A history of procurement and the challenges for today

The evolution of work organisation and technology, which has sometimes risen to the status of an industrial revolution, has over time transformed the enterprise and with it the functions in charge of its management. The procurement is among those that have changed the most. From a simple service unit subservient to production in the 1960s, it has now become a strategic function both in terms of the percentage of business costs it manages and the contribution to innovation and business competitiveness it can make. On a global scale, its evolution can be summarised in the following macro-phases.

The global economic system is characterised by a clear predominance of agriculture over industry. Most companies do not have a structured purchasing department, i.e. dedicated people who methodically purchase what is needed. Everyone buys everything, mostly from local and well-known companies. Maverick buying, understood as a process without procurement rules and strategies, is the generalised modus operandi. The first book entirely dedicated to procurement dates back to 1887: The handling of railway supplies, their purchase and disposition. In it, the 'materials man' is spoken of, emphasising the importance of his technical knowledge and highlighting the function's contribution to business profitability.

Procurement began to appear in the organisation charts of European companies. In the USA, its diffusion is much more widespread, suffice it to say that in 1933 nine universities were delivering courses on Procurement. The purchasing process does not yet have a generalised standard configuration and up to 1920 more than 50 per cent of purchase requests are without a technical specification or equivalent document. With the scientific organisation of work comes mass production, the standardisation of materials and the systematic management of every business activity, including purchasing. Procurement becomes to all intents and purposes a function, albeit not a primary one.

The whole world, and Europe in particular, is going through the stages of development and reconstruction. There is a need for everything and the products marketed satisfy basic needs. Except in rare cases, there is no competition and what is produced is sold without the need for special commercial policies. The production manager is the deus ex machina. The more it produces, the more it sells. Companies are almost self-sufficient, components and final products are made entirely in-house. Purchases are subordinate to production, they are not broken down by commodity group or specialisation and their incidence on product cost varies from 12% to 20%. Ford set up the 'Commodity Research Department', now called purchasing marketing, and the 'Purchasing Analysis Department' to support buyers in analysing the cost drivers of direct materials.

This period saw the explosion of technologies and the emergence of specialised markets. For some components of their finished products, companies lack the necessary know-how and have to turn to the market and often to foreign suppliers. This is the first phase of the internationalisation of procurement. The culture and skills of the buyer change. In addition to knowledge of English, it is necessary to be familiar with exchange rates and their fluctuations, the abc of contract law and price trends in the major markets. In American companies, buyers who buy locally are joined by buyers experienced in international purchasing. From the 1970s, the practice of tactical decentralisation of non-core processes spread and, in the 1980s, thanks to Reagan's and Thatcher's liberalist drive, the globalisation of trade and the international restructuring of production, i.e. the outsourcing of entire production processes to low labour cost countries, began. All this raised the incidence of purchases on the cost produced to 45%-55%.