ABSTRACT INDUSTRIAL BUYERS: CRITICAL INCIDENTS WHICH DISTINGUISH BETWEEN EFFECTIVE AND INEFFECTIVE PURCHASING PERFORMANCE BY Robert Irving Cook This dissertation is designed to provide additional knowledge about the activities of personnel performing buying functions within the purchasing departments of in— dustrial firms located in the United States. It is aimed at identifying and reporting what buyers are doing when they are considered to be effective, and what they are doing--or failing to do--when they are considered to be ineffective. Information on the age, experience, and edu- cation of such buyers is also examined for similarities and contrasts. A further purpose of this investigation is to determine the value of the critical incident tech- nique as a research tool for developing data on buyer activities. The need for such a study is related to the influ- ence the purchasing function exerts on the operation of an industrial firm. This point is emphasized when it is Robert Irving Cook recognized that an average manufacturing firm spends approxi— mately fifty percent of its sales dollar in buying goods and services from its suppliers. Unless these funds are used wisely, the financial standing of the firm can easily be in jeopardy. How well the funds are spent depends largely on the training and the ability of the buyers. Further information indicating that this study of purchasing activities should be useful, was suggested when a search of the literature failed to reveal evidence that the critical incident technique had been used previously to identify the activities of industrial buyers. The critical incident method was used in this re- search by asking members of purchasing associations to describe situations in which they had observed a buyer performing in a particularly effective or ineffective fashion. The incidents were then analyzed and the key statements were abstracted which reflected what the buyer was doing--or not doing--that caused him to be judged as successful or unsuccessful. These statements were then compared with a list of buyer activities which had been prepared from purchasing texts and discussions with pur- chasing professionals. Three examples are provided here to illustrate the critical incident technique and its application in this research. In one incident an effective buyer was reported able to achieve a reduction in inventory, make a contribution Robert Irving Cook to improved safety, and bring a reduction in material han- dling costs which resulted in this comment: "Though the cost was 10 cents per ton more, the net savings annually amounted to $65,000." Another incident mentioned that engineering had only $10,000 budgeted for a machine, but believed that a $12,000 machine was best for the job. The statement was then made: ". . . purchasing negotiated the $12,000 machine down to $9,500." A final example will illustrate how ineffective performance was indicated. "The plant ran short of the most important raw material because the buyer did not prOperly schedule shipment releases from vendor, and monitor inventory, and coordinate with pro- duction control as he should have. . . . It was necessary to charter two airplanes to bring in enough material until truck Shipment could arrive. Premium transportation costs in excess of $2,000." A list of 28 activities was developed and proved sufficient to include all those which were cited in the incidents. Certain findings resulted from an examination of the 316 incidents. Some of the activities appeared more frequently with effective buyers, and some appeared more frequently with ineffective buyers. The activities associ- ated with the effective buyers seemed to require extensive knowledge of products and their applications. They also indicated the buyer has an understanding of the needs of .I 71., - ‘- a 5-, Robert Irving Cook product users and an ability to encourage suggestions and participation in problem solving by suppliers. Ineffective buyers, on the other hand, are more likely to be involved with details, routines, and situations concerning authority and responsibility. It was also noticed that ineffective buyers tended to be younger, have less experience, and more of them had only a high school education. The research indicates that effective buyers tend to be proficient in certain areas and suggests what those areas are. It also indicates what ineffective buyers are doing when they are deficient in their duties. Further, the study provides evidence of a relationship between buyer success and age, experience, and education. The findings in this study may well conform to the beliefs of experienced purchasing personnel. What this research offers for the first time is empirical evidence that such intuitive beliefs are justified. The study provides a checklist on the activities of buyers which should be useful to purchasing managers. The information provided can be used in the selection of purchasing per- sonnel and in reviewing their performance. It also sup- plies criteria which can be used as a guide for developing training programs to improve purchasing performance. Another interesting aspect of this research was related to the education of buyers. Both types of buyers Robert Irving Cook had a large percentage of college graduates. Fifty-four percent of the effective buyers and 47 percent of the in- effective buyers were reported to hold degrees. Further study of this fact might be warranted to determine if the difference in the performance of college graduates might be linked to the major field of study, or to the entry level of the job-holder, or to differences in training opportunities available to the different buyers. This study was intended to be exploratory and de- Ve10p some additional knowledge of the purchasing function. Further investigation is recommended to confirm and en- large on the findings of this research. INDUSTRIAL BUYERS: CRITICAL INCIDENTS WHICH DISTINGUISH BETWEEN EFFECTIVE AND INEFFECTIVE PURCHASING PERFORMANCE BY Robert Irving Cook A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Management 1974 GD Copyright by Robert Irving Cook 1974 DEDICATION To my wife Barb and my family, whose patience, understanding, and reassurance were so necessary for the successful completion of this endeavor. ii ACKNOWLEDGMENTS This study has indebted me to many persons who provided me with counsel and the benefits of their experi- ence. In particular I express sincere appreciation to the members of my dissertation committee, Dr. John Hoagland, Dr. Winston Oberg, and Dr. William Crissy. These gentlemen provided me with helpful professional advice, constructive criticism, and guidance as well as a necessary ingredient in this task--encouragement. I am also grateful to the many members of the pur— chasing profession who supplied critical incidents from which this study was prepared. The members of the Fourth District were most helpful, especially the Fort Wayne Association. I wish to recognize the support and assistance provided by Tri-State College, my fellow faculty members, and those who assisted with the typing, Mrs. Golden, Laura, and Dawn. iii TABLE OF CONTENTS DEDICATION O O O O O O O O O O 0 ACKNOWLEDGMENTS . . . . . . . . . LI ST OF TABLES O C O O O O O O O 0 LIST OF FIGURES . . . . . . . . . LIST OF APPENDICES . . . . . . . . Chapter I. II. III. IV. INTRODUCTION 0 O O O O O O 0 Need for the Study . . . . . Purpose . . . . . . . . Limitations of the Study . . . Definitions of Terms Used . . . Organization of the Study . . . LITERATURE REVIEW . . . . . . Purchasing Literature Prior to World War Purchasing Literature Since World War II Summary . . . . . . . . . RESEARCH DESIGN . . . . . . . The General Approach . . . . . Procedure for Gathering Data . . Analysis of the Data . . . . . Summary . . . . . . . . . ACTIVITIES OF EFFECTIVE BUYERS . . Procedure . . . . . . . . Activities of Effective Buyers . Age, Experience, and Education of Effective Buyers O O O O O O O O 0 Summary . . . . . . . . . iv Page ii iii vi vii viii 10 10 12 14 15 15 19 30 33 33 38 41 44 46 46 47 73 76 Chapter Page V. ACTIVITIES OF INEFFECTIVE BUYERS . . . . . 78 Procedure . . . . . . . . . . . . 78 Activities of Ineffective Buyers . . . . . 79 Age, Experience, and Education of Ineffective Buyers . . . . . . . . . . . . . 104 Summary . . . . . . . . . . . . . 107 VI. A COMPARISON OF EFFECTIVE WITH INEFFECTIVE BUYERS . O O O C O O O C O O O I O l O 9 Relative Importance of the Activities . . . 109 Buyer Performance and Activities . . . . . 112 Buyers Compared by Age, Experience and Education . . . . . . . . . . . . 115 Activities of Buyers According to Their Age, Experience, and Education . . . . . . 121 Summary . . . . . . . . . . . . . 129 VII. SUMMARY AND CONCLUSIONS . . . . . . . . 131 APPENDIX Summary . . . . . . . . . . . . . 131 Major Findings . . . . . . . . . . . 132 Conclusions . . . . . . . . . . . . 135 Recommendations . . . . . . . . . . 137 O I O O O O O O O O O O O O O O 139 BIBLIOGRAPHY O O O O O O O O I O O O O O 330 \ Table 1. 11. 12. 13. 14. 15. 16. LIST OF TABLES Time Spent Daily for Seven Buyers in Production Purchasing . . . . . . . . . . . . Activities of Effective Buyers . . . . . . Age of Effective Buyers . . . . . . . . . Experience of Effective Buyers . . . . . . Education of Effective Buyers . . . . . . . Activities of Ineffective Buyers . . . . . . Age of Ineffective Buyers . . . . . . . . Experience of Ineffective Buyers . . . . . . Education of Ineffective Buyers . . . . . . Comparison of Effective and Ineffective Buyers by ActiVj-ties O O O O 0 O O O O O 0 Effective and Ineffective Buyers Compared by Age Group . . . . . . . . . . . . . Effective and Ineffective Buyers Compared by Years of Purchasing Experience . . . . . . Effective and Ineffective Buyers Compared by Education . . . . . . . . . . . . . Activities of Effective and Ineffective Buyers with Their Age, Experience, and Education . . Activities of Effective and Ineffective Buyers with Indices for Age, Experience, and Education Activities with One Type of Buyer Predominant in Six or More of the Nine Categories Related to Age, Experience, and Education . . . . . . vi Page 29 48 74 75 75 80 105 106 107 111 116 118 120 122 125 127 Figure 1. 2. 3. LIST OF FIGURES Buyer Activity and Performance The Process of Categorizing Buyer Activities Effective and Ineffective Buyers by Age, Experience, and Education vii Page 37 43 117 LIST OF APPENDICES .Appendix Page A. Materials Used in Survey . . . . . . . . 140 B. Effective Incidents . . . . . . . . . . 147 . 247 C. Ineffective Incidents . . . . . . . . viii . v x \ CHAPTER I INTRODUCTION Among the many activities industrial buyers perform each day, some are likely to be more important than others. These are the key tasks and the manner in which they are performed is likely to influence the effectiveness or in- effectiveness of the buyers, the value of the purchasing organization, and ultimately, the well—being of the firm. It is on these important activities that the present re- search is focused. This emphasis in no way implies that less critical activities can be ignored or neglected. An example or two will clarify what constitutes such an ac- tivity. An item of minor concern might be a purchasing document which has not been filed in the proper sequence. Although purchasing personnel are expected to see that papers are filed properly, filing errors do occur. Such an error is usually easily corrected, is not considered a serious mistake, and does not interrupt the plant's operation. This is not critical. Contrast this with a situation where a buyer has failed to follow—up on an order for material needed in production and, because of this, the order will not arrive on time. In this case serious financial loss could result, and the firm may suffer due to a faulty purchasing performance. In the present investigation, then, ineffective tmyers will be defined as those who fail to properly per- form those activities that are significant. Those who gmrform activities suCcessfully will be considered effec- tive. This research is aimed at identifying pertinent activities associated with effective or ineffective buyer performance. A knowledge of these activities should be useful to all who are concerned with improving purchasing operations. Need for the Study Every firm has a better chance for success if its purchasing organization is functioning properly. Most firms spend such a large portion of their income for materials, parts and supplies, that purchasing expertise is essential for a profitable operation. The Purchasing Handbook, for example, mentions a survey by the National Industrial Con- ference Board (now called the Conference Board) which con- cludes that 55 cents of the sales dollar is spent for goods 1 Lee and Dobler in their text discuss infor- and services. mation provided by the First National City Bank of New York which indicates that the 100 largest non-financial 1George W. Aljian, ed., Purchasing Handbook (2nd ed.; New York: McGraw-Hill, 1966), Section 1, p. 3. ‘,..'A . ,a..d v. v 3.1.. - l§- n—lhv #- .I'- In i M ”a. a .. "IF-U A .- "‘van. ‘ 'I‘ van. n... " 'u- “I 1. 5 .. D .‘ IQ ‘ ‘5... V c -‘ u. '7': ~ ._~ :-~‘ I “ u.“ u I: ‘ ‘I ‘- \‘ ~ ‘~ '5 s \ "\ \ . . \‘\ cmrporations spend 51 percent of their sales dollars to purchase materials and supplies.2 The potential impact of this relationship on a company's operations was noted in a Wall Street Journal article: "On average, 52 cents of every dollar brought in by a corporation goes back out for purchases; a bad buy can conceivably price a company's product out of the market."3 Victor Pooler stressed the leverage of the pur- chasing function when he commented: If the average company spends 53 percent of its sales dollar on goods and services, a company with a sales volume of $60 million would spend $31.8 million to cover the cost of purchased material, supplies, and services. At an average profit margin of 9 percent, it takes $6 million in sales to produce a profit of $540, 000; yet, by a reduction of only 5 percent in the cost of purchases, this 4profit can be increased by 29 percent ($159,000). A former president of the National Association of Purchasing Management, whose company is engaged in aerospace work, told an audience: We fully recognize that 50 percent of our dollars are on the outside and we must maintain the same sur— viellance over our suppliers that we do inhouse. Otherwise we could lose our shirt, either financially, 2Lamar Lee, Jr. and Donald W. Dobler, Purchasing and Materials Management (2nd ed.; New York: McGraw-Hill, 1971): PP. 9- ~10. 3James C. Tanner, "Canny Buyers," The Wall Street Journal, June 23, 1964, pp. 1, 14. 4Victor H. Pooler, Jr., The Purchasing Man and His Job (New York: American Management Association, 1964), pp. 19- 20. schedule-wise, or performance-wise because of actions or lack of action on the part of the supplier. We can no longer afford to take th1s r1sk. Progressive firms recognize they cannot afford the risk of poor purchasing performance. If they spend about half of their income for purchasing various items, they insist that each buyer must invest the firm's funds wisely. Every buyer is expected to know his job thoroughly and to appreciate the relative importance of each of his daily tasks. A buyer who will invest several million dollars of the firm's capital must recognize that not all his activities require the same amount of time and effort. Some activities, the critical few, are worthy of continued study and attention. Buyers should benefit from knowing which of these activities are associated with effective performance and which are associated with ineffective per- formance. Attempts have been made in the past to list the various job requirements for industrial buyers. Such studies have been concerned largely with quantitative investigations of what a buyer does. This has been ac- complished by counting how many requisitions are acted upon, how many purchase orders are prepared, how many orders were expedited, or how many salesmen were 5C. R. Raftery, "Meeting the Challenges to Pro— fessional Growth in Purchasing Today," The Logistics of Materials Management: Readings in Modern Purchasing, ed. by Paul T. McElhiney and Robert I. Cook (New York: Houghton Mifflin, 1969), p. 6. .n" .. <.¢ s, interviewed.6 Other studies have attempted to describe the necessary qualities of a buyer and have listed them in general terms such as honesty, enthusiasm, intelligence, 7 These tabulations and characteristics dedication, etc. usually give no indication that a certain few qualities might be of greater importance to a buyer than others. This study is designed to acquire knowledge of buyer activities by obtaining empirical data related to several hundred buyers. Such a compilation would make it possible to construct a list of job requirements for the effective buyer and would overcome the limitations imposed by data from only two or three sources. This list would provide a group of activities associated with effective or ineffective purchasing performance using statements that 8 Several references in have definite operational meaning. the purchasing literature indicate that such a list would be a useful contribution to purchasing knowledge. 6See the study by Robert Schmelzlee, "Work Study in Purchasing-~A Case Study," Journal of Purchasing, February, 1967, pp. 42-51; also, see the report provided by J. H. Westing, I. V. Fine, and Gary Zenz in their text, Purchasing Management: Materials in Motion (3rd ed.; New York: Wiley, 1969), pp. 345-346. 7A list of such personal characteristics was pre- sented in the booklet Purchasing As A Career (New York: National Association of Purchasing Agents, 1961), pp. 14- 15. 8For a related, more general discussion, see Arthur Brayfield, "Human Effectiveness," American Psychologist, For example, an article in Purchasing magazine com- ments on the need for defining the qualifications of a successful buyer: "Different jobs require different tal- ents. The purchasing executive in his effort to develop a strong department, should understand the characteristics "9 that make a good buyer. Another article in discussing hiring the right man for the right job, stresses the need to know the job and its specifications in order to develop dolo a profile of the characteristics require Further indi- cation of the importance of purchasing and the need for trained, effective, personnel is found in this statement: "This is not the place to study the purchasing function intensively, but probably no other function can contribute "11 more to an efficient manufacturing operation. The inter- est in capable purchasing personnel is again emphasized with: Gone are the days when the purchasing agent was considered 'schooled' if he spent years in the stock- room learning the parts used in the production process. Today's purchasing personnel are increasingly college- trained, with job skills similar to those of other company executives and trained in the broader aspects of management concepts. 9Dr. Harry Sherman, "What Makes A Good Buyer?" Purchasing, April 4, 1968, pp. 46—48. 10Dr. Arthur Witkin, "How To Hire A Buyer," Purchasing, April 3, 1969, p. 68. 11James H. Greene, Production Control: Systems and Decisions (Illinois: Irwin, 1965), p. 156. 12 J. H. Westing, I. V. Fine, and Gary J. Zenz, Egrchasing Management: Materials in Motion (3rd ed.; New York: Wiley, 1969), p. 341. n The qualifications for purchasing positions are considered by the previous authors who continue: The qualifications for individuals who succeed in purchasing may conveniently be grouped into three categories--personal characteristics, educational background, and business experience. The personal characteristics that promise success in purchasing are no different from those in any other field of business. Any difference is likely to be in the importance attached to some of the characteristics.13 Another reason for investigating what it is that buyers do in the purchasing organization, is indicated by a leading purchasing authority: "Regardless of what poli— cies, techniques or procedures a department may have, all the roles in the manual are useless without people to carry them out."14 An earlier comment by the same author stated: The operations of an organization are dependent. upon people to accomplish the tasks for which it is created. All too frequently the operation of the purchasing function has been less than fully effec— tive because of lack of competence, proper training, or motivation of the personnel assigned to the pur— chasing department.15 From England's comments, it would seem worthwhile to under— take an examination of the factors contributing to the lack of competence, proper training, and motivation of buyers. Other writers have discussed the need for buyers knowing lBIbid., p. 347. l4Wilbur B. England, Modern Procurement Management: Principles and Cases (5th ed.; Illinois: Irwin, 1970), p.859. 15Wilbur B. England, The Purchasing System (Illinois: Infin, 1967), p. 140. how to do their job. For example: "The ability to get the right people to perform the purchasing function can be just as important as getting the right material at the right price."16 It may be a simplification to state that capable personnel are needed in key jobs, but there is little information to date on the factors which distinguish the effective or capable buyer from the average, or from the ineffective buyer. How can these factors be discovered? Is it possible to identify them? The necessity for organ- izing such information is pointed out in a study of criti- cal factors for salesmen: "If the critical factors can be identified, then selection and utilization of personnel d."17 can be greatly improve If it is true that "The single most important element in any organization is its people,"18 then it would seem to follow: We must know what our job is, and what is expected of us. And equally important, we need to know what is not expected. Thus it is suggested that each depart- mEHt establish its own criteria based on answering these questions: 16"Selection of Purchasing Personnel," Guide to Purchasing (New York: National Association of Purcha51ng Management, 1965), p. 2.2.1. 17Wayne Kirchner and Marvin D. Dunnette, "Identifying The Critical Factors in Successful Salesmanship," Personnel, September-October, 1957, pp. 54-59. 18"Evaluating Purchasing Performance," Guide to Purchasing (New York: National Association of Purcha51ng Management, 1965), p. 2.4.8. ,...,. n ‘ \ ~ Ill Do I know what I am supposed to be doing? Am I doing what is expected of me? Should I be doing more? Where and how can I improve?19 In order to obtain information that will be helpful in answering the above questions and in promoting a more effec- tive purchasing operation it is proposed to investigate the following: (1) What are the skills which characterize an effective buyer? (2) What are buyers doing when they are considered effective in carrying out their assignments? (3) Does the absence of certain skills lead to poor per- formance? (4) What are buyers doing or not doing, when they are considered to be ineffective in carrying out their assignments? It is presumed that answers to these questions will supply a body of valuable operational material for ‘purchasing personnel. Persons considering a career in the field will have an outline of job requirements; persons working in purchasing will be able to focus on improving themselves in the critical tasks; and purchasing managers ‘will be able to enlarge their basis for selecting, training, and promoting capable personnel. Educational institutions .and professional associations would find data on the criti— <3al.activities of buyers useful in developing training cflajectives, curriculum patterns and course content. Those teaching purchasing should also find the information a rixzh source of instructional material. lgIbid., p. 2.4.7. lO Purpose It is the purpose of this study to add to the existing body of knowledge on buyer activities. The research will attempt to determine the critical activi- ties which, when performed well, result in the buyer being described as effective. At the same time, the investi- gation will attempt to isolate the critical activities where poor performance results in the buyer being de- scribed as ineffective. Specifically the study is con- cerned with: (l) collecting reports of critical incidents involving buyers, from personnel actively engaged in the purchasing function; (2) identifying effective buyer activities from such incidents; (3) identifying ineffective buyer activities from the incidents received; and (4) in- vestigating relationships between the age, experience, and education of buyers, and reports of their effective and ineffective activities. Limitations of the Study 1. Sggpg: This study is limited to identifying those critical activities which determine the effectiveness or ineffectiveness of buyers. Procedures for the selection, training, promotion, or compensation of industrial buyers is outside the scope of the investigation. Also, the study is not an attempt to identify personal traits of buyers such as honesty, loyalty, dress, or speech, nor does the 11 research deal with the desirable characteristics for a manager of a purchasing organization. 2. Presentation: The counts which have been made, the percentages calculated, tests of data conducted, and results presented in the tables, are based only on replies received for this study. Extending them to the general population of buyers should be done with care. The study was limited by time and money, which did not permit a ran- dom sample to be made of the purchasing population. In all, the study is based on reports of purchasing situations involving 316 buyers employed by many industrial firms. These reports were provided by members of Purchasing Associations replying from 28 different states. 3. Anonymity of Respondents: Buyers were encouraged to provide information for the study by the assurance of confidentiality. There has been no effort to identify any company, the size of any firm or purchasing department, or the location of any firm. 4. Technique: There is no intent in this study to develop a new research technique. Reliance will be placed on the Critical Incident Technique as used by 20 Flanagan and the method of Content Analysis as discussed by Berelson.21 Neither of these has been used in any 20John C. Flanagan, "The Critical Incident Tech- nique," Psychological Bulletin, July, 1954, pp. 327—358. 21Bernard Berelson, Content Analysis in Communi- cations Research (Glencoe, Illinois: Free Press, 1952). 12 previous studies aimed at identifying the critical activi- ties of buyers. This study intends to test the feasibility of the critical incident method for analyzing purchasing activities. Definitions of Terms Used Action: What a buyer did during a critical incident. Activity: A category for several similar actions of buyers. Buyer: A person in the purchasing department who has responsibility for buying one or more items needed by his firm. Communicate: To transmit and receive information. The ability to reach an understanding with another. To send and receive messages. Content Analysis: A research technique used to examine reports, incidents, texts, newspapers, television presentations, movies, sporting events, etc., for the purpose of classifying and tabulating certain data of interest that is contained in the material. Coordinate: The act of bringing about agreement, harmony, unity of purpose between diverse persons or groups. Critical Incident: A description by an observer of a significant purchasing situation. An event or happening in which the buyer's action produced an effective or in- effective outcome. -... 13 Effective Buyer: One who performs a purchasing activity in a successful manner. Industrial Purchasing: The group of activities surrounding the securing of materials, supplies, services, goods, or equipment, that will be consumed or converted by a firm. Ineffective Buyer: One who fails to perform a necessary purchasing activity, or performs it inadequately. Negotiate: To reach understanding and agreement on a purchasing transaction through discussion and explora- tion of the issues. Observer: A person actively involved in the pur- chasing operation who is in a position to report on his own actions or those of others. Operational: Refers to actual observed job condi- tions. Purchasing Effectiveness: The kind of behavior a supervisor might refer to as an example of purchasing skill, or the type of buying activity which would bring favorable comments from a buyer's peers. Purchasing Ineffectiveness: The kind of behavior a supervisor might refer to as an unsatisfactory example of purchasing effort, or the type of buying activity that would bring unfavorable comments from a buyer's peers. p ‘4‘ .—.. ' u h.-. u I... uh-“ v A u. - on. ...: ava. ‘A - ~34 ‘ 14 Organization of the Study Chapter II, "Literature Review," summarizes the literature relative to job activities of industrial buyers. In Chapter III, "Research Design," the procedures are described which were used to gather and analyze the data on which this research is based. Chapter IV, "Activities of Effective Buyers," presents data on buyers' actions when they effectively execute their job assignments, and com- bines the similar actions into activities. A summary is also provided of the age, experience, and education of the effective buyers in this sample. Chapter V, "Activities of Ineffective Buyers," presents data on their actions when they fail to successfully complete their tasks and combines the similar actions into activities. A summary is also provided of the age, experience, and education of the ineffective buyers in this sample. Chapter VI, "A Comparison of Effective With Ineffective Buyers," sets forth the similarities and differences in the critical activities of buyers as well as their age, experience, and education. Finally, Chapter VII contains the summary and conclusions of this study, the likely applications, and the need for further research. a CHAPTER II LITERATURE REVIEW In this chapter a review is made of literature relating to the activities associated with purchasing performance. Included are references to significant books that have been written on purchasing as well as a sampling of articles and research reports treating the topic of buyer performance. Purchasing Literature Prior to World War II An awareness of the need for competent buying specialists was evident even before the start of this century. Personnel were needed who devoted their full time to purchasing, and it was necessary for them to recognize that certain Operations were more likely than others to reduce expenses or increase operating efficien- cies. Fearon and Hoagland in their publication refer to a book written in 1887 by Marshall M. Kirkman, who com- Inented on the need for capable personnel to fill purchasing ‘positions which were: Too often looked upon as one that any man with ordinary intelligence can fill acceptably, a position at once agreeable and measureably lucrative, but not of great importance. No greater mistake could be 15 o.. .a 16 made. . . . To be able to buy its supplies at the lowest possible figure is of enormous value to a company, and a capable purchasing agent, it is probable, can save his employer a greater sum through the exercise of experience and intelligence, than any other officer of like grade.1 Even at this early date for American industry, Kirkman recognized the danger in regarding the buying function as simply a clerical operation, one which was of little importance and which could be filled by practically any employee. Kirkman, of course, was writing about purchasing for railroads at a time when they had been expanding across the continent and spending considerable sums for rolling stock and equipment. His book which appeared prior to the Spanish-American War, the Sherman Anti-Trust Act, and before Ford or Olds had operated their first car, indicated the potential of prOper purchasing techniques and the necessity for competent personnel. His reference to possible savings from buying better value by experienced, intelligent, pur- chasing employees would be rediscovered and repeated many times by others in the years to follow. A continuing interest in purchasing and the job of the buyer is shown by three books which were published in 1Marshall M. Kirkman, The Handling of Railwgy Supplies--Their Purchase and Disposition (Chicago: Charles N. Tfivess, 1887), Preface and pages 40 and 42; Quoted in Harold E. Fearon and John H. Hoagland, Purchasing Research in American Industry_(New York: American Management Association, 1963), Research Study 58, pp. 21-22. “7%,. J 17 1915 and were referred to in a Journal of Purchasing article.2 The article includes a quotation from H. B. Twyford con- cerning the need for the buyer to know his materials and his vendors: It has been stated that there is no such thing as scientific buying, but that good buying is the result of intuitively knowing when and how to do it, which, with a combination of luck, makes a successful buyer. It can be admitted that with this equipment a success- ful gambler may be evolved, but intuition is too vague a qualification for the purchasing agent of any establishment, large or small. There is a great deal more necessary in the make—up of any man who is in charge of such work as is being considered here. He must have good judgment, be well balanced, shrewd, sagacious, and well fortified with the knowledge which he can scientifically accumulate; this, broadened and improved by a close study of local and national conditions, will make a purchasing agent a valuable asset to any concern. The publication in one year of three books on the subject of purchasing indicated that the function was becoming recognized and a body of knowledge about it was being formed. The job of a buyer was also receiving attention and there was a growing appreciation for the fact that proper buying performance improved the operation of a firm. Dinsmore, in a book brought out in 1922, referred to the buying knowledge that a purchasing agent should possess in order to secure the best value for his firm: 2Harold E. Fearon, "Historical Evolution of the Purchasing Function," Journal of Purchasing, February, 1968, pp. 43-59. The books are: Materials and Supplies, The Factory Management Series (Chicago: A. W. Shaw Co., 1915); (L S. Rindsfoos, Purchasigg_(New York: McGraw-Hill, 1915); H.F. Twyford, Purchasing-—Its Economic Aspect and Proper anod (New York: Van Nostrand Co., 1915). 3Twyford, QB: cit., p- 26. 18 Just so, the whole technique of exchanging dollars for commodities might be summed up as the ability to find sources and materials that will secure for the purchasing agent's firm the greatest ultimate value; coupled with clean cut integrity, and a knowledge of the laws governing the action and reaction of economic factors which regulate supply and demand, and so fix prices. If you will add the knowledge of how to find authoritative information concerning any problem and a genuine liking for people, you have the specifications for a successful purchasing agent. During the Twenties an increasing number of books devoted to purchasing quickly followed Dinsmore's publication. Helen Hysell's The Science of Purchasing appeared in 1922;5 Purchasing_by Mitchell in 1927;6 Harriman's Principles of Scientific Purchasing, in 1928;7 and the text by Gushee and 8 Boffey, Scientific Purchasing, in 1928. Boffey was well- known as a purchasing writer prior to this time, having been founder and editor of the Purchasing Agent in July of 1916.9 This publication was the official organ of the National Association of Purchasing Agents (later to be known as the 4John C. Dinsmore, Purchasing: _Principles and Practices (New Jersey: Prentice-Hall, 1922), pp. 1-2. 5Helen Hysell, The Science of Purchasing_(New York: Appleton, 1922). 6William N. Mitchell, Purchasing (New York The Ronald Press Co., 1927). 7Norman F. Harriman, Principles of Scientific Egrchasing (New York: McGraw-Hill, 1928). 8Edward T. Gushee and L. F. Boffey, Scientific Eggchasing_(New York: McGraw-Hill, 1928). 9Paul V. Farrell, Fiftngears of Purchasing: The gguy of N.A.P.A. (New York: National Association of huehasing Agents, 1954). 19 National Association of Purchasing Management) which had been established in 1915. This would be one of many publications by the National Association of Purchasing Management intended to stimulate interest in the purchasing profession, to raise its standards, and to educate pur- chasing personnel in the intricacies of their jobs. Professor Howard T. Lewis of the Harvard Business School published his text Industrial Purchasing in 1933.10 It was introduced under the auspices of the National Associ- ation of Purchasing Agents and was intended to extend the educational work of that organization. Earlier, Lewis had published a group of purchasing cases under the title Problems in Industrial Purchasing, and he was to become a prolific writer in this field.11 Purchasing Literature Since World War II Lewis seems to have been about the only author of a purchasing text from 1930 until 1945 when Cady's book appeared.12 Another author was Stuart Heinritz whose book was published in 1947.13 Heinritz was already well-known 10Howard T. Lewis, Industrial Purchasing (New Jersey: Prentice-Hall, 1933). 11Howard T. Lewis, Problems in Industrial Purchasing (New York McGraw-Hill, 1930). 12E. L. Cady, Igdustrial Purchasigg (New York: Wiley, 1945) . l3Stuart F. Heinritz, Purchasing_(New Jersey: Prentice-Hall , 19 47) . 20 in the procurement publishing field as the editor of Purchasing magazine. Lewis continued his efforts with two 14 publications, one in 1945, and one in 1948. In his 1948 book, Lewis discussed the scope of the industrial buyer's task and a common misconception concerning the buyer's role: Among certain groups of people, there exists a very general impression that the primary task of any indus- trial buyer is that of securing goods at the lowest possible price obtainable. Some of these people con- ceive of the purchasing director's function as that of receiving from some department of the company with which he is connected, a requisition calling for a certain quantity of materials or supplies, the quality of which is specified for him. They believe that the requisition is not subject to review and, therefore, that his only work is to locate a source from which this particular shipment may be obtained at the lowest price. They further believe that the buyer follows the practice of using every means within his power to get a low price. To these persons, considerations of quality and of service not only are beyond the province of the buyer, but are matters in which he has no interest. . . . If management gives to the procurement officer no larger place than that of a routine price buyer, then one can scarcely condemn the occupant of suchlg position for doing only the thing expected of him. In the above excerpt, Lewis implies the buyer must know his job and do it well, and in order to do it effec- tively it is necessary for other personnel in the firm to recognize what his potential contribution is. An article appearing in Fortune during 1946 revealed that people outside of purchasing were interested in the buyer and his job: E 14Howard T. Lewis, Selected Class in Industrial ‘nghasigg (Illinois: Irwin, 1945); also: Howard T. Lewis, Pgmuremegg (Illinois: Irwin, 1948). 15 Lewis, 92. cit., pp. 140-141. 21 . . . he may telephone as many as fifty supply houses to place or confirm orders. In these days of shortages it is sometimes impossible to get such things as I beams the right length or wire the right gauge. It takes a lot of shopping around, a lot of figuring on substitutes and makeshifts. There is more to being an assistant purchasing agent than just ordering sixteen- foot stringers or a gross of paper clips. He must be familiar with steel production and prices; for example, he must know the relative values of creosoted longleaf yellow pine and red cedar for utility poles; and he must, of course, know the merits of all the supply houses and mills. . . 16 The previous description of a day in the life of a buyer bears out Kirkman's comment made in 1887 and mentioned earlier in this chapter, that a capable buyer has the opportunity to save his employer a considerable sum of money. The Fifties saw a continuation of publishing activity with Heinritz and Lewis revising their texts; Westing, and McMillan introducing new books, and the appearance of a 17 purchasing handbook. Articles on purchasing and buyers were appearing with growing frequency in a varied group of 16"White Collar Man," Fortune, June, 1946, p. 124 plus. l7Stuart Heinritz, Purchasing: Principles and Applications (2nd ed.; New Jersey: Prentice-Hall, 1951); Howard T. Lewis, Procurement: Principles and Cases (Revised; Illinois: Irwin, 1952); J. H. Westing, et al., Industrial Eprchasing (New York: Wiley, 1955); Howard T. Lewis, Procurement: Principles and Cases (3rd ed.; Illinois: Irwin, 1957); George W. Aljian, ed., Purchasing Handbook (New York: McGraw-Hill, 1958); Stuart F. Heinritz, Eprchasing: Principles and Applications (3rd ed.; New Jersey: PrentiCe—Hall, 1959); A. L. McMillan, The Art of Bpgchasing (New York: Exposition Press, 1959). c.\_\ . \ . fix 22 business-oriented publications.18 The American Management Association also became more aware of the purchasing function in this period.19 It soon began sponsoring studies, books, and educational seminars for buyers and managers. The publishing of purchasing books quickened in the Sixties, with the writings of Colton, Westing, Hodges, Lewis, Berry, Pooler, Lee and Dobler, Heinritz, England, Anyon, and Nelson.20 Aljian brought out the second edition of the Handbook.21 In 1969, the first collection of readings 18"Industrial Procurement and Marketing," Harvard Business Review, September, 1950, pp. 49-58; "Market1ng Research From the Standpoint of the Industrial Buyer," Journal of Marketing, July, 1950, pp. 14-20; "Aspects of Competent Purchasing," American Water Works Association Journal, April, 1950, pp. 375-380; "How Industry Buys," Industrial Marketipg, October, 1950, pp. 38-39. "Ford Vice-President Duffy: He Pilots $2 Billion Worth of Buying," Business Week, August 2, 1952, pp. 119-122; "What Makes Production Procurement Click," SAE Journal, October, 1953, pp. 42-44; "Evaluating The Effectiveness of Purchasing," Management Review, June, 1955, pp. 404-406. 19Purchasing for Profit, Manufacturing Division, American Management Association, 1958. 20C. 0. Nelson, Missile and Aircraft Procurement Managemen§_(New York: Vantage Press, 1961); J. H. Westing, et al., Industrial Purchasing (2nd ed.; New York: Wiley, 1961); Dean S. Ammer, Materials Management (New York: Irwin, 1962); Henry G. Hodges, Procurement (New York: Harper, 1961); G. J. Anyon, Managing_an Integrated Purchasing Process (New York: Holt, 1963); Harold A. Berry, Purchasing Guide, National Foremen's Institute, 1964; Victor H. Pooler, Egg Purchasing Man and His Job, American Management Association, 1964; Lamar Lee, Jr. and Donald W. Dobler, Purchasing and Materials Management, McGraw-Hill, 1965; Stuart F. Heinritz, Purchasih (4th ed.; New Jersey: Prentice-Hall, 1965), W. B. England, The Purchasing System (New York: Irwin, 1967); J. H. Westifig, et al., Purchasing Management: Materials In thion (3rd ed.; New York: Wiley, 1969). 21George W. Aljian, ed., Purchasing Handbook (2nd ed.; New York: McGraw-Hill, 1966). .u.- A , turn .‘0 o- .4, F. u *n. "n. 4... . ”-‘uov \ I \~ ‘- k . F 23 devoted to purchasing appeared.22 It was in this period that the American Management Association sponsored several studies on purchasing activities.23 In the forefront of this activity on purchasing, was the National Association of Purchasing Management, formed in 1915 as the National Association of Purchasing Agents. From its beginning, the Association operated for the improvement of its members by preparing and disseminating a variety of educational items.24 The American Management Association continued the interest it had shown in purchasing during the Fifties and Sixties by publishing Barlow's book for new buyers in 1970, and by sponsoring a study on the evaluation of purchasing operations.25 22Paul T. McElhiney and Robert I. Cook, eds., The Logistics of Materials Management: Readings in Modern Purchasing (Boston: HDughton-Mifflin, 1969). 23G. H. Hass, et al., Purchasing Department Organ- ization and Authority, American Management Association, 1960; Harold E. Fearon and John H. Hoagland, Purchasigg Bgsearch in American Industry, AMA Research Study 58, American Management Association, 1963; F. A. Hayes and George A. Renard, Evaluating Purchasing Performance, AMA Research Study 66, American Management Association, 1964. 24These materials include audio-visual aids; program aids; the Guide to Purchasing, which is a collection of research articles and informative purchasing items; the gpurnal of Purchasing; excerpts from doctoral dissertations sponsored by the Association; and certain booklets. A list cm these materials is available from The National Association cm Purchasing Management, 11 Park Place, New York, N.Y. 10007. 25C. Wayne Barlow, Purchasing for the Newly Appointed Buyer, American Management Association, 1970; Jeremiah Cantor, Evaluating Purchasing Systems, American Management Association, 1970. ... 24 In 1971, a new edition of Lee and Dobler was published.26 In all the purchasing literature reviewed to the Seventies, there is a recurring theme expressed earlier by Kirkman, Dinsmore, Lewis, and other authors. It has to do with the importance of the buyer and the need for him to know his duties. In addition, he must perform them well so the purchasing operation can maximize its contribution to the objectives of the firm. There is a growing appreci- ation of the systems concept and the fact that purchasing is a part of the system which is the firm, and purchasing must relate with groups both inside and outside the firm. The substance of the literature for the purposes of this study is contained in Lee and Dobler's reference to the purchasing department: Successful departmental operation is largely depend- ent upon two broad factors: (1) organization, operating policies and procedures; and (2) personnel. Incompetent personnel, inadequately trained personnel, or inappro- priately placed personnel can render an organization completely ineffective, regardless of the soundness of its underpinnings. Purchasing executives, therefore, should give prime consideration to the total management of purchasing manpower. Clear-cut definition of job assignments and prepa- ration of job descriptions constitute the first step in sound manpower management. . . . 7 26Lamar Lee, Jr. and Donald W. Dobler, Purchasing and Materials Management (2nd ed., New York: McGraw-Hill, 1971). '27Ibid., p. 559. w& .o. .- , l u . 25 Purchasing literature frequently refers to the advantages of proper position descriptions and adequately trained personnel. The Purchasing Handbook provides several examples of purchasing job descriptions.28 Westing supplies some general job descriptions for several purchasing positions and lists duties for a typical buyer with the percentage of 29 time devoted to each. Lee and Dobler furnish typical descriptions for a manager, buyer, purchasing agent, and expediter.3O Following World War II, purchasing literature was enriched with the establishment of two more periodicals to join Purchasipg magazine in providing topical materials for purchasing personnel. By 1958, McGraw-Hill was publishing Purchasing Week, which was intended to present information on all phases of purchasing, and in 1965, the National Association of Purchasing Managers sponsored the Journal gprurchasing_for the following purposes: Articles in the Journal present concepts from business, statistics, economics, engineering, behavioral science, or any discipline which contributes to the advancement of knowledge in business or governmental purchasing, materials management, or related areas. These articles discuss theories, principles, or philosophies; analyze business, economic, political, or social issues and trends; describe and evaluate 28Aljian, pp, cit., Section 23, pp. 6-13. 29Westing, et al., pp, cit., pp. 342-347. 30 Lee and Dobler, 9p. cit., pp. 535-538. ”9 .I‘. "n-nlb 4 s. - '1 \Q'.. - \ 26 techniques and practices; examine legal considerations; or report relevant research. Until the appearance of the Journal of Purchasing empirical literature dealing with purchasing activities was quite limited. Most of the references to what a buyer does had been based on personal observations, expert opinions or studies restricted to a department, plant, or firm. For example, a 1957 article "How Do Purchasing People Spend Their Time?" discussed the ratio-delay method of sampling activities, but it did not include any actual data.32 "How Effective Are Your Buyers" appeared in 1959 and pointed out that evaluation of buyers requires defining their job requirements. The author's opinion of what were basic elements for buyer performance were stated as: (1) personal qualities, and (2) professional competence.33 A 1962 article reviewed how to prepare a job description.34 It mentioned that 58 percent of the purchasing personnel 31"Journal of Purchasing Soon Begins 9th Year," Bprchasing Educator's Newsletter, December, 1972, p. 3. 32"How Do Purchasing People SPGDd Their Time," Eygchasing, September, 1957, pp. 87—89. 33"How Effective Are Your Buyers," Purchasing, August 3, 1959, pp. 68-70 plus. 34 . . John V. Hickey, "Purchasing and Job Descr1ptions," Eggchasing, December, 1962, pp. 70-74. "H . , 27 responding to a survey used job descriptions in their department, but there is no indication of how many indi- viduals were in the survey. These articles gave no indi— cation that some of the buyer activities listed were of relatively greater importance than others. A research study sponsored by the AMA was more thorough.35 Two hundred and one firms responded to a questionnaire on evaluating purchasing department per- formance. A list of 65 criteria was developed, one of which was . . . "Adequate, qualified, trained personnel should be available." The authors commented that the appraisal of personnel was . . . "a subject that merits an entire study." The Appendix of that report includes an exhibit "Standards for Rating Buyer Performance" that was used by the Detroit Edison Company. Buyers were rated on three general criteria: (1) personal traits, abilities, aptitudes; (2) purchasing knowledge and skills; (3) rela- tionships with people. These three were broken into 39 sub-categories each of which carries a point value. One Cf the items is "personal appearance" and has a range of Emints from one through six. Another item refers to know- Jedge of supplier's key personnel and has the largest point E5E>read, 1-40. It is interesting to note that of the 39 35F. Albert Hayes and George A. Renard, Evaluatipg_ Efiywhasing Performance, AMA Research Study 66, American Management Association, 1964. a-.. 'o-v ~a~. '\ (I) 28 items, only two have a possible value of 30 or more. In fact, if a buyer got the highest rating on those items-- cm less than one percent cfifthe items, he would receive N)points or nearly 11 percent Ci all possible points.36 ZUthough this study provides higher point values for some criteria than others, there is no reason given for the dif- ferent values that were assigned. In 1966 the Conference Board Record reported: Purchasing procedures and techniques have undergone changes during the last five years in eight out of ten of the 164 manufacturing companies participating in the month's Survey of Business Opinion and Experience. The article mentions that as a rule, the responding firms wanted to increase the productivity of their purchasing personnel and perform the purchasing function more effec- tively. Allhiser was interested in buyer performance and investigated how a purchasing manager could improve the effectiveness of his subordinates. He distributed question- naires to 4,869 men and received 2,255 replies. This comment was made on job description: Fifty-two percent of the managers indicated job description as a vehicle which enabled them to better identify responsibilities and authority for a position. Obviously, if a subordinate has a clear understanding and knowledge of the job and its requirements, the relationship of the job and its relative position in 36The criteria worth 30 points was "Dollar Savings." 37"Making Purchasing More Effective," The Conference B_oard Recog, December, 1966, p. 28. 29 the total organization of which it is a part, he will be able to accomplish his job more successfully.38 The work load of buyers and clerks in a purchasing 39 He interviewed ckpartment was studied by Schmelzlee. individuals and asked them to keep a daily running record of their activities. His summary of the activities for production buyers is shown as Table 1. TABLE 1.--Time Spent Daily for Seven Buyers in Production Purchasing. Hours Activity Daily With contracts and negotiations 30.45 Expedite 6.60 Salesmen 5.75 Vendor records 4.75 Seeking sources 3.50 Supervision 2.90 Library maintenance 1.13 Reading journals .92 Vendor evaluation .25 56.25 Pinkerton used personal interviews with 75 practioners andlj purchasing educators plus 65 mail questionnaires from 38Norman C. Allhiser, "Development of Subordinates in Punchasing Management," Journal of Purchasing, May, 1966, p. 390 39Robert Schmelzlee, "Work Study in Purchasing--A Case Study," Journal of Purchasing, February, 1967, pp. 42-51. 3O . pmmhasing instructors for his study of purchasing functions, edmation, and training.40 He examined 38 sets of job descriptions and reported Hm job of senior buyer to be the key position in any pur- dmsing operation. A study by Heizer is reported here because it uses aresearch design similar to the one adopted for this study. Imizer's purpose was to investigate what purchasing managers cfid.when they were effective and whether there was a differ- ence when they were ineffective.41 He selected 15 categories of manager behaviors that were considered significant for effective manager performance and used the critical incident technique to obtain actions which could be placed in one of the previously determined categories. Heizer concluded in his study including purchasing managers: . . . that a large proportion of the critical aspect of the purchasing manager's job is dependent upon his prowess in the areas of technical competence, com— 42 mun1cation, external enV1ronment, and coordinatlon. Summary Since before the turn of the century purchasing has been recognized as a function with profit potential for 40Richard L. Pinkerton, "What the Experts Think About Ihuchasing, Materials Management Functions, Education and Training," Journal of Purchasipg, August, 1970, pp. 54-67. 41Jay H. Heizer, "Effective and Ineffective Actions Of Purchasing Managers," Journal of Purchasing, August, 1971, PP. 11-23. 421bid. I‘A 4 I ~- I ‘a. 31 progressive firms. A review of the literature in this field reveals continuing comments on the need for competent buyers who are able to secure needed materials with terms that provide the greatest ultimate value. Books on purchasing began to appear, referring to the duties and responsibili- ties of buyers. The policies and procedures for proper buying were mentioned more frequently. Articles on procure- ment appeared in periodicals which were intended not only for purchasing personnel, but for engineers, executives, technicians and those engaged in marketing. Various organizations and individuals directed their research efforts toward identifying the buyer's role in business. Studies were instituted to determine the duties and characteristics necessary for proper performance of the purchasing function. The critical incident technique, which is the research tool employed in this study, appears only once in the purchasing literature reviewed, although it has been in use for at least thirty years in many other areas. A study tming this technique was employed by Heizer to investigate 'Hm activities of purchasing managers, but he did not extend rug inquiry to buyers. The examples of job descriptions and buyer duties ruumvered in this literature search did not find any listing bY'priorities. There seems to have been no reference to the possibility that some things buyers do may be more important 32 than others. One of the objectives of this study is to ascertain whether some buyer activities are critical, that is, if some are associated with effective performance and if some are associated with ineffective performance. If this information can be obtained, it will be an addition to the present body of purchasing knowledge. l1, .~~ CHAPTER III RESEARCH DESIGN This research was conducted with the intention of identifying activities of industrial buyers that are critical in determining their effectiveness or ineffectiveness when carrying out purchasing assignments. It was believed the study would contribute to a better understanding of the buyer activities which significantly affect purchasing success or failure. In order to acquire such information, a procedure was sought which would supply empirical data and yield specific examples of critical buyer activities. The General Approach Several approaches were considered as possible means for obtaining information on the critical activities for effective purchasing. One method would involve collecting indicators of activities such as the number of items for which a buyer was responsible, or the number of dollars spent, or the number of purchase orders written. This provides an idea of what a typical buyer does, but sheds little light can why he is, or is not, successful. It provides little loasis for determining how well the duties must be performed 111 order to result in effective purchasing behavior. 33 -~- 34 Another method might be to ask purchasing personnel for answers to the question: "What are the factors that distinguish the effective buyer from one who is ineffective?" This approach has the advantage of providing empirical data derived from personnel who can evaluate on-the-job work situations. It also has the disadvantage of providing generalized statements on traits or characteristics such as maturity, resourcefulness, and the ability to communicate. Replies to such a question could be based on hunches or opinions which were influenced by the respondent's personal likes or dislikes. This method is criticized for lacking the necessary objectivity.l A third method considered was used of a check list composed of questions or statements of a closed form which permit only certain responses such as yes, no, agree, dis- agree, or a selection from multiple choices. Closed questions or statements of this type are easy and quick for the respond- ent to answer. They require little of his time or effort. The results of such a list are relatively easy to count, categorize and analyze.2 Objections to the use of closed questions include the loss of knowing how the respondent ‘would express himself--just what words and statements he 1For a discussion of various means of obtaining information, see Paul E. Green and Donald S. Tull, Research for Marketing Decisions (2nd ed.; New Jersey: Prentice- Hall, 1970): pp. 141-168. 2Walter R. Borg, Educational Research: An Intro- mxxion (New York: McKay, 1963), pp. 206-210. ....,., r”..- >—‘ _.y . . --. y. C;- _ v..- u _ b u I... ¢,“ ‘. ‘- .‘.~ . \ . \- . “x . . . \ "\- . ~. .‘~ ‘t : ‘>§ 35 would use if able to reply freely. This method forces him to choose between the alternatives presented and does not allow him to state his views. The forced-choice type of questionnaire means that only the items that occur to the preparer are used. If he lacks the experience or knowledge of what the “right" items should be, or how many are needed, or if he prefers some, rather than others, bias will be introduced.3 With this method, the critical items to be considered are determined in advance and the respondent indicates which of the alter- natives he favors. The free response or open end type of statement was selected for use in this research. Its value lies in the richness of the responses available. There are few restrictions on the answer to be given, the words and statements are those of the respondent, and he emphasizes or minimizes events as he sees them letting his thoughts follow what he considers to be important. The critical incident technique which encourages the use of open end questions was chosen as the instrument to collect infor— mation for this study.4 In this research procedure, individuals knowledgeable in the area being studied are asked to describe a situation 3A. N. Oppenheim, Questionnaire Design and Attitude Measurement (New York: Basic Books, 1966i, Pp. 40-44. 4John C. Flanagan, "The Critical Incident Technique,‘ ‘Eflchological Bulletin, July, 1954, pp. 327-358. 36 or incident which illustrates particularly effective or ineffective behavior. The approach differs from those which simply ask for a description of an effective person or of his effective characteristics. It has been used to obtain data on the requirements for air crew personnel;5 to identify qualities of teaching competence;6 the qualifi- cations for physical education instructors;7 requirements for nurses;8 the evidences of clinical competence for physicians;9 and more recently, to establish the critical behaviors of managers.10 It was believed that this approach would facilitate collection of reports about particularly effective or in- effective buyers from individuals closely associated with 5John C. Flanagan, ed., "The Aviation Psychology Program in the Army Air Forces," Army Air Forces Aviation Psychology Program Research Report No. 1 (Washington, D.C.: U.S. Government Printing Office, 1947). 6Alfred C. Jensen, "Determining Critical Require— ments for Teachers," Journal of Experimental Education, September, 1951, pp. 79—86. 7Lane Burton Blank, "Critical Incidents in the Behavior of Secondary School Physical Education Instructors," The Research Quarterly, Vol. 29, No. l (1957), pp. 1—6. 8Alfred C. Jensen, "Determining Critical Require- ments for Nurses," Nursing Research, Winter, 1960, pp. 8-12. 9John P. Hubbard, et al., "An Objective Evaluation of Clinical Competence," The New England Journal of Medicine, June 24, 1965, pp. 1321-1324. 10Jay H. Heizer, "A Study of Significant Aspects of Manager Behavior? (unpublished Ph.D. dissertation, Arizona State University, 1969). .... .u» . . u Ms ... .. . . . e .s. \ ‘ 37 mfl.concerned about the buying process. These reports, or critical incidents, provide the detailed data used to deter- nune those activities associated with effective or ineffec- tive performance. The activities are related to statements which describe what a buyer was doing at the time when he was considered to be effective or ineffective. Each activity appearing in the study was considered from three Operational viewpoints: (l) the effective person did it well; (2) the ineffective person failed to do it, or (3) he did it poorly. Those activities that were done well were considered to have a positive effect on the outcome of the incident. If the activity was performed poorly, or its performance was omitted, it was considered negative. The concept is indicated in Figure 1. Ineffective Effective Activity (-) (+) Performance Satisfactory Omitted or Performance Unsatisfactory Figure l.--Buyer Activity and Performance. This approach deliberately overlooks those features Of kouyer behavior which appear to be carried out in an accmaptable manner by most buyers most of the time. It does not nman such work is inconsequential, but the intent of 38 the study is to include only those activities that observers judge to be unique in differentiating between effective and ineffective buyers. Since the value of the critical incidents reporting on performance will depend largely on the compe- tence of the observers, it was decided to ask members of the purchasing team to make the decisions. Buyers and purchasing agents have been placed in positions of responsibility by their firms and deal with purchasing problems every day. Therefore, for the purposes of this study, they have been considered qualified to make the necessary judgments and statements on effective or ineffective purchasing performance for the purposes of this study. Procedure for Gathering Data The format for gathering data consisted of three phases: (1) the pilot study, (2) the survey materials, and, (3) selection of the population. 1. The Pilot Study. Before proceeding with the main study a pilot study was conducted to obtain impressions from purchasing practioners on the advisability of this method. Fifteen purchasing supervisors located in Michigan and Indiana were asked to supply four critical incidents—- two considered effective and two ineffective. They were also asked to make suggestions for modifications in the proposed study. The results of the pilot study indicated the response rate might be quite low. In an attempt to 39 make the study less time consuming for respondents, the number of incidents requested was changed from four to two. 2. The Cover Letter, Incident Illustrations, and the Reporting Instruments. Based on the results of the pilot study, a cover letter was prepared explaining the purpose of the study, and requesting the reader's cooperation. A postage-paid envelope, self-addressed, was also enclosed. An example of an effective and ineffective incident was included to acquaint the participants with the critical incident design. The incidents were not related to pur- chasing in order to avoid biasing the replies. The final item in the materials to be mailed was the reporting instrument. It was in two parts and the first part asked the respondent to supply data on an effective incident: 1. Briefly describe an actual situation in which a person performed some buying activity so well that he deserved to be highly praised. 2. Explain what the buyer did that contributed to the effectiveness of the incident. 3. Indicate the result of the incident. 4. Provide information on the age, eXperience and level of education of the person involved in the incident. The second part requested similar information on an ineffective incident. Illustrations of the letter, incident examples and the questionnaire are shown as exhibits in Appendix A. The cover letter assured the respondents ‘0'". . ~‘- ~-u , ~n‘.-.. s-A¢'.I _ - A Di . 'n "V "‘ e“ . .. ' \ I" “v. ." , - a.- 3.: u " .v..’ .l q ‘Q \ -‘ . 1“ . '- ‘~ . “- . .‘_ I. ~ ,_‘ “ , v, n 5" ‘I- . .' .‘ ‘~ . . ‘ I - ? \ 40 anonymity. Hence, no names were requested in the incidents; there was no intent to identify the firms or their location, and there was no attempt to follow-up with further requests of the non-respondents. 3. The Survey Population. It was intended to limit this study to industrial buyers and to use a broadly based sample. Certain difficulties involving cost, time, and effort, meant that a random sample for this study was not practical. It was felt that by contacting a number of the Associations affiliated with the National Association of Purchasing Management, a large enough number of replies would be obtained to provide a sample with characteristics not too different from those of most industrial buyers. Because the National Association does not make its member- ship roster available, requests for rosters were sent to 22 affiliated groups. Membership lists were received from 20 of the Associations. In addition, a list of purchasing personnel who had attended purchasing conferences was used to develop a total of 1,700 persons to whom requests for information were mailed. The returns from this group included 316 usable critical incidents from respondents located in 28 states.12 11See Appendix A, Exhibit 1 for the letter; Exhibit 2 for the sample incidents sent to respondents; and Exhibits 3 and 4 for the reporting instrument. 12See Appendix A, Exhibit 5. o;- 1.. ”~- .u. 41 Analysis of the Data As the critical incidents were received, they were reviewed to determine whether or not the reports were usable. Some had been returned unanswered, some were incomplete, and some were unrelated to the study. Only those incidents that described a purchasing situation in which a buyer was considered to have performed in an effective or ineffective manner were included. This resulted in 316 usable incidents that were processed in the following steps: 1. Classifying the Critical Incidents. The inci- dents were read, sorted, and placed into one of two cate- gories-~effective or ineffective. The reading and sorting of the forms produced 172 effective incidents and 144 in- effective incidents. 2. Developing the Activities. After the incidents were classified, it was necessary to determine the activi- ties associated with effective buyer performance and to repeat the process for ineffective buyers. The approach used for this step was to refer to the literature reviewed in Chapter II and select those activities frequently mentioned as basic to the purchasing function. This list was nmdified and supplemented by sampling the incidents to see if the activities referred to in the incidents wouLd be accommodated in the list resulting from the li tera ture review . 42 This preliminary group of activities was then dis- cussed with a panel of 6 purchasing professionals which included Directors of Purchasing from industrial firms and government agencies. Their comments and suggestions re- sulted in a list of 28 activities used in this research. After the list of activities was prepared, each incident was studied intensively in accordance with the purpose of this research. Each incident was examined for indications of what the buyer was doing when he was judged to have been performing effectively or ineffectively. Each action indicated in the incident was then placed in one of the 28 activity categories. References to a particular action might appear several times in a single incident, but it would be used only once in the activity categories, thus avoiding duplication and double counting. Figure 2 illustrates how this process was applied. All the incidents used in this study plus the activity categories are shown in Appendices B and C. 3. Comparison and Evaluations. A series of tables was constructed permitting comparisons of the activities previously developed. Frequency counts and percentages were calculated for particular areas of interest. A further discussion of this material is found in the remaining chapters. 43 Critical incidents ; were collected and classified as: ”“1 Effective critical incidents which supplied Actions by effective buyers which were combined into Categories of activities for effective buyers ’ Ineffective critical incidents which supplied Actions by ineffective buyers which were combined into Categories of activities for ineffective buyers Figure 2.--The Process of Categorizing Buyer Activities. 44 Summary In the present research the critical incident technique was used to collect information on the activi— ties of industrial buyers. The incidents collected were subjected to content analysis to determine what buyers were doing when they were considered to have been effective or ineffective. The buyer actions reported in each incident were placed in appropriate activity categories. These activity categories had been developed primarily from a review of literature dealing with the purchasing function. The list of activities was modified after considering a sample of incidents to see if the buyer actions they con- tained would be included in the categories which had been prepared. The activities were then reviewed by leaders in the field of purchasing and a final list of 28 activities was developed for this study. Information on buyer activities which has been collected by this process has been arranged in tables show- ing frequencies, percentages, and indices. An evaluation was made of the data to develop the critical activities distinguishing between effective and ineffective buyers. The findings will be presented in the following chapters. Chapter IV will report on the data involving the performance of effective buyers, Chapter V will report the data on the performance of ineffective buyers and Chapter VI will compare the information developed on 45 effective and ineffective buyers. Chapter VII presents a summary and conclusions. CHAPTER IV ACTIVITIES OF EFFECTIVE BUYERS The purpose of this chapter is to identify those activities associated with the effective performance of industrial buyers. First, a short discussion is provided. of the procedure used to develop the numerical ranking of the activities. Then each of the activities is discussed, and finally information is provided on the age, experience, and education of the buyers included in this study. Each of the 172 effective incidents used in this study, and all of the activities judged to be related to each incident appear in Appendix B. Procedure A review of the purchasing literature plus dis- cussions with leaders in the field, supplied activities associated with the job of an industrial buyer. However, the review failed to reveal any study indicating whether some of these activities might be more important for success- ful buyer performance than others. This research is an attempt to determine if certain activities are more closely associated with effective pur— chasing than others. The approach used has been to collect -46 47 empirical data in the form of critical incidents supplied by purchasing personnel. A request for such information provided 172 usable effective incidents. Every incident was then examined for purchasing actions that occurred when the buyer was considered effective. Each action was compared to the activity categories and placed in the category with which it was most related. By this means a count was built up of the number of inci- dents in which a particular activity occurred. The activi- ties were then ranked in numerical order. A list of the effective activities is provided in Table 2. Activities of Effective Buyers This section will describe and discuss each of the activities associated with effective buyers. Typical inci- dents or excerpts from them will be used to illustrate the particular activity under consideration. The first activity to be discussed relates the buyer's effect on profit. Profit Potential The significance of the effective buyer's ability to improve a firm's profit picture is reflected in the number of incidents reporting direct dollar savings, or reduced costs for inventory, inspection, paperwork, pro- duction, etc. Those incidents reporting savings were by far the most numerous. References to this activity ap- peared in 135 of the 172 effective incidents or in 78 48 TABLE 2.--Activities of Effective Buyers.1 NO. Of Percent Of Category Incidents Incidents Profit Potential 135 78 Personal Skills 76 44 Procedures 73 42 Sourcing 73 42 Product Research 64 37 Departmental Coordination 58 34 Vendor Assistance 58 34 Quality Assurance 54 31 Organizational Decisions 51 30 Inter-firm Coordination 49 28 Substitutions 47 27 Negotiation 44 26 Competitive Bids 39 23 Inventory Control 30 17 Specifications 30 17 Market Analysis 29 17 Forecasting 25 15 Supplier Evaluation 23 13 Transportation 15 9 Forward Buying 13 8 Follow-up 12 7 Target Pricing 12 7 Records 11 6 Scrap & Surplus Disposal 10 6 Make or Buy 7 4 Vendor Relations 7 4 Legal Considerations 5 3 Ethics 3 2 1The activities are listed according to the number of incidents in which they occurred. 2 reported. Number of incidents in which the activity was 3The total number of effective incidents was 172. 49 percent of them. Evidently the buyer who is considered effective is one who can improve profit through his actions. Because the buyer's impact on profit potential was indi- cated in such a large percentage of the incidents, several of them will be illustrated here. The first incident indicates how locating a supplier capable of providing a product similar to one that is presently used, can bring lower costs. - Feed for research animals was being purchased from a leading name brand manufacturer at a cost of $100,000 per year. The buyer investigated local grain and feed companies and found one that could produce the same formulations as the name brand producers. Purchase costs were reduced $20,000 a year, and because the supplier was local and responsive to short lead time, the company's inventory was reduced 50 % or about $5,000. The second incident illustrates how finding a source that is nearby can reduce delivery costs and lead time. Lead for our glass batch was purchased from a supplier on the East Coast and was received by rail. Through much work my buyer found a source in Indianapolis that delivers by truck. He kept searching for a supplier in our area and negotiated price and saved on freight and lead time. Savings to our plant of $45,000 per year. A third incident is provided to demonstrate how savings can be achieved even though the initial price may 50 be higher. In this case the inventory was reduced, safety was improved, and the material handling costs were less. Coal was brought in by carload in August, September, and October and stockpiled for winter use. Fires, through spontaneous combustion, happened several times per year which added to the cost, and also the difficulty of loading from frozen piles during the winter months added to the cost. Negotiated a contract with local coal yards, with barge dock, to deliver coal by truckloads as required at 10 cents per ton greater than carload costs. Though the cost was 10 cents per ton more, the net savings annually amounted to $65,000. The final illustration is an incident which points up the need for providing sufficient time for buyers to research the purchase of an important item. In these days of multiple and excessive price increases, a good buyer should identify unreasonable price increases and vigorously resist the increase. Cliff, in his daily search for such items noticed that a main landing gear cylinder was priced at $13,337. First, Cliff took time to identify the cylinder as a possible overpriced item. He checked our order files and found that the previous price was only $8,240. Immediate action was taken with parts sales by protesting the increase. Vendor indicated in- itially that production and sales were down to such an extent that the increase wasn't too abnormal. Cliff insisted that a price analysis be made which in the end indicated that the $13,337 charge was an error and the old price was reinstated. I I‘V V. . h "HA 51 Personal Skills This activity refers to the willingness of an effective buyer to spend extra effort and personal time in solving purchasing problems. He is also able tO convince others to accept his proposals. His presentations are well prepared and persuasive. His diligence and successful solu- tions earn the respect Of others in his firm. Comments on Personal Skills appeared in 76 Of the 172 incidents or in 44 percent of them. An incident illustrating this activity follows: Purchasing and plant engineering were involved in a "make or buy" situation for a plant utility supply of nitrogen gas. Two plans were being evalu- ated: bulk storage tank being supplied by vendor's tank truck, or storage tank being supplied by our own nitrogen generator. A continuous, but varying demand for large quantities Of nitrogen was needed. Engineering recommended the outside supplier. Pur- chasing did not agree. The buyer, a chemical engineer, who came to purchasing from plant engineering prepared a more detailed engineering report listing many advantages and cost savings that engineering had missed. He secured the support of his supervision and sold both the Operating division and engineering on the generator. Much of the work was done on the buyer's personal time. The generator was bought and has Operated satisfactorily for many years with substantial savings to the company as audited by the comp- troller's division. Engineering had more respect for purchasing's service and appreciated the as- sistance in this case and asked for more in the future. I» ~- I'- 52 Procedures Procedures are the established ways Of doing things. They are a series Of actions to be taken by personnel in order to accomplish a particular task. The effective buyer recognizes that procedures are a means to an end and when conditions arise that are not covered by a procedure, or when an improvement can be made in present procedures, then some change may be advisable. The buyer knows whom to con- sult about such changes and is able to implement them with a minimum of conflict and with favorable results. This activity occurred in 73 incidents or 42 percent. A success- ful change in purchasing procedure is mentioned in the following incident: Approximately 500 PO's through our department for film processing. PO's issued after fact because the production department said only they knew the sources that were qualified. The production department was forced into submitting specs on their various film processing requirements and our buyer brought in potential vendors to determine what they could and could not do. After this, those that appeared qualified were then allowed to quote on our requirements. Blanket orders were issued to 2 sources and the business was split 50-50. Savings of approximately $30,000 to $40,000 per year because of competitive buying. Better service from both sources--e1iminated approximately 498 purchase orders in the purchasing department. Eliminated approximately 250 revisions. More prompt payment, greater respect from the production department. m. 53 Sourcing For those items secured from outside the firm, it is the buyer's duty to locate a suitable source of supply. The buyer must be able to find suppliers who are not only willing, but are also competent to furnish the items needed. As he searches for suppliers, the buyer looks to his estab- lished sources and also tries to locate or develop new ones. While investigating suppliers, the buyer will often check their technological ability, financial position, reasonable- ness of their prices, management policies, delivery record, and other areas. Sourcing appeared in 73 of the 172 incidents or 42 percent. Two incidents are provided to indicate this activi- ty. The first refers to finding a new supplier, carrying out an investigation, and having sufficient faith in the findings to back the supplier through some initial difficulties. We needed a source for plastic molded parts for a new product. Very specialized material and a new molding process was required. The buyer sent inquiries to various molders and because of an attractive price and agressive selling, one supplier stood out above all others. Normal vendor checks were made as well as a visit to his plant and everything was far above average. When production began parts were not meeting our specifications due to molding problems not antici- pated. The vendor then invested a good deal of money to solve these problems. Many weeks passed and parts were improving but all problems were not resolved. There was heavy pressure from management, engineering and quality control to drop this vendor and go to another one because of the situation. u_ a.- 54 Due to the vendor survey performed the buyer was convinced the present supplier was the best source for this part and he stood by the vendor. In the end the problems with the specifications were resolved, and the buyer is not enjoying an excellent relationship with a very reliable supplier. The second incident illustrates how a buyer proceeded to develop a new source of supply when the present one was unsatisfactory. Product he buys. whether factory, It was becoming increasingly difficult for Ken to receive needed repair parts for aircraft seats. The manufacturer's performance was slowly deteri- orating. A recent change in management and transfer Of work to subcontractors were causing serious delays and shortages. Experienced personnel were leaving the company and others were being fired or furloughed due to the company's financial problems. Ken contacted a former employee of the manu- facturer and indicated that our company and other airlines could not continue to tolerate the poor service being received. Ken suggested that the former employee and others, who were trained in the aircraft seat business, start a company of their own. In a few short months another company was formed. With their expertise, the former employees began manufacturing approved parts for our seats and de- liveries once again returned to normal at 10 to 20% lower prices. Ken took an innovative approach to correct our seat problems. Research A good buyer increases his knowledge of the items He wants to know who uses them, how they are used, substitutes are available that would be satis- and whether new materials or processes are develop- ing that may affect those presently in use. He is alert and has an Open questioning attitude, interviewing salesmen, ‘ n . \ n 55 checking with users of similar products and encouraging suggestions from suppliers. References to this activity were made in 64 of the 172 incidents or 37 percent. An example of this activity is given below. A part with high usage, was being made from square brass stock. The machining costs were high and almost 50% Of the brass was removed in ma- chining. The buyer reviewed the problem with various sources, and found out that the part could be produced on a high speed automatic machine using a lead alloy material, if the part could have a very slight radius on the corners. He went to engineering and sold the idea. The redesigned part was purchased in the new material at a savings Of approximately 50% per part. Departmental Coordination The purchasing function has been established to provide other units with materials and services they need. In order to operate satisfactorily the buyer finds he must work harmoniously with other departments even though pur- chasing may occasionally have a different view of a problem than they do. He will arrange meetings to improve communi— cation, and act as a liason agent in the firm. The buyer also works within his department to assist others and improve understanding Of the buying operation. This activity was indicated in 58 of the 172 incidents, or in 34 percent. 56 Engineers, next to the purchasing organization, had the most contacts with suppliers and potential suppliers. However, they were either ignorant of or ignored the company's basic purchasing policies, thus contributing a detrimental effect to the company's image. A buyer suggested that the resident manager of purchasing hold a series of meetings not only explaining the company's basic procurement poli- cies, but the rationale behind the policies. Also, time was afforded for discussion and questions by the engineers. The engineers had a better understanding not only of what the company policies were, but of the reasons for such policies. Teamwork effort to Obtain the best value for the company dollar expended was increased. Vendor Assistance An effective buyer recognizes his suppliers as experts in their field and attempts to utilize their know— ledge to the benefit of his firm. He will encourage and motivate vendors to provide him with useful information on products, technical processes, and price changes. He strives to develop good vendor liason. At times the buyer may be able to provide assistance or suggestions to a vendor that is of mutual benefit. This activity was mentioned in 58 or 34 percent of the 127 effective inci- dents. An example of Vendor Assistance is related in the following: Our department was introducing a new product. We were not doing as well as anticipated in sales due to the high prime cost. One part in particular appeared to be out of line. I challenged the buyer to reduce the price from 75¢ each to 40¢ each. t s u. v, ’I , ‘ H“ ' I 57 The buyer talked with his various suppliers who could manufacture this part. He explained his goal and worked with the successful supplier (who also was current source). They did a cost breakdown on current process and competitive processes. Finally settled on a new approach which engineering accepted. Net result was a $62,000 savings the lst year. A higher performance part, easier to produce and finish. Both buyer and seller were happy over the outcome. How a buyer may help to lower a supplier's cost and thus his own is indicated in this excerpt from an incident: . . . Went direct to supplier of paper label stock for our label supplier and through negotiation reduced our label supplier's paper cost. Quality Assurance The effective buyer is concerned with obtaining the proper quality when he makes a purchase. He seeks to Obtain the level Of quality that is needed by the requisitioner. This requires a correct description, knowledge of materials, markets, and the sources Of supply. He will request samples, have tests run, make comparisons, and discuss quality with the user and the vendor. In 172 effective incidents, this activity was referred to 54 times or in 31 percent of them. The activity concerning quality is shown below: Small rubber component redesigned and supposedly tested. Production lot received. Operation caused failure in assembly Of tool. 58 Data was assembled from many areas to serve as background data. A test was run at an independent laboratory to supply full data. Assembly Of data showed that length Of part caused a bad condition at the Operating point. A redesign with a shorter length was requested. New design was accepted as recommended and subsequent production proved successful. Good liason between engineering and purchasing was developed due to caution not to dictate a policy. Approach based on assemblage of data in such a way as to lead to a successful conclusion by all parties involved. Opganizational Decisions The buyer must occasionally make decisions involving the formal organization structure. He acts on some question relative to the chain-Of-command or the flow of authority and responsibility. He knows which unit in the firm to contact for advice or assistance. He may challenge the recommendations, or requisitions of others. This activity took place in 51, or 30 percent Of the 172 effective inci- dents. An example is provided below. A blast furnace needed to be relined, and steel mill personnel requested purchasing to Obtain a high alumina relining material for the job. The refractories buyer, taking advantage Of the fact that the corporation has an extensive research laboratory in a nearby community, asked for research assistance in finding a relining material which would perform the job as well at lower cost. Armed with the laboratory evaluation Of an acceptable substitute, the buyer was then able to convince the mill personnel involved to accept the lower cost lining material. The major advantage, of course, was the fact that the furnace was relined at a lower cost. An 'tx 59 equally important advantage is the fact that the refractories buyer has gained considerable respect from the mill personnel and has contributed to purchasing's reputation for reliability. Illustrations of the effective buyer challenging others in the firm are shown in the excerpts from two incidents: . . . Buyer refused to place order to start vendor. Inéisted on written specifications, vendor survey, meeting with vendor personnel for technical dis- cussion of specs, and the Opportunity to search for competition. Buyer received requisition requesting a new type of ink. This is a material item so buyer questioned using department before actually processing requisi- tion. Inter-Firm Coordination The buyer arranges meetings between himself, members of his firm, vendors, or customers. The purpose of the meetings is to improve relationships, communications or discuss items of mutual interest. This activity developed in 28 percent of the incidents or in 49 of 172. A typical incident follows: A buyer with considerable experience in pur- chasing heavy rotating equipment received a bill of material for a purchased two control air compressor for a nuclear power plant. As a change to the order, the engineers directed that the manufacturer design and furnish the equipment to meet a series of seismic (earthquake) conditions. In pricing this extra, the buyer learned the supplier would need 1,000 hours of engineering at $20 an hour. 60 The buyer asked the engineers for sufficient time to permit him to schedule a meeting with the manufacturer. The buyer, his company's designers, and the manufacturer's engineers met to discuss the manufacturer's standard aseismic design for compressors to be used under such conditions. After a complete review by all of the engineers involved and the buyer who was an engineer, it was agreed that the manufacturer's design would ade- quately meet stringent requirements of the buyer's company. During the same meeting the buyer asked for a discussion of a group of $1,764 worth of extras that the engineers had asked to have worked into the machines. These were also deleted as unnecessary upon pointed discussion between the engineers. A total savings Of $21,764 resulted out of a purchase price of $13,880. Substitutions The effective buyer will often recommend a substitute product or an alternative manufacturing method to his firm. He is on the alert for solutions to problems which involve his area of expertise. His suggestions may involve existing products or products which are under consideration by the firm. Buyers suggested alternatives in 47 of the 172 inci- dents or in 27 percent of them. Such a suggestion is found in the following incident. A routine visit by a salesman included a sales pitch for a new product. The purchasing manager recognized the potential for this new product in the plant and arranged to have a sample supply sent to the plant superintendant for a trial. Trial proved effective. The purchasing manager was able to relate a material to the manufacturing operation, because he regularly spent time in the manufacturing area and was knowledgeable of what was done in that area. This purchasing manager did more than process requisitions. \- *7. u~ 61 Negotiation Negotiation is the process by which the buyer and a supplier discuss the terms Of a contract until common understanding is reached of all the issues involved. It is of more importance for some purchases than others, and when properly done requires extensive preparation and analysis by the buyer and, perhaps, the buying "team." This activity was reported in 26 percent of the incidents or in 44 of 172. An example follows: We needed a new packaging machine. Purchasing sent several vendors to engineering to discuss specifications. Engineering had $10,000 budgeted for the machine. The quotes came in, two were over $10,000 and one was $7,000. The statement was made, "I guess we will have to take the $7,000 machine but the $12,000 one is the best for the job. Purchasing decided to negotiate for the $12,000 machine. Purchasing asked engineering to estimate manufacturing costs of machine for a cost-price study. We had specified a special hot melt gluing unit to be mounted on the machine. Purchasing checked with the manufacturer to see what the O.E.M. price would be. Purchasing negotiated the $12,000 machine down to $9,500. We purchased a machine that was within our budget. The machine was a good one that could do our job for now but have excess capacity for future expansion. It helped improve relations between purchasing and engineering. It helped to allay the fears that purchasing only takes the low bid and helped prove that we spend the company's money wisely. Competitive Bids The use of competitive bids is one method effective buyers use to develop a right price. It is also used to ‘ 1 .u A: e . ...- 3 O u. up. .A u u tune. a n- -_.1. 62 develop a list of potential suppliers and to discover if the price now being paid is correct. Bidding was referred to in 39 of the 172 incidents or in 23 percent. An illus- tration of bidding appearing in an incident is shown next. Product engineering revised the processing of an assembly from "assemble in company plant" to "buy outside assembled." Having reviewed the initial quotations received from suppliers, the buyer could have easily sourced the parts to the lowest bidder. Instead, the buyer went to the plant of the lowest bidder and reviewed the type of equipment to be used for the assembly operation. It was discovered that the lowest bidder had not made a thorough evaluation of the capability of the special equipment and had simply obtained a telephone quote from their only known source of special assembly equipment. The buyer was aware that the equipment had previously been purchased by two other suppliers who had found the equipment to unreliable. The lowest bidder requoted at a higher price based on the knowledge that the equipment he intended to use was not reliable. As a result, the assembly in question was sourced to another supplier having more experience with this type of assembly. By carefully reviewing his quotations, the buyer avoided many potential supply problems. Mar-— Inventory Control The controlling of inventory is an important function involving various Operating departments with differing view- 5x1ints. In general, buyers favor a policy which would mean Larger and fewer orders, which would usually mean high total levels of raw materials. The effective buyer will be ccuascious of the cost of carrying inventories compared to time ordering costs. He will check for balances on hand 63 before he orders, note the usage rates, review items for duplication, arrange with distributors to carry a minimum stock, and study buying patterns. This activity occurred in 30 of the 172 effective incidents or 17 percent of the time. Inventory control is depicted in this incident: We use large quantities of gasoline pump hose and we found our inventory tied up in space and dollars, in our Opinion, to be out of line. We were able to get our peOple to standardize on types, sizes, etc. We negotiated with our princi- ple suppliers, based on price, quality and delivery for the best overall deal. We now have arranged at competitive prices and acceptable quality, a deal whereby the supplier has consigned a stock of hose in our plant. We issued blanket orders once a year with periodic releases. This has released average inventory lockup of $50,000 for other purposes, saving $50,000 X 8% = $4,000 year. Specifications The cost of many materials is often built into them long before a requisition reaches a buyer. Once specifi- cations are determined they become difficult to change and may mean a higher price is paid than is necessary. The effective buyer strives to be involved with reviewing .specifications as soon as possible. At times he may be able to contribute constructive comments on their develop- mentu He is aware of improvements that could result from changers in design, dimensions, or materials. He seeks standardization. This activity was indicated in 30 of the 172 ixu:idents or in 17 percent, and is illustrated below. 64 A special conveyor belt with flanged edges was special made in short lengths for several types of weighing and feeding devices. A study of essential specifications was made by the buyer and a common specification developed. Sources of supply able to manufacture were located. By contracting in large quantities it was possible to have the belt manufacturer stock the belt and cut to lengths as shipped. Studied belting and developed specifications needed. Then negotiated for supply and price. A cost reduction of 44%. Market Analysis The effective buyer realizes that in general he buys in two types of markets: (1) a market in which prices are reasonably stable in the short run and require occasional checking, and (2) a market where supply and price shift quickly and must be watched closely. In either case he must know how to check for information on supply, demand, and price conditions. This was indicated in 29 of the 172 incidents or 17 percent. An example is provided below. Normal practice was to buy metal on a published price basis. Rumors were the price of metal was going to increase. The buyer's boss was out of the country and could not be reached. He researched the rumors and contacted about 8 suppliers whereby indications showed the market was much stronger than weak. On this information he ordered about 1,500 tons of metal in advance of regular schedule. Three days after the 1,500 tons Of metal was ordered the price increased $20/ton. Savings were 1,500 @ $20 = $30,000. w- 7.. 65 Forecasting The buyer attempts to determine what the future requirements for an item will be. He collects and analyzes information on trends for supply, demand, prices. This activity was found in 25 Of the 172 incidents or in 15 percent. An example follows. The companies purchases of steel were large in total coming, however, in small frequent buys primarily from warehouse services centers. Inven- tory costs/space restrictions precluded large/less frequent buys. Costs were high on individual buys and number of sources has increased greatly. The buyer performed a very complete and time consuming study of buy patterns/costs/etc. and ap- plied a contract procurement program concept. He sold the program concept to several warehouses and obtained agreements for the ensuing year. A cost savings of 20% ($250,000) occurred, inventories went down, freight costs went down, availability improved. Supplier base was cut from 24 to 5 with the resulting economies of contact. Supplier Evaluation The effective buyer believes his responsibility for supplier selection does not end with the choice of a sup- plier. He continues to periodically review and evaluate his present suppliers. He believes checking on the per- formance of established suppliers helps them improve and this brings benefits to his firm. In the 172 effective incidents this activity was reported in 23, or 13 percent Cfi the time. Supplier Evaluation appears in the following incident. 66 One foundry supplier was over two months late in delivery Of castings. Our inventory was almost depleted. Our casting buyer visited the foundry, arranged a meeting with the president, vice-president, and sales manager, production manager, quality control manager, and sales representative. As a result of this meeting our parts were shipped weekly with minimum loads Of 5,000 lbs. Vendor made promises and performed as promised and maintained our schedules. Transportation Transportation occupies the time of the buyer who is trying to reduce freight costs, or improve delivery time by finding a different service. This was reported in 15 of the 172 incidents or 9 percent. The following inci- dent involves transportation. The purchasing agent for this company purchased ladle brick in full boxcar loads to keep an inventory on hand for repairing ladles each week. Problems resulted as a result that not enough lead time was given to order a car or else the car was late being delivered due to the railroad losing. Buyer investigated and found that it took three men a full day and a half to unload a boxcar when it did arrive, at a cost of over $200 labor charge. Buyer changed the company's method of buying by ordering brick in 40,000 lb. quantity, loaded on pallets on a flat bed truck for side unloading by a forklift truck. The outcome was paying a slightly higher price for the brick, but the company received the brick quicker, had less money tied up in inventory, took one hour to unload truck and store brick, all at a substantial savings. 'V. q. “ 67 Forward Buying At times the effective buyer will purchase more material than is needed for current requirements, but not beyond his actual foreseeable needs. He may order more than the usual quantity if he expects the price will in- crease, or if the item on the requisition will be ordered repeatedly. This was reported 13 times or in 8 percent Of the effective incidents. An example follows. A buyer through detailed analysis and out- standing communications with suppliers concluded a commodity had reached a low point in a price cycle. He prepared a purchasing recommendation suggesting two year coverage. It was highly unordinary to suggest coverage of this kind in this particular commodity for such an extended period. He presented recommendations well prepared-- documenting his conclusions and writing his analysis in a persuasive enough manner that it was accepted. Shortly thereafter the recommendation was accepted and the commodity booked for 2 years requirements then made a sharp upturn. Within 9 months the price had tripled. Follow—Up The effective buyer maintains control of his pur- chases by involving himself in expediting important orders. He reviews the status of orders, writes letters or contacts suppliers for information by telephone or personal visit. He will also follow-through and check on the progress of activities with which he is concerned within the firm. 68 Twelve Of the 172 incidents or 7 percent mentioned this activity. The following account is representative. Production schedule revised hurriedly on Friday. Inventory control forgot to advise purchasing material due in two weeks. Later was now needed Monday following. Needed material by ten a.m. Monday according to best estimates to prevent machine being shut down. Purchasing agent telephoned supplier 9 a.m. Monday--500 miles away. Material (special custom product) happened to be ready to ship this day. Requested salesman take it to a airport for a.m. flight. Called airlines to alert them of late freight arrival. Alerted traffic department to be prepared to pick up in 2-5 hours. Freight was received and was in machine by l p.m. same day five minutes before it would have run out (original estimate was conservative). Moral of story: think positive, take action; follow up at all points of transfer. With proper approach (and some dumb luck) people will come through for you. Target Pricing The effective buyer works to develop a proper price by estimating or analyzing a supplier's costs for labor, material, and overhead. This occurred in 12 of the 172 incidents or 7 percent. An example follows. Prolonged coal strike. Phase I price restric- tions just raised. Phase II guidelines not well defined. Pressure to raise coal prices. One mine from which we bought just closed. He did an "in-depth" study of relative costs of coal from a number of sources and determined price at which in effect our total costs would remain the same. That became his maximum point. That became his maximum point. And after negoti- ation in fact our total costs went down! 69 As stated above, our total cost per million BTU's for coal went down despite the closing of a mine, the settlement of a long miner's strike (at increased costs of labor safety), and a general across the board increase on coal prices. Records The effective buyer is conscious of the importance of maintaining complete records of transactions and having them readily available. This was reported in 11 of the 172 incidents or 6 percent. A typical incident is shown next. All requisitions were hand written. Even those for materials ordered on a repetitive basis. Purchasing agent instituted traveling requisi- tion cards on which were spelled out the specifi- cations and five possible sources of supply. As the cards were used, the buyer had immediately in front of him all of the historical information necessary for him to select a vendor and watch price trends. Tremendous saving of time. Scrap and Surplus Disposal The effective buyer arranges to dispose of excess or scrap material. He may find a way to rework the material, or find another department which can use the excess, or arramge for its sale. This occurs in 10 of the 172 inci- dentssor 6 percent. The following incident illustrates this activity. Graphite electrodes in various lengths and diameters are purchased in large quantities for Make or 70 use in electric steelmaking furnaces. When an electrode is cracked or broken, it must be replaced as configuration is highly important. Such broken electrodes have either been sold as scrap or pulver- ized and used as a recarburizer in furnaces. The discarded electrodes are allowed to accumulate at the steel plant until a large enough quantity is available to permit economical disposal. A member of purchasing was called to one of our steel mills to inspect a quantity of scrapped electrodes and arrange for sale to a scrap dealer. Noting that the damage was minor in some cases, he consulted personnel to see if some of the elec- trodes could be re-machined and re-socketed for use in furnaces calling for smaller electrodes. A reclamation program was developed whereby damaged electrodes from large furnaces are reworked by a manufacturer and made fit for use in smaller furnaces rather than being disposed Of as scrap. The program saves the cost of purchasing new elec- trodes for several of our smaller furnaces and represents a decided improvement in our costs when compared with scrap value. Buy A situation involving a make or buy situation is solved with the buyer's assistance. Through his knowledge of a product or his contacts with suppliers, the buyer makes helpful suggestions. This activity was indicated in 7 Of the 172 incidents or 4 percent and is shown in the incident below. The company had been having difficulty manu- facturing an aluminum strip product. The high cost of this product was jeopardizing an important company program. In negotiations with the company's aluminum strip suppliers, the buyer discovered the aluminum industry makes a similar product. Further efforts 71 proved that the company's suppliers could supply the product at a lower cost than the company could manufacture it internally. A significant cost barrier to the important company program was broken. By being sensitive to the capabilities of suppliers, the buyer made an important contribution to the company Vendor Relations Once a dependable supplier has been located, the effective buyer acts to develop a continuing satisfactory relationship. He is interested in maintaining a friendly, courteous, association. Tries to avoid ill-will. This is indicated in 7 of the 172 incidents or in 4 percent. A typical report follows. A buyer is given the responsibility to procure a subsystem on a "sole source" basis. The supplier objected to many contractual provisions and docu— mentation provisions. Various meetings were arranged by the buyer with responsible contractor personnel. The meet— ings resulted in the acceptance of the supplier's positions as proposed. The supplier was con- tacted fur the buyer and was told that each party was somewhat "apprehensive" about doing business with each other, however, if each party would work together, a mutually beneficial conclusion could be reached. Each party put forth a great deal of extra effort and as a result, the parts received on time were of an excellent quality and the supplier made a good profit on the contract. In addition, the above mentioned "apprehensiveness" has disappeared and each party is eager to contract with each other. v . A n.- 72 Legal Considerations The effective buyer has a basic understanding of the law relating to his job and his activities. He knows his primary responsibility is to act in the best interest of his employer and to avoid misunderstandings with his suppliers. References to this topic appeared in 5 Of the 172 incidents or less than 3 percent. An example is given below. Upon joining the firm, the new purchasing agent was suspicious Of the excessive expenses in the supply area. It took nearly a year of checking to locate the real problem. Set up an effective receiving system to check receivables against orders matching packing slips against invoices and constantly checked the market for competitive bids on large $ items. . . . The pressure brought to bear on the crooked vendor forced him to tip his hand through a series of wining and dining sessions ending up with a direct offer similar to the previous purchaser (deceased). The new buyer kept close contact with his superior advising him of each development until the trap was sprung. The vendor confessed all and made partial restitution prior to his untimely death due to cancer. The company is now aware of the pitfalls of sloppy habits and is saving approximately $100,000 yearly on purchases from this source alone. Con- stant review of all purchases and leases has re- sulted in further economies. Ethics The effective buyer Observes accepted ethical practices in his relations with his employer, others in the company, and with vendors. He recognizes his actions 73 must be above reproach. In only 3 of the 172 incidents or less than 2 percent this activity mentioned. An example is given below. Large chains for draw benches were purchased from equipment manufacturers for many years because the plant engineering department believed that only the equipment manufacturer was qualified to supply chains to the proper specifications for their machines. Also, ethically we could not use the vendors' drawing or copies thereof, to obtain competitive quotes. The buyer knew that the equipment manufacturer did not always make the chains in its own shops, but very often purchased such chains. Therefore, the buyer insisted that the plant engineering department draw up a set of specifications covering all aspects of the requirements of these chains, leaving the actual design to the chain manufacturers' recommendations. Upon receipt of the specifications the buyer was able to obtain several quotations fully meeting the requirements. Cost reductions amounting to several thousands Of dollars were accomplished with savings up to 35 to 40% under the equipment supplier's prices. Age, Experience, and Education of Effective Buyers In addition to being asked for an incident describing effective performance, the respondents were requested to Ixrovide information on the age, experience, and education of? the person involved in the incident. Not all the inci- this activity occurred in 23 Of 144 incidents or 16 percent. A failure to forecast a fluctuating demand for 1:“ V ‘- ‘u 96 parts which resulted in a tremendous inventory is described in the next incident. A high volume, comparatively expensive part was set up on a delivery per month basis for one year. NO clause allowing variation of the delivery schedule was negotiated in to the purchase order. In addition, the schedule was not checked as production varied. A tremendous inventory of parts requiring special handling resulted. The vendor refused to take back parts at no cost due to their special nature. Even though the vendor could have refused entirely, he did take back a great number of parts at a less than cost figure. The overall cost of these parts to the company was very high. Legal Considerations This item occurred in 22 of the 144 incidents or 15 percent. A buyer wishes to avoid litigation. A failure to consult with proper personnel and to carefully plan for all contingencies can mean delays, increased costs and loss of valuable suppliers. An incident is presented below which indicates the many possibilities which must be provided for to avoid legal problems. An electrical turbine at one of our steel mills was in need of repair, and a member of purchasing was asked to make the necessary arrange- ments. The manufacturer of the turbine had to subcontract cleaning of the equipment by a company equipped to do sandblasting. As there was a general strike by the Teamsters at the time, the sandblasting company had to subcontract with an independent trucker to move the turbine first to the location where it could be cleaned and then to the electrical manufacturer's plant site. 97 Pressed for time, the buyer made the arrange- ments and was extremely careful to have the equipment properly loaded on the truck so as to minimize the risk Of damage. En route, the truck driver parked his truck in order to have lunch, and some unknown person sabotaged the cables holding the turbine in place. As the driver later approached his desti- nation along a curving road, the load shifted, tipping the truck and seriously damaging the turbine. In spite of the care taken by the buyer, it was later discovered that, through all of the subcontracting and sub-subcontracting, there was no clear definition of responsibility for the equipment while in transit. Although the buyer thought he was being thorough, he was apparently not thorough enough in View Of the fact that sabo- tage was possible. The electrical manufacturer, the sandblasting company and the trucker disclaimed responsibility, and the steel company had to pay for the damage to its turbine in the absence of a written agreement clearly defining responsibility. Vendor Relations Buyers were involved with vendor relations in 21 of 144 incidents or 15 percent. Considerable time and effort may be spent by buyers in locating competent, willing, sources of supply. Once such suppliers have proven satis- factory, action should be taken to maintain their goodwill. The ineffective buyer overlooks this fact or is inept in .his dealings with dependable vendors. An example follows IMhich indicates how supplier relationships can be damaged. An experienced buyer with one female assistant handled annual procurement Of approximately $1,500,000. Review indicated could not justify two full time employees for relatively small volume purchases. Efforts to improve productivity disclosed examples of ineffective buying activities. n\- .- ~‘ ‘5 '\ 98 In many instances purchases of $5.00 and less were resulting in several phone calls seeking quotations in effort to find $.10 and $.20 savings. When such insignificant savings were found, origi- nal supplier was called and inference made that he was "cheating" on prices. Not only was time wasted that could have been better spent on more important items but supplier relationship suffered badly. Certainly an in- effective purchasing performance. Specifications References to this category appeared in 21 of the 144 incidents or 15 percent. A buyer may find that when he reviews specifications for an item that an improvement may result from a change in the required design, dimension, or material. A serious error results if the buyer makes a change in specifications without consulting with other personnel who are involved. The following incident de- scribes such a condition. Lack of communication between departments. Supplier requested print deviation. Buyer thought he could handle by himself without con- sulting engineering department and get their OK to ship stud oversize by .010. Clip did not fit part and cost company $1,500 in rework charges till problem was corrected. Supplier Evaluation. The buyer will review the capability and performance of his existing vendors, and may visit their facilities to develop information. It is not sufficient that good I an,“ . HIV-I.. I. ' I “I. In" ' "DH \r u -. A fingk. It... «a. a 1 (1‘ 7. I 4.. 99 suppliers be initially selected, it is also necessary to check on their performance after they have been selected. Comments on this activity appeared in 21 Of 144 incidents or 15 percent. One of the incidents points out that an evaluation system can be tOO complex and also defeat its purpose. It was felt by certain individuals that a de- tailed and complex vendor rating system involving engineering, quality control, and purchasing would prove highly desirable. He developed a system whereby, engineering, quality control, and purchasing would rate each supplier on all shipments received. If a shipment was one day late ratings were assigned by pur- chasing. If savings to engineering were lacking, engineering would establish a rating. If rejects were involved, quality control. A shambles-input was delayed, ratings varied according to the individual assigning them. The whole system collapsed because of the paper work involved, and the combined ratings were meaningless. ‘Records The purchasing process generates considerable paper- ‘work.- A buyer who fails to maintain complete, accurate records and have them readily available will find it difficult to do his job well. References to inadequacies iJi this area appeared in 21 of the 144 incidents or 15 pnercent. The next incident typifies this situation. A buyer was pressed for time in placing orders because Of new parts being added, and because of pressures from vendors to give larger orders to their company. 100 The buyer rather than planning carefully to cover needs, and to order parts on a systematic basis, would give orders over the phone telling the vendor he would confirm it later. Then when the requisition cleared his desk it would be assigned a different order number or might even be assigned to another vendor. Duplicated ship- ments arrived in many cases, and later vendors would refuse to ship emergency requirements with- out a written order in their possession. This complicated matters to where his effectiveness as a buyer was reduced beyond practical limits. Buyer was demoted back to expediter where he does a creditable job. Transportation References to Transportation appeared in 16 of 144 incidents or 11 percent. It involves buyers reviewing transportation modes, services and possible improvements in delivery time or cost. Poor transportation arrangements are an impediment to a firm as shown in the following example. The company was interested in entering a market on products not previously sold. Problem was to find source that had production capability to allow for fast entry for product line expansion. Vendor selected was located in a poor area, not easily accessible for truck routing causing 7 to 10 days delay in delivery. Vendor was a com- petitor on a very small basis. As sales increased, delivery problems became a major concern, as the supplier kept falling farther and farther behind, creating serious customer relation problems. Sales feed-back revealed the information that our supplier was also trying to sell our customers to the extent that he revealed that he was our major supplier. This resulted in much loss in business, bad vendor relations. Plans made to make all products in house and drop vendor as a source of supply. 101 SubstitutiOns In order to improve a situation or overcome a problem, the buyer may suggest a substitute product or an alternate manufacturing process to his firm. An inability to develop substitutes or alternatives is a handicap to a buyer and his firm. This situation was mentioned in 16 of 144 incidents or 11 percent and is illustrated below: A sales representative approach the buyer with a "value analysis" idea in Offering a substitute product for one which had been satisfactorily used for some time. The salesman claimed equivalent or better quality at a lower price. Told the salesman that our present product was performing satisfactorily and there was no use disturbing the situation. Salesman asked for permission to see the buyer's superior to which the buyer grudgingly agreed. Joint meeting of all 3 actually resulted in agree- ‘ ment to have the operators try the proposed product. Results have proven the salesman's claims were correct wherein the operators preferred the new product regardless of cost, but with the actual cost savings everyone was happy, except the buyer who would up with a "red face." While we do not advocate product substitution just for the sake of change, we do feel that every valid Offering should be studied. Scrap and Surplus Disposal This activity occurred in 14 of the 144 incidents (Ir in 10 percent. When a buyer does not secure satis- factory agreement with a vendor on the disposal Of unwanted nurterial, or when he does not provide for proper sale or use of scrap, he has failed to perform effectively. This .is :indicated in the next incident. 102 Mill supervisor called purchasing representa- tive and reported steel was out Of tolerance but they were trying to run production anyway. Purchasing said OK, that he would notify sup— plier. Purchasing did not: (1) Get details Of how steel was out of tolerance. (2) Tell mill super- visor to take steel out of production line and use steel from another mill order. When purchasing notified supplier, the supplier agreed to come out and check steel. Two days later when vendor's metallurgist arrived all the steel from this mill order had been run through production. There was no steel left to make a legal claim. The result was a loss of production with much expensive scrap end product produced. Ethics There were 12 comments involving Ethics in 144 incidents or 8 percent. When the buyer is not honest and truthful in his Operations, it reflects unfavorably on his firm. The next incident indicates such a situation. Vendor A repeatedly brought new ideas to pur- chasing agent. Purchasing agent took ideas to Vendor B who always quoted lower prices because his $ & D costs were nil. Purchasing agent lost an excellent second source of supply. In fact, he was threatened with bodily harm by salesman for Vendor A. Company was locked in to one vendor thereby eliminating competition. Target Pricing A buyer may attempt to develop a proper price by .analyzing or estimating a supplier's costs. References ‘to this not being done, or being done improperly occurred 103 in 9 of the 144 incidents for 6 percent. An example is shown below. Buyer advised to arrange for another supplier of product at competitive prices. Buyer arranged for supplier to furnish product however buyer did not check all aspects of prices and paid more money. Loss of money to company. Forward Buying This activity occurs when a buyer purchases more material than is needed for current needs, but not beyond what is needed in the foreseeable future. Seven of the 144 incidents, or 5 percent referred to this activity. An incident involving unsatisfactory Forward Buying is pro- vided below. A salesman told our buyer he could save the company 15% by purchasing a larger quantity of a special grade pipe for well drilling use. The size and length would be standard, but the chemical analysis would be slightly Off standard. The buyer purchased this material from which we manufactured pipe couplings for deep Oil well drilling purposes and signed a purchase order for 12 months anticipated requirements for shipment in equal monthly quantities. The oil companies requested pipe couplings stronger than heretofore because they had to drill deeper for Oil and gas and this required pipe having a different analysis using more nickel and chrome so the string of pipe in the ground would not break in half. 104 Make or Buy Four Of the 144 incidents or 3 percent mentioned this activity. It occurs when a decision must be made whether to provide an item or to secure it from an external source. The firm may rely on purchasing to provide certain information used in its decision. The following incident provides a situation where the buyer performed this activity in an inadequate fashion. Typesetting for our in-house print shop tradi- tionally was purchased from local typesetters. One division of the company acquired a composer type- setting machine for its own work. As a service to the other divisions, typesetting and composition was done by the division's personnel on the composer but eventually the manager ruled that this division could no longer accommodate this work. An Offer was made to move the composer to a central location and add additional equipment to automate repetitive work. In taking up the proposition with management, the buyer did not present all the facts that would indicate the economies that could be made. Also, as an additional person would be needed to run the equipment no figures were presented to indicate the return on investment that would result. A lack of a proper presentation delayed the acquisition Of the equipment and in meantime the work had to again be sent outside at considerable expense. This expense will continue until the buyer can assemble facts and figures which justify this acquisition to management. Age, Experience, and Education Purchasing personnel from 28 states supplied 144 iJncidents, each Of which described an ineffective pur- cfliasing performance. In addition to this information, 105 the respondents provided data on the age, experience, and educational level Of the buyer involved in the incidents. Not every incident contained this information, however. There were 133 reports on age, 133 on experience and 133 on education. Table 7 shows the relationships between the ineffective buyers and their ages. TABLE 7.--Age of Ineffective Buyers. Under 30 30-50 Over 50 Total Number 37 76 20 133 Percent 28 57 15 100 An examination of Table 7 reveals that by far most Of the buyers in the ineffective incidents were between 30 and 50 years of age. Less than a third of such buyers were under 30 years of age and the group having the smallest percentage of ineffective buyers were those who were 50 years Of age or Older. It might seem that the Older group was less likely to be ineffective, but this assumption could be wrong. The figures may largely reflect the age grouping Of buyers. In other words, perhaps some 50 per- cent Of the persons engaged in industrial buying may be Zbetween the ages Of 30 and 50. Thus it would not be surprising to find most of the ineffective buyers clustered "A‘AA ‘4 106 in this range. The data are not helpful on this point. A further analysis will be performed in Chapter VI which may be more useful. The second characteristic for ineffective buyers on which data were collected was the number of years Of purchasing experience. Table 8 reports this information for the ineffective buyers included in this study. TABLE 8.--Experience of Ineffective Buyers. Under Over 5 Years 5-10 Years 10 Years Total number 57 4O 36 133 Percent 43 30 27 100 The data indicate that the more experience a buyer has, the less likely he is to be involved with ineffective situations. It also indicates that the group with the least experience was involved more often than the others in unsatisfactory performance. However, the data might .also mean something else--that persons with little experi- ence who are ineffective--do not retain their position. IT“: people with added experience decrease as the years increase. Those who are not satisfactory may be released as tLime goes on, and perhaps more than 5 years experience 107 is not relevant. Again, there will be more analysis in Chapter VI. Finally, data are summarized in Table 9 on the education of ineffective buyers. TABLE 9.--Education Of Ineffective Buyers. High Some College School College Graduate Total Number 32 39 62 133 Percent 24 29 47 100 The data indicate that 62 of the ineffective buyers, or 47 percent had a college education. Another 29 percent had some college and 24 percent did not continue their formal education past the high school level. The first reaction to this material might be to comment that the more education a person has, the more likely he is to be ineffective. Such a conclusion may be true, but another possibility is that most Of the buyers in this sample have a college education and this is reflected in the table. Further analysis of the ineffective and effective buyers is presented in Chapter VI. Summary This chapter is devoted to the activities associated with the ineffective performance Of industrial buyers. The 108 144 incidents indicating ineffective performance were collected from respondents actively engaged in purchasing. These incidents were examined for the activities of the buyers involved. The activities were then compared to the 28 activities developed for effective buyers in Chapter V. When a buyer was considered ineffective, it was noticed he omitted a necessary action, or performed it unsatisfactorily. All the activities Of ineffective buyers were accommodated in the same set of 28 activities that satisfied effective buyers, but the frequency with which they were reported differed considerably. In addition to the information developed on the activities of buyers judged to be ineffective, other material was collected and presented on their age, experi- ence, and education. It appears that most Of the ineffective buyers in this study were between 30 and 50 years of age, had less than 5 years of purchasing experience and were college graduates. A further analysis and comparison of activities and personal characteristics will be undertaken in Chapter VI. CHAPTER VI A COMPARISON OF EFFECTIVE WITH INEFFECTIVE BUYERS A pattern Of activities for effective buyers was presented in Chapter IV and for ineffective buyers in Chapter V. In this chapter data from the previous chapters are summarized and compared to determine: (1) whether some buyer activities are more important than others, (2) whether effective buyers are more likely to perform certain activities that others, (3) whether the age, experience, or education Of effective buyers is different from that Of ineffective buyers, and finally, (4) whether certain activities Of buyers are related to their age, experience, or education. Relative Importance of the Activities A total of 316 incidents was used in this research. In this total, 172 concerned effective buyers, and 144 concerned ineffective buyers. The fact that fewer reports (of ineffective incidents were received may be due to the :reluctance Of respondents to provide examples of ineffec- ‘tive performance. Such reports tend to reflect unfavorably cum individuals and the purchasing organization. Although tfliis research promised anonymity, the respondent might have 109 110 feared that someone, somehow, would discover his identity. Indeed, one letter was received with no research information, but with a statement which said, "I've filled these things out before and learned my lesson." Other returns stated "I cannot recall any ineffective incidents," or were returned blank. The activities referred to in the incidents are listed for comparison in Table 10 in descending order of their total occurrence. From the information in this table, it can be noticed that Profit Potential is by far the most prevalent item in terms Of total occurrence and is also mentioned more frequently than any other item appearing in either effective or ineffective incidents. If the fre- quency with which incidents reporting the activities per- formed by purchasing personnel can be taken as an indication of their relative importance, then Profit Potential would be the most important. It would be followed by Procedures, Sourcing, Personal Skills, and so on. Table 10 shows what a buyer must do and do well in order to be considered effective. If the buyer does not perform these activities when expected, or if he performs them poorly, he is judged to be ineffective. Purchasing managers may find this listing useful when planning topics to be included in a training program or when making assignments. For example, a training unit might be built around one or more of the first 8 activities in Table 10. Each 11]. .>ua>auom room LOHB pw>Ho>cfl muomsn Hobos mcu wo uwpuo ocapcoommo ca Omumflqa m OH m ma m cm 5 Hm m vm m mm m mm om Hm 04 mm w. «v Mu m1 ma on be mm m mm .m me C N. w. w am we am we cw am mm am am am Nu aca wn mos mm Nfia MW mma mw mva cs mma he 7w: “wamuzc ucoouma umofisz muchsm Houoe IV. I W .10 lull! '1: li'lvu III. .II m v v e xsm no mme m NH N m moflsum m a m me Season escapes e m a NH wannabe assume as as m on ammoamao msaausm a amuom ma mm m m mcoflumumpflmcou ammoq ma am a e mCOflumHmm HOOCO> as SH a ma :oHumuuoamcmue ma am e as mpuoowm N. am ms Hm acanmaam>m smasaeam as Mr ma mm mafiummowuom mm mm I ma dmIBOHHOE ma am a“ Om m:oflumuwmn cam my em as am mamxamca umxnmz HM OH am he chAusuHumnsm as mm mm mm meam m>flnnuma50o ms em em as sownmauommz mm mm mm om Houucou >uoucm>cH mm mm mm av cOHumchuooo EuamnumucH mm mm em mm mocmumamms uoocm> em mm em cw coucmmwm uospoum mm av am am mucousmm< xuflamso mm om wm mm COHuwcHUuoou HmucoEuumomo me 4: on Am mconaooc HOCOAthwcmmuo ww a. we on maaexm HMCOmuwm me on me me ocaounom mp m. me me mousmuooum up was we mma acapsouom uemoum Leesuz Amnauzc ucmouma uonEOZ acmuumm umcssz >ufi>fiuo¢ muo>sm c>fluommuwcH muw>sm m>auomumm .moaufl>«uo< >n mumxsm m>wuumum0cH can 0>fiuomumm wo comwummfiounl.oa mqmda 112 activity in this group involved 30 percent or more of the buyers. The number of activities is relatively small, but the number of buyers engaged in each activity is quite large when compared to those in the remaining 20 activi- ties. Since these 8 activities were reported so frequently by buyers, then discussion of the elements leading to im- provements in Profit Potential, Procedures, Sourcing, Personal Skills, Organizational Decisions, Departmental Coordination, Quality Assurance, and Product Research would appear to be very worthwhile. It is likely that careful attention to those few activities which are en- countered most frequently by buyers would lead to improve- ment of purchasing operations. Buyer Performance and Activities Table 10 was examined further to ascertain whether differences in buyer performance were associated with particular activities. By using the percentage of occur- rence for each activity it was possible to prepare two lists, one of them indicating the activities where the percentage was highest for effective buyers and the other list doing the same for the ineffective buyers. The two lists are provided below. 113 Effixxive Iheffixxive Profit Potential *Procedures Pemxmal£%dlls Smnxfing *Product Research *Organizational Decisions *Vendor Assistance Departmental Coordination Inter-Firm.Coordination Quality.Assurance Negotiation Inventory Control Competitive Bids Market Analysis *Substitutions *Follow9Up Specifications Forecasting Target Pricing Supplier Evaluation Fonfiudlandng fmxxmds Make or Buy Transportation *Vendor Relations *Legal Considerations Scrap & Surplus Disposal *Eflfics For some of the activities shown above there is very little difference in the percentage of occurrence, as given in Table 10, for either type of buyer. There are certain activities however, where a considerable difference does exist and they are denoted by an asterisk. Their appearance suggests that some purchasing activities are more closely associated with one type of buyer performance than another. The material in Table 10 was reviewed further in an effort to understand the differences in the performance of buyers for particular activities. It is possible that Inention was not made of several activities of effective Ibuyers simply because satisfactory performance is what is expected from the normal buyer. If the respondents had mentioned every activity that the buyers accomplished pnnoperly, then the activities of effective buyers would probably appear more frequently. Follow-up, for example 114 is an activity which, it can be assumed, will be done cor- rectly by a good buyer. However it is not mentioned often for effective buyers. Follow-Up was mentioned more than twice as many times for ineffective buyers probably because failure to do Follow-Up would mean poor performance. A further examination of Table 10 suggests that many of the activities which were inadequately performed by the ineffective buyers could be classified as routine purchasing duties. It seems reasonable to expect the buyer to be familiar with the policies and approved work methods established for his department. A buyer should know how to document all transactions and file them for future refer- ence. He should notice when discrepencies arise between vendor and buyer. He should know whom to contact in his organization when discrepencies appear. Further, it could be expected that a buyer recognize when he was asked to do something outside of company guidelines or was asked to do something by persons not having proper authority. The activities found in this routine group would probably include most, if not all, of the 13 activities mentioned earlier that were identified with ineffective buyers. A failure to properly perform such routine activities may indicate the ineffective buyer needs more and/or better ‘training earlier in his career. The suggestion was made previously that the effec- ‘tive buyer may be expected to perform the routine duties 115 satisfactorily. Based on that assumption, the references to the effective buyer should emphasize his performance of non-routine duties. These might be thought of as being more complex and would include most, if not all, of the activities identified earlier with effective buyers. These complex activities would require a high level of technical knowledge about the items being purchased and their use, as well as demanding tactful handling of interactions with people. Buyers with these skills would have understanding of, and concern for, the needs of requisitioners. They would be able to enlist the aid of vendors in solving problems. They would be able to develop cooperation between the groups involved in a certain action. Their judgment and initiative would lead to finding better ways of getting things done and meeting company objectives. There is a possibility that the complex activities might require more training and more opportunities to be involved in a variety of purchasing Operations. For this reason the remainder of the chapter will be devoted to an investigation of the age, experience, and education of the buyers in this survey and the activities related to these buyer characteristics. Buyers Compared By Age, Experience and Education Although each of the respondents was asked to supply information on the age, experience and education of the buyer involved in each incident, this material was not provided in 116 every case. A total of 149 of the 172 effective incidents mentioned the buyer's age, experience and education. For ineffective buyers, 133 incidents out of 144 gave this information. Details of this information are shown in Figure 3. . The buyers and their ages are shown and compared in Table 11, while their experience and education will be discussed later in this section. In Table 11 it can be TABLE ll.--Effective and Ineffective Buyers Compared by Age Groups. Under 30-50 Over 30 Years Years 50 Years Total Number Effective 16 113 20 149 Percent Effective ll 76 13 100 Number Ineffective 37 76 20 133 Percent Ineffective 28 57 15 100 Total Number 53 189 40 282 Total Percent 19 67 14 100 noticed that most of the buyers are in the 30-50 age group, and there is little difference in the percentage of buyers who are over 50. A distinction does appear however in the buyers who are under 30 years of age. There are few effective buyers in this group and a noticeably larger amount of ineffective buyers who are under 30. It would appear that younger buyers are most prone to make mistakes UNDER 30 ‘30 - 50 OVER 50 UNDER 5 5 - IO OVER 10 HIGH SCHOOL SOME COllEGE COLLEGE GRADUATE EFFECTIVE marrecnvs ‘ 117 Jna (60%) AGE ' l"5 (39%)-- ifiéfiiiiifiififiii$35.52;;s§2§s§s§s§3§s§s§s§253§s§§§i 37 ( 7 0%) WWW) 7a (A 0%) 20 (50%) 33553333333555???§5§3§3§3§5§ 20 (50%) EXPERIENCE i ............... 139.533” m 335355???€35iii?E§E§§3§S§E§3§s§2§532§5§2525:;52§2§s§s§z§§§s§§s§§§2:252:23§§§§§§§s§z§s§i§i§§§§3 57 (67%) J54 (57%) 40 (14396) J67 (65%) 36 (35%) EDUCATION IV (35%) 3éiéiéii£233iiééiiééiéééiééiésééizésizisiséséeésésésiééSJ 32 (65%) J52 (57%) J 80 (56%) . 62 (we) Jun (53%) 133 (57%) Figure 3.--Effective and Ineffective Buyers by Age, Experience, and Education. {w .b‘ :1. an. p”! .‘l c ‘Vfl 1“ Ur.‘ \\ ( l n t :s Q)» s H on \ av {I ns ‘ u I N\~ nu» a i :Q)‘ 118 from the information in Table 11 which indicates substantial differences between the numbers of effective and ineffective buyers who are under 30 as well as between those who are from 30 to 50 years old. The experience of buyers is examined in Table 12. As might be expected, there is a considerable difference between the number of effective and ineffective buyers who have less than 5 years of experience. The largest number TABLE 12.--Effective and Ineffective Buyers Compared by Years of Purchasing Experience. Under 5-10 Over 5 Years Years 10 Years Total Number Effective 28 54 67 149 Percent Effective 19 36 45 100 Number Ineffective 57 40 36 133 Percent Ineffective 43 30 27 100 Total Number 85 94 103 282 Total Percent 30 33 37 100 of ineffective buyers appeared in the group with less than 5 years of experience. This observation is probably linked to the data from Table 11 which indicated that more in- effective buyers were under 30 than there were effective buyers of that age. It seems reasonable that a buyer who is under 30 has probably held his position for less than 5 years. However, it must also be noticed that 37 of the 119 ineffective buyers were under 30, while 57 of the ineffective buyers had less than 5 years experience. There were 20 in- effective buyers or 15 percent, who were more than 30 years old but had little experience. It would be interesting to know more about these buyers, and their previous job history. Did they enter the firm from college, perhaps with an advanced degree, did they enter from another firm, or did they transfer from within the firm? Additional information on this point might help purchasing managers when recruiting and selecting purchasing personnel. Finally, it can be observed from Table 12 that as the years of purchasing experience increases, the number of effective buyers also increases. In other words it seems that effectiveness increases with experience. This observation is also borne out by noticing that the number of ineffective buyers decreases as years of experience increases. It is probable then that good performance and experience are directly related. Education was the final personal characteristic investigated as a means for distinguishing between buyer performance. Table 13 indicates that half of the buyers in this survey were college graduates. A slightly larger percentage of effective buyers, 54 percent, are college graduates compared to ineffective buyers with 47 percent iJi this group. It may seem surprising that nearly half of I‘D. I . .oodd fl 1"“; .1 N,- \ chf ‘uob 1“. . wav‘i ‘ "~ . AL: ‘Vbu (u L) 5 0,.-. 120 TABLE 13.--Effective and Ineffective Buyers Compared by Education. High Some College School College Graduate Total Number Effective 17 52 80 149 Percent Effective ll 35 54 100 Number Ineffective 32 39 62 133 Percent Ineffective 24 29 47 100 Total Number 49 91 142 282 Total Percent 17 32 50 99 the ineffective buyers turn out to be college graduates. This point will be discussed in the following paragraphs. Although few effective buyers, 11 percent, had only a high school education, the facts indicate it is possible to be successful in purchasing with such a background. Examination of Table 13 suggests however, that high school graduates are not as likely to be effective as those buyers with more education. Since most of the high school gradu— ates appeared as ineffective buyers, they may be a poor choice when selecting purchasing personnel. An interesting area to be researched that is out- side the scope of the present investigation would consider why such a large number of the college graduates in this study, 62 out of 142 or 44 percent, were reported as ineffective. It might seem that only a small percent of buyers with a college degree would be unsatisfactory .uQ .u‘ 121 performers. Perhaps part of the explanation lies in their educational background. Evidently a degree by itself does not insure success. Further investigation into the major fields of study between the effective and ineffective buyers might be revealing. Are effective buyers primarily engi- neers, business administration, or liberal arts graduates? Which buyers have had purchasing courses? What in-service training programs have been available to these buyers? Answers to such questions should be useful when considering the importance of education. It may be that "education" is not as important for buyers as "what kind of education." Activities of Buyers According to Their Age, Experience, and Education Each of the 28 purchasing activities was examined to determine the age, experience, and education of the buyers with whom they were identified. Although 316 incidents were received and used in this research, only 282 of the incidents supplied information on all three of these buyer characteristics. This total included 149 effective buyers and 133 ineffective buyers. Table 14 was constructed to indicate for each of the 28 activities, how many buyers associated with that activity were in a certain age group, how much purchasing experience each had acquired, and the level of their edu- cation. 122 onéuomwuoca m0 .395: may ma noumcdsgp m5. .950th m 5 93433 w>auomwmm mo MODES: .muonsn wfi WM Houmgfl BRA H\m axe H\H H\~ o\m m\m o\H m\v o\a sum no 6x62 v\~ v\H mxo H\N vxa mxc N\o m\m v\o moacum «\o N\a H\o o\m mxv N\a Nxa «\m axm acassm uumsuoa m\m axa mxm H\m Nxm m\m axa «\m H\~ ocauaum ummume m\a H\m m\m ~\s «\N mxo axm m\a m\o Humoamao msamusm a amuom maxm «\m m\o m\v n\o n\H ~\o saxa m\H mcoaumumnamcoo amvmu oH\m mxo m\H m\m m\~ oa\a «\H oa\v m\a maoaumflmm uoncm> mxm o\m m\o axe axe mxm “\a ma\oa ~\~ coaumuuoamcmna m\a mxm o\a m\v \M mxm mxo ma\s v\a muuoomm mxwa exp vxm mxa a\HH oaam mxa maxom q\o coaunuamsm umaaaasm mxma «x» “\o mon sxo . Ha\w mxm Haxoa “xv assummomucm “\ma nxm mxm mxaa ax mxm mxm maxom N\m macaumoHuaocaw maxm oxa mxm ma\n eaxm m. a mxm mm\m Haxa ma.3oHHom axes m\HH nxo m\oa mxm Haxc mxo ma\m~ m\m mammanaa umxumz m\mm m\aa m\h a\va mxaa axes mxm axmm m\m macarsuaumnsm waxes mxoa m\m mxaa m\oa asxm axe Huxmm m\m mvam m>auauwmeoo mxam oxma mxw sxma m\qa m\s a\o ma\om o\v coauMauoaoz vH\a waxma «\v s\HH Haxa maxm vxm maxma ~H\m Houucoo snoucw>cH waxm m\va s\s oa\am m\sa NH\6 N\s Hm\mm n\~ coaumcaeuooo suamuuwucH «slam oaxoa s\m HH\¢~ m\~m nH\a o\a va\mv Ha\a magnumammc uoncm> Ha\mm oH\a~ ma\q ~H\mm mxfim aa\ma xv sa\mv a\s cosmommm heavens ma\a~ ma\ss a\m aa\mm waxma ma\m m\s omxmm aaxo mocmusmma suaamso aaxwm saxna ma\n waxmm vaxaq om\on oxm awxmm Ha\m aoanmcannooo Hmucmzuummoo omxms «axqa naxw asxna waxes mmxr ~H\m omxam maxm macamaumo Haa0aum~ucmouo mamas maxqm “are saxmm omxam Omxma max“ Hm\mm aa\m maaaxm accomuoa omxmn H mm» vaxm «axqm waxes mm mm HH\HH qm\mq omxm mnauugom rpxuq quw» maxm owxvm mmme a..ap ma\m nexcv cmxx mmussoooun Oaxm mm\av mqua am am am as ma.cm maxed wamm mmxfl anaucmuoa uauoua munjenuo oowaaoo Hoocom as tc>c OH . m m 666:: om um>o cm I cm on Hana: mvofloo 86m 53 xua>auua :036058 @053?on 03 NJ I LIN“ “HAW‘HJPRI'EI. “la. } I a I‘IW Il'lll }.|. I.“ hliqa N Etufl. “v.1 .cOaumosum can .oocoauaaxm .664 sauna and: mumssm m>auoouuwcH ecu m>auoouwm do mmaua>auu¢ru.va mamas 123 In order to develop additional understanding of the number of effective and ineffective buyers identified with an activity, a ratio was formed and entered in Table 14. The buyers reported as effective appear in the numerator and the ineffective buyers in the denominator. As an example, for the activity Procedures, there were 8 effective buyers and 20 ineffective buyers involved with that activity who were under 30 years of age. Also, there were 46 effec— tive buyers and 47 ineffective involved with Procedures who were between 30 and 50 years of age, and 9 and 13 respec- tively who were over 50. In a similar manner, the number of effective and ineffective buyers related to Procedures can be identified according to years of experience and level of education. Once the above ratios were established in Table 14, an effort was made to determine whether the particular activity was more likely to be associated with effective buyer performance or with ineffective performance. It was also desired to show how strong such an association might be. In order to satisfy these requirements, an index number was constructed. The index was formed by using the larger number of buyers as a numerator, and the smaller number of buyers as a denominator, then dividing the two numbers and using the result as the index. To further emphasize the distinction between buyers, a decision was made to identify the index 124 number as positive if the numerator was composed of effec- tive buyers, and to show it as negative if the numerator ‘was composed of ineffective buyers. These index numbers can be used to indicate the strength of the relationship between an activity and the buyers in a particular age, experience, or education group. For instance, in Table 15, the activity Procedures has as its largest number under the Age category, —2.50. The minus sign signifies that most of the buyers were ineffec- tive, and the index number indicates that for the group under 30 years old, there were 2.50 times as many ineffec- tive buyers involved with Procedures as there were effec- tive buyers. This is the strongest relationship for the age groups since the other numbers are -1.02 and -l.44 respectively. On the basis of the information shown for Procedures, it is possible to state that linkage to this activity is greatest for ineffective buyers who are under 30, with less than 5 years experience, and with only a high school education. A further observation concerning Table 15 refers to the 9 groups shown under Age, Experience, and Education. In 7 of the 9 groups, for the activity Pro- cedures, the index numbers are negative. 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