History of Procurement
The concept of procurement has always been in existence. Maybe not in the same regulated way that it is now; but people and businesses have always had to purchase goods, material and labor to complete projects.
The practice of procurement-related tasks dates back as early as 3,000 BC In Egypt, scribes responsible for pyramid design also functioned as clerks, using papyrus to record the amount of labor and materials needed for construction. Ancient Romans also used scribes to create contracts when the empire was engaged in trade with private suppliers. In Great Britain, procurement’s history dates back to William the Conqueror, who wanted a concise way to record tax collections. The practice evolved to incorporate goods and services with the rise of the British Empire and its colonial pursuits.
Think back to Rome – it wasn’t built in a day, and it certainly wasn’t built without effective suppliers. It was the same with the Pyramids – some form of procurement strategy would have been needed as part of the major construction project’s supply chain.
Although it’s likely that these procurement practices were much simpler and involved slavery, the work they completed still stands today, indicating that thousands of years before modern technology, strong supply chains could still be a reality.
Moving forward, a book written by Charles Babbage in 1832 titled ‘On the Economy of Machinery and Manufactures’ discussed the need for an introduction of a so-called ‘materials man’ in the mining industry. He said that the materials man should be someone who selects, purchases and tracks the goods used on a project – essentially the modern-day chief procurement officer.
Procurement received greater importance during the Industrial Revolution when the practice became more than part of a worker’s skill set, but a job function all its own. When plants needed resources to help manufacture their products, many of them wound up hiring “materials” men to handle the acquisition and transportation of supplies. This often meant strategic thinking in negotiating with suppliers for the best possible price to offset manufacturing costs.
Charles Babbage had the right idea for what was needed back in 1832, but supply chain management has become much more structured over the following years. Now, a proper strategy is needed to keep supply chain risk to a minimum, particularly as the role that an organization’s supply chain plays in its day-to-day running has grown significantly.
Manually managing multiple suppliers is difficult. Let’s go back to our previous imaginings: your business needs supplies to continue producing your product. In order to find the materials you need, you would have to find the right materials at the best cost, manage the supplier relationship yourself and keep contracts and budgetary records yourself. That’s a lot of yourselves. And when it’s all over, do you really know if you provided the best value for your business?
We have learned from history that manual processes are not always the most beneficial. Today, we look to minimize manual procurement process and maximize value by utilizing preferred suppliers, catalog management and contract compliance tracking. With procurement software, a simple search will find an item yielding the best value for your business (based on parameters you set which can include cost, geography, etc.), making it that easy.
With the creation of the Internet, procurement took on (and continues to take on) an even more dynamic role in the late 20th century, engaging in B2B e-commerce transactions. The pace of activity became even faster with improvements in software that have continued to the practice of procurement more thorough and accurate. Today’s procurement professionals are looking to capitalize on automation technology to reduce the hectic work. Their goal is to discover value, with savings.
The social status of those involved in procurement and the shape of the economy of the times have been inextricably linked. During periods when the economy was sluggish, the practice was a skill set among clerks. When the economy was more robust, procurement became a vital strategy. Given its increased importance of late, especially with the onset of more accessible technology, procurement may become even more important, especially when the practice can be part of a long-run solution to an economic downturn.
Social and Workplace Changes
The need to pursue strategic sourcing will create instability within purchasing and supply organizations. Movement of purchasing professionals between organizations often results in compensation discrepancies as new hires arrive with higher pay and benefits. The need to elevate the level of purchasing professionals often results in “buying” talent in the open market at a premium price. New employees are increasingly demanding to work from home or remote sites, presenting communication, coordination, and organizational challenges.
Professionals from other functional groups will increasingly accepting assignments in procurement. These professionals often arrive from groups that historically pay more than procurement, creating pay differentials.
Commodity sourcing experts will increasingly be dispersed around the globe at business unit or geographic buying locations (with coordination).
Sourcing personnel will increasingly have dual reporting relationships.
Greater use of global commodity teams adds to organizational complexity.
Increased global sourcing requires the coordination of worldwide purchasing activities.
A shared services model requires an umbrella organization to oversee activities across business units.
Outsourcing New Look
The design and structure of the sourcing group changed significantly.
- Smaller professional staff
- Minimal involvement with day-to-day operations or transactions
- Act as an internal consultant and problem solver
- Responsible for managing alliances and other critical relationships
- Greater responsibility for non-traditional purchasing
- Involvement with cross-enterprise negotiations
- Manage integrative activities with suppliers and the rest of the organization
- Become process managers that oversee strategic and tactical responsibilities
- Segment sourcing strategies to match requirements with an appropriate strategy
Easy Ways to Improve Procurement Processes
It’s a great time for purchasing professionals to review their procurement strategies and tactics for the upcoming year. By taking the time to examine procurement process that will likely be able to identify areas where time savings and/or efficiency improvements can be made.
Pre-qualifying vendors in the run-up to a project makes good sense for everyone involved. A simple web form is all we need to separate qualified vendors from those who are not a good fit for the project; by doing so you will save yourself (and your vendors) time and headaches. Imagine accepting a bid from a vendor only to discover that they do not have the necessary experience to actually do the work required. By implementing pre-qualification, you avoid having to disqualify vendors after the fact and then starting your solicitation process all over again.
A supplier rotation feature makes it easy for buying organizations to automate the selection of qualified vendors on a per-project basis. All you have to do is enter the details of preferred suppliers into your procurement solution, choose a few basic selection parameters and you’re done! Suppliers can be segmented according to compliance, equity and/or diversity requirements; once activated, the Supplier Rotation feature will automatically select the vendor that is the best fit for the job based on past and present needs.
Purchasing departments are increasingly turning to electronic bid submission systems to streamline their solicitation and bidding processes. Purchasing professionals can shorten bid response times, increase the number of compliant bids received and improve security by moving some or all of their bid process to an electronic system. Lower operational costs are also associated with the implementation of a paperless bidding system.
Moreover the course of history, we have seen many events repeat themselves. What lesson can we learn from this phenomenon? That event will eventually reoccur, and when they do, we should recognize it and use our knowledge of the outcome of the first event to anticipate the likely outcome. Times are changing. Industries are changing. If you want to remain competitive, it needs to change as well. It needs to adopt a more strategic approach that enables your Procurement’s to take more control of its spend As supply chains develop further over the coming years and new technology comes into play, it is likely that the procurement departments of tomorrow will become once again unrecognizable from those of today – but each will remain founded on those basic principles first outlined thousands of years ago.