will pretty much determine the future success or failure of Celestica.

Gort expects to receive much help in the future with the above issues via the Internet—but "not on the transactional side" so much as through information sharing with customers. Likewise, he sees electronic auctions as more of an informational tool than a transactional tool. For smaller companies, he suggests that auctions could be a good tool to access better pricing.

R. Gene Richter is president of Richter Katonah Inc., his own consulting firm. And although the former head of purchasing at Black & Decker, Hewlett-Packard and IBM protests that he is mainly interested in golf these days, there's little doubt that he has his finger on what's going on in procurement—big time.

Today Richter is especially noted for his work at IBM where from 1994 to 1999 he transformed purchasing at "Big Blue" from essentially a collection of divisional purchasing groups into a centralized structure that truly recognizes the importance of suppliers in keeping IBM a leader in the technology marketplace. His reengineering of IBM's procurement operation is generally credited with playing a major part in IBM's dramatic recovery in the late '90s. Richter's reengineering of IBM's procurement organization played a key role in moving IBM from a vertically integrated behemoth to a flexible competitor.

Much of Richter's consulting recently has been in the area of e-procurement. He feels the Internet is undervalued as a tool for "really creative process engineering." If harnessed in a relationship where there is "an open flow of thought" it can be a significant tool for change. Trouble often comes, he says, "when smallish to medium-sized suppliers get pressed on issues (such as EDI) and begin to see the Internet as a new way their bigger customers are going to hurt them." On the other hand, he says, "the Internet enables you to do really creative process engineering "such as we did at IBM."

Richter, along with several of his co-panelists, suggests that one best practice that is greatly underused: use of written procurement strategies for all major commodities. The strategy includes market analysis complete with a rundown on such things as number of suppliers in the field, leading suppliers, standings of suppliers in such areas as quality, delivery and technology. It also includes a negotiating strategy. Having a written strategy "really makes a difference" over having a strategy "that's just rolling around in your head," says Richter. A big payback comes from putting the plan down in black and white when, for instance, the negotiating part of the strategy stares back at you and says, "What if we don't achieve our objectives? What's the backup plan?" Insisting on a written procurement strategy, says Richter, is a "real breakthrough kind of best practice."

Michael Katzorke joined Cessna from AlliedSignal three years ago. Before that he served in the procurement operations of Motorola and Honeywell. His title as vice president supply chain management tells a story: He was hired to reinvent the company's sourcing, purchasing and supply management operations. Purchasing is linked to the business plan via formal commodity teams and plans linked to the strategic business plan, which is owned by the CEO and the peers on Katzorke's staff.

The aerospace business, he feels, has been slow in adopting principles of supply chain management and integration. He notes, for example, that when he arrived at Cessna, the company was making practically everything. But this year Cessna is undergoing a major rationalization process to determine what needs to be made in-house and what makes sense to outsource. The evaluation process, says Katzorke, is complicated by the fact that there are often few good outside sources. Nevertheless, he feels that Cessna is making major inroads in aligning the supply base. He feels the ability to outcompete the competition in the aerospace field depends to a great extent on how much better Cessna is at integrating its supply chain. He proudly points out that the company has made notable progress using e-procurement tools to eliminate redundant transaction processing.

In driving home his commitment to reorganization and supplier rationalization Katzorke has turned to the use of Baldrige assessment tools. He says they are playing a major part in his efforts to move procurement into a more dynamic mode. Currently Cessna requires all suppliers to use Baldrige assessment tools on a year-after-year operating basis.

The supply operation of AMR (parent of American Airlines) is headed by John R. MacLean, VP purchasing. And while MacLean heads up one of the world's best-known service businesses, he is no stranger to manufacturing—with experience at Ford and Navistar.

AMR uses a teaming approach in implementing a highly sophisticated supply management strategy. MacLean is credited with introducing to the airline industry such world-class supply management techniques as early supplier involvement, integrated supply management, global sourcing and consortium sourcing. His operation buys food, parts to repair planes and fuel. It also handles logistics and heads up standardization projects in such areas as seating and bathrooms.

In MacLean's view, AMR's success depends to a great extent on his department's ability to work with suppliers to add value and create competition. He also suggests that manufacturing companies don't address the service area enough. "Some things that we do could be adopted and adapted by manufacturing companies. He offers as an example the airline's handling of tires. "We don't buy them, we pay tire companies a price per landing. Because we're paying price per landing it drives the tiremakers to improve their product. He suggests there are other strategies that could be adopted by manufacturing companies.

To George J. Hupfer, Black & Decker does not present a complex business model. It serves two distinct customer markets—professional and consumer users of small power tools. Professional tools are sold through industrial distributors, consumer tools through retailers.

Relatively low product prices and heavy promotion of private-label products afford little chance for product differentiation in the consumer lines. Tool manufacturers make heavy use of off-the-shelf components—e.g. batteries, switches, chucks, motors, etc. Competition in most low- and middle-price lines currently comes from places little expected—China and Germany—where private labeling is being used to crack American markets. In fact, competitors in Black & Decker's consumer lines are suffering from 1%/year price deflation. Low margins also are presenting difficulties in building and protecting brands.

On the professional side B&D has been more successful with new product introductions and taken market share away from competitors with its Wahl brand tools.

As Hupfer sees it, B&D has few outright advantages over its global competitors. Those advantages that B&D does celebrate are mainly of its own creation. "If suppliers are expected to meet purchasing and business objectives, a lot depends on how well objectives are communicated. It has to be done vertically, horizontally and frequently and starts with an annual review by B&D's management and executives of the top 100 suppliers." Annual objectives are covered in such areas as cost and service level. Another important best practice is B&D's global communications across the purchasing organization. "There's someone visiting someone every single day in the world. It's one of the ways we continue to compete in a highly cost-sensitive product market."

Deere & Co. is on a fast growth path, says R. David Nelson. Business breaks down roughly this way: 50% agricultural equipment, 25% construction equipment, and 25% lawn and garden equipment. Sales in 2000 were about $13 billion; next year the company is targeting $20 billion. This fast runup in sales is due to a combination of growth in current products and growth by acquisition. There is also lots of rationalization in the "ag" business and Deere is apparently picking up some important new business through acquisition.

Deere is making big changes in order fulfillment. Where it used to take six to eight months for delivery of a big piece of construction equipment, today it's a matter of days for delivery. This drastic cut in leadtimes is creating tremendous pressure to reduce stock-up times and inventories as well as redirecting a lot of supplier engineering efforts to ensure slimmer cycle times.

Up to here, a major focus under Nelson was on bringing some centralization to the purchasing organization. Now, says Nelson, it's time for a new focus. A senior management study team is looking to optimize supply management processes at Deere.

In looking over "best practices" in purchasing, Nelson suggests that one area of significant potential payoff is measurement. "One of the things we measure and report back on to suppliers in addition to quality, delivery and cost competitiveness is something we call 'wavelength.'" It's a measure of such things as attitude, responsiveness and follow-up of details. Suppliers hate it, says Nelson, "but it's information that usually doesn't get communicated and is so important in today's tough markets."

While MSX International, Auburn Hills, Mich., has been around for 60 years, its celebrated CEO, Thomas Stallkamp, has been at MSX little over a year. As head of Chrysler's purchasing operation and later president of Chrysler Corp., Stallkamp has been widely recognized and quoted over the years for his innovative approaches to supplier development. Then came Chrysler's takeover by Daimler Benz and Stallkamp's move to MSX.

Even though MSX boasts a 60-year history, in its current form the firm is only about three years old. In that time period it has been on the fast track in acquiring engineering companies and at latest count boasted 117 locations in 24 countries. The company does business with every automotive OEM but Honda. And it makes things for clients that they don't really want to make themselves. For instance, it makes all of Ford's electric Rangers and it also makes postal vehicles for Ford. But mostly MSX is a service company. Half the company, in fact, is devoted to engineering.

Up to now, MSX has operated as a collection of business units, which it now wants to reformat into four product line offerings: collaborative engineering, engineering staffing, quality relations management and third-party procurement.

While Stallkamp sees great potential in the Internet, he is hardly a sycophant. "It's a useful tool, nothing more. It doesn't make decisions for you." He is even less enthused with the auction potential of the Internet. Auction users, he notes, are "betting everything on the marketplace at that moment instead of trying to hedge forward or make a long-term procurement on some portion."

One practice from his days at Chrysler that Stallkamp highly recommends for consideration is something he calls "coordinated CEO strategies." "Every year purchasing would bring in a supplier CEO to meet with our CEO. They'd come in and we'd tell them where we wanted to go for that year. If you can get both CEOs buying into such conversations you've got a corporate-blessed program."