Purchasing

Mary Walker

Scientific Purchasing
July 20, 2007

I am told that this book “Scientific Purchasing” is really the first book written on the profession of purchasing. Correct me if I am wrong.

Edward T. Gushee, Purchasing Agent, The Detroit Edison Company and L. F. Boffey, Editor, The Purchasing Agent, joined forces to write this book published in 1928 by McGraw-Hill Book Company.

Webster’s New International gives the following definition, among others; “Science:

Any branch or department of systematized knowledge considered as a distinct field of investigation or object of study.”

So many years ago, Alex Dow, President, The Detroit Edison Company; President, The American Society of Mechanical Engineers wrote:

“Purchasing the diversity of creatures required in the business of a big corporation has need to be a science and must also be an art. It has to be a science because the studies of prices, of the vendors’ costs and profits of optional materials, of new sources of supply, have to be founded upon exact observations of existing conditions and logical calculations therefrom. It is an art because the estimating of trends of markets upward and downward, the anticipation of the purchasers’ requirements to take advantage of favorable markets or their deferment for the same reason, and the final trading between buyer and seller require an instant comprehension of human nature and cannot be ordered by statistics.”

If a company established a purchasing department, its methods must do more than merely pay its way, it must add to profits of the company. Is this not true today? As buyers we are continually graded on service level, however are continually asked to reduce inventory. It is always a push to return obsolete material. Working capital is the big word in purchasing these days. Inventory is one component of working capital. There’s a tension between having too much and too little inventory. Having lots of inventory on hand solves many business problems. The company can fill customer orders without delay. This indicates a great service level for the buyer.

The other side of too much inventory is financing cost and the risk of deterioration in the market value of the inventory itself. Excess inventory adds to the company’s financing cost, which reduces profits. Items that set on the shelf may become obsolete or less salable as time passes which creates a negative impact on profitability.

When the economy dropped a few years ago, head counts in purchasing departments became less. If a person quit, they were not replaced. The ones left picked up the slack. With the recovery period in business you do not see companies doing a lot of hiring. The staff must manage the workload. Managers like this because the operating expenses are not increasing with the increase in sales.

When buyers spend all their time placing purchase orders, checking deliveries, handling problems and really have no time to do what we call maintenance work, the company loses. Price changes are accepted. Wrong material received is just placed in inventory. Forecast of materials is accepted and purchased. Obsolete inventory is not being checked and returned to the supplier. Many things slip through the crack.

Management might consider the fact that possibly there would be a greater savings to the company if the buyer had time to maintain their inventory. In the old days, it was suggested that a buyer have at least 15% of their time for maintenance work. The time to make things better. How many of us have that now?

Managers need to remember how purchasing people can affect the bottom line.

Posted by Mary Walker on July 20, 2007 | Comments (0)