The History of the Procurement Function in Business

History
Fifteen to twenty years ago companies only had purchasing departments. The procurement function was treated more as a need or necessary evil. So when companies use to procure their goods and services the main thing was to cut a purchase order and get that item or services delivered. Not much was thought concerning leveraging the suppliers or putting long-term contracts in place to protect both the company and the supplier. About ten to twelve years ago or so, companies starting getting smarter and reasoned that any good they bought it doesn’t make good business sense to have too many suppliers. They reasoned they should have a limited number of suppliers and should be able to manage it and understand what they were buying and how changes in the marketplace affected what was purchased as well as what amount was paid for what was bought. Additionally, companies should pay attention to how well the suppliers were doing as they performed their duties – are the suppliers best in class, are they providing a good service delivery, cost, quality, etcetera? These types of questions were at best party to the conversation during the old days of purchasing. Some companies were forerunners and managing those considerations well, while others simply cut purchase orders just to get the buy completed. There are a large number of companies that have begun to re-think their sourcing procedures and have begun to consider the practical, logistical and tactical benefits of strategic sourcing. If I were to estimate the current volume of businesses that optimize strategic sourcing, it would be a modest estimate of about 20 percent or so, while another 20 percent although on the path to strategic sourcing groups do less than optimum leveraging ...

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... the process, then that firm is not long for this world. But when suppliers share process and function with a firm, whether it is good or bad, then the principal firm benefits from the lessons learned and grows wiser and stronger in the process. Ultimately, it is about the relationship – whether recognized as a strategic alliance or partnership firms rely upon the ethical behavior and integrity of the dealings to leverage market advantage and growth as well as the joy of doing business with a reliable and trustworthy supplier.
Strategic sourcing is a critical component because companies view suppliers as integral to their output, specifically; suppliers are often 50 – 90 percent of the total cost base. Many times, suppliers represent the biggest part of not only the cost, but the capability to deliver the goods and services to a principal firm’s customers (7:08).