I lg;1:1un1“!!!”an 207 038 ABSTRACT PURCHASING RESEARCH IN AMERICAN BUSINESS by Harold Edward Fearon This study provides new information on staff purchasing research within large American industrial firms. Previously, no extensive data have been available on the use of staff for purchase research, although purchases constitute the largest dollar control element of industrial firms. Staff purchasing research was defined in this study as systematic investigation and fact-finding, by full—time specialists, to improve purchasing performance. The major hypothesis of this study was that staff purchasing research is an emerging managerial function, exercising an increasingly important influence on materials decisions, and becoming established as an important area of activity within the purchasing department of major industrial corporations. This was substantiated by data from: (1) interviews with ten large firms with staff, and (2) questionnaire responses from 304 of the 500 largest United States industrial corporations. This study presented detailed data on prevalence of staff, 'historical growth, objectives, topics researched, benefits, personnel involvement, related administrative activities, Harold Edward Fearon research administration, data sources, personnel background and compensation, and future growth. Comparisons were made between companies with and without staff, industrial classifi- cations, and company sizes. The literature search revealed: (1) significant, unrecognized early writings (before 1900) on purchasing; (2) two 1928 books emphasizing use of purchase research staff; (3) magazine articles describing company staff purchase research programs were first published in 1946, and have appeared with increasing frequency since then. Major findings: (1) Purchasing research staffs were used by one—third of the surveyed companies; more durable manu- facturers (40%) had full—time staff than non-durable manu- facturers (2r%). (2) Utilization of staff increased with increased company size. (3) Establishment of staff purchasing research is largely a post-World War II development-~87%lof staffs were established since 1949; however, one firm estab- lished staff as early as 1900. New establishments have approximately doubled every five of the last 15 years. (4) Number of staff research personnel increased with increased number of purchasing personnel, and averaged 7.5 persons per company. (5) Companies with staff researched 1.75 times as many topics as those without staff; each of the 38 topics studied was researched by more companies with staff. (6) Most Harold Edward Fearon worth-while results were achieved on 1.8 times as many topics by companies with staff. (7) Research by staff produced greater results than research by buyers or administrators. (8) Staff was involved in one—half of topics researched. (9) Staff reduced the percent of topics researched in which buyers and administrators were involved. (10) Staff assisted in purchasing administration. (11) Data sources used by companies with staff were more technical and more numerous. (12) Staff researchers generally are well-educated. (13) Companies with staff evaluated purchasing research more highly and indicated the major benefit was a better buying job. (14) Most companies predicted growth in importance of purchasing research, although those with staff evaluated the future potential slightly higher. Many companies plan to establish a purchase research staff in the future. In summary, a company properly utilizing a purchase re- search staff probably will: (1) perform more research, (2) utilize more and better.data, (3) improve research results, (4) advance purchasing administration. Evidence collected and analyzed in this study shows that purchasing research staffs are playing an increasingly important role in improving purchasing efficiency. Copyright by HAROLD EDWARD FEARON 1962 PURCHASING RESEARCH IN AMERICAN BUSINESS BY Harold Edward Fearon A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Dapartment of Personnel and Production Administration 1961 PREFACE A study such as this was possible only with the help of many individuals, too numerous to mention. Particular thanks are due both the National Association of Purchasing Agents and the Purchasing Agents Association of Chicago for the Doctoral Dissertation Scholarships which helped finance this study. Additionally, the time of the many purchasing executives with Whom the author discussed ideas, those executives who com- pleted the questionnaire, and especially those executives in the ten companies interviewed (who must remain nameless) is greatly appreciated. Special thanks are due Professor John H. Hoagland, Who,aw dissertation chairman, gave generously his time and advice in directing this study. Thanks also are due to Professors (Sardner M. Jones and Donald A. Taylor for their valuable suggestions . ii CONTENTS Page CHAPTER I OBJECTIVES} NEED, LIMITATIONS OF STUDY. . . 1 Introduction 1 Need for Study 4 Definition of Staff Purchasing Research 7 Hypotheses 9 Objectives of This Study 11 Limitations of This Study 12 Organization of Study 13 CHAPTER II HISTORICAL DEVELOPMENT OF PURCHASING . . . . 16 Introduction 16 Literature Prior to 1900 17 Literature, 1900-1910 26 Books on Purchasing. 1911-1921 36 Books on Purhhasing, 1921-1928 41 Conclusion 49 Chapter Summary 50 CHAPTER III LITERATURE ON THE STAFF PURCHASING RESEARCH FIJNCTION O O O O O O O O O O O O O O O O O O O O O O 53 Introduction 53 Early Literature 55 Company Practice 63 Aggregate Data 74 Chapter Summary 82 CHAPTER IV RESEARCH METHODOLOGY . . . . . . . . . . . . 85 Introduction 85 Company Interviews 85 The Mail Questionnaire 88 Analysis of Data 97 Chapter Summary 101 CHAPTER V GROWTH AND ORGANIZATION . . . . . . . . . . . 104 Prevalence 104 History 105 Relation to Company Size 111 iii Relation to Industry Classification 114 Size of Purchase Research Staff 121 History, Organization and Objectives of Staff Purchase Research in Selected Companies 128 Chapter Summary 148 CHAPTER VI SUMMARY OF RESEARCH TOPICS AND RESEARCH INVOLVEMENT. . . . . . . . . . . . . . . . . . . . . 151 Introduction 151 Topics Researched 152 Topics Produced Most Wbrth-while Results 155 Relation Between Company Size and Research Done 157 Relation Between Industry Classification and Research Done 158 Relation Between Industry Classification and Research Results 160 Evaluation of Results of Research Performed by the Research Staff 160 Involvement of Research Staff in Topics Researched 161 Administrator Involvement in Purchasing Research 162 Buyer Involvement in Purchasing Research 164 CHAPTER VII RESEARCH ON PURCHASED MATERIALS, PRODUCTS, OR SERVICES. 0 O U C O C O O C O I I O O O O O O O O 167 Introduction 167 Topics Researched 169 Topics Produced Most Wbrth-while Results 173 Relation Between Company Size and Research Done 175 Relation Between Industry Classification and Research Done ‘ 175 Commodity Study 179 Correct Order Quantity 184 Demand Forecast 185 Lease or Buy 189 Make or Buy 192 Method of Production or Manufacture 195 New Product 196 Packaging 200 Price Forecast 201 Pricing Procedure and Structure 205 Scrap Disposal 207 Specification 208 Standardization 210 Substitution 214 Supply Forecast 215 iv Tariff and Import Regulation 219 Transportation 222 Value Analysis 225 Comparison of Occurrence, Benefit, Evaluation Factors 226 Evaluation of Research Performed by the Purchase Research Staff 230 Personnel Involvement 232 Chapter Summary 243 CHAPTER VIII RESEARCH ON VENDORS. . . . . . . . . . . . 248 Introduction 248 Topics Researched 249 Topics Produced Most worth-while Results 252 Relation Between Company Size and Research Done 254 Relation Between Industry Classification and Research Done 254 Analysis of Financial Capacity 258 Analysis of Production Facilities 261 Finding Potential Supply Source 263* Estimate of Distribution Costs 266 Estimate of Manufacturing Costs 269 Supplier Attitude Survey 273 Trade Relations Data 276 Vendor Performance Evaluation 278 vendor Sales Strategy 280 Comparison of Occurrence, Benefit, Evaluation Factors 283 Evaluation of Research Performed by the Purchase Research Staff 285 Personnel Involvement 287 Chapter Summary 298 CHAPTER IX RESEARCH ON THE PURCHASING SYSTEM. . . . . . 302 Introduction 302 Topics Researched 303 Topics Produced Most werth-while Results 306 Relation Between Company Size and Research Done 307 Relation Between Industry Classification and Research Done 308 Blanket Orders 311 Data Processing Equipment 315 Forms Design 318 Formulation of Price Index 320 Inventory Control 323 Learning Curve Payment or Cash Discount Small or Rush Orders Method for Evaluating Buyer Performance Method for Evaluating Purchasing Department Performance MethOd for Evaluating Supplier Performance Comparison of Occurrence Benefit, Evaluation Factors Evaluation of Research Performed by the Purchase Research Staff Personnel Involvement Chapter Summary CHAPTER X RELATED ACTIVITIES AND DATA SOURCES . Introduction Related Activities Performed Activities Considered of Greatest Importance Relation Between Company Size and Related Activities Performed Relation Between Industry Classification and Related Activities Performed Examples of Related Activities Performed by Staff Importance of Related Activities Performed by the Research Staff Personnel Involvement Data Sources Used Data Sources Most Useful Relation Between Company Size and Data Sources Used Relation Between Industry Classification and Data Sources Used Chapter Summary CHAPTER XI ADMINISTRATION OF PURCHASING RESEARCH. Introduction Initiation of Research Projects Scheduling of Research werk Reports of Staff Research werk Follow-up of Recommendations Budgeting and Accounting Evaluation of Benefits Ewachase Research Administration in Specific Companies Chapter Summary vi 0 325 328 330 332 333 336 340 340 344 354 358 358 359 362 363 363 365 376 376 382 385 387 387 395 399 399 400 400 401 402 403 404 405 425 CHAPTER XII STAFF PURCHASING RESEARCH PERSONNEL . . . . 428 Introduction 428 The Purchase Research Supervisor 429 The Purchase Researcher 434 Desirable Qualifications 444 Chapter Summary 447 CHAPTER XIII BENEFITS, DIFFICULTIES AND FUTURE OF STAFF PURCHASING RESEARCH. . . . . . . . . . . . . . 450 Introduction 450 Over-A11 Benefits of Staff Purchasing Research 451 Specific Benefits of Staff Purchasing Research 452 Profitability of Firms with a Staff Purchase Research Function 459 Difficulties Encountered in Staff Purchasing Research 462 Company Plans to Establish Purchasing Research Staff 465 The Future Importance of Purchasing Research 470 Chapter Summary ‘ 476 CHAPTER XIV SUMMARY AND CONCLUSIONS . . . . . . . . . . 479 Need for Study " 479 Background 480 Literature on Staff Purchasing Research 481 Methodology 482 Prevalence of Staff Purchase Research 483 Relation to Company Size 483 Growth Trend 484 Number of Personnel 485 Research Done and Results Produced 485 Evaluation of Research 486 Involvement of Staff 492 Assistance to Buyer and Administrator 492 Involvement in Related Activities 494 Data Sources 496 Education 496 Benefits 497 Future Growth 497 Terminal Conclusions 498 .APPENDICES . . . . . . . . . . . . . . . . . . . . . . . 500 BIBLIOGRAPHY . . . . . . . . . . . . . . . .. . . . . . . 550 vii 4-3 5-1 5-5 5-6 TABLES Companies interviewed, by standard industrial classification . . . . . . . . . . . . . . Companies interviewed, by dollar sales, 1959 . Mailing list by industrial classification and company size (1959 sales in millions of dollars) . . . . . . . . . . . . . . . . . Year man first assigned to purchasing research, by company size. . . . . . . . . . . . . Relationship between company size and utiliza- tion of purchase research staff. . . . .6. Relationship between size of purchasing organ- ization and utilization of staff purchase research personnel . . . . . . . . . . . . Year person firSt assigned full-time to purchase research, by industrial classification . . Percent of companies with staff in durable manufacturing, nondurable manufacturing, and mining O O O O O O O O O O O O O O O O Utilization of purchase research staff, by standard industrial classification and company size . . . . . . . . . . . . . . . Number of secretarial and clerical personnel in purchase research and total personnel in purchase research, by company size. . . Average number of personnel in purchase re- search positions, by company size (1959 sales, million dollars). . . . . . . . . . Number of researchers, number of research supervisors, total researchers plus supervisors, by company size . . . . . . . viii 86 87 91 109 111 113 115 118 119 122 123 125 Table 5-10 7-3 Total "professional" personnel (researchers and supervisors) as percent of total pur- chasing staff (exclusive of secretarial and clerical). . . . . . . . . . . . . . . . Research done and declared most worth-while, by major research Categories . . . . . . . Topics researched, by company size . . . . . Topics researched, topics produced most worth- while results, by industrial classification. Personnel involvement. . . . . . . . . . . . . Companies researching_purchased materials, products, or services topics; percent indicating most worth-while results. . . Companies researching purchased materials, products, or services topics, by company Size 0 O O O O O O O O O O O O O O O O O O 0 Companies researching purchased materials, products, or services, by standard indus- trial classification . . . . . . . . . . . Commodity Study. . . . . . . . . . . . . . . . . Correct Order Quantity . . . . . . . . . . . . . Demand Forecast. . . . . . . . . . . . . . . . Lease or Buy . . . . . . . . . . . . . . . . . Make or Buy. . . . . . . . . . . . . . . . . . . Method of Production or Manufacture. . . . . . New Product. . . . . . . . . . . . . . . . Packaging. . . . . . . . . . . . . . . . . . . Price Forecast . . . . . . . . . . . . . . . . Pricing Procedure and Structure. . . . . . . . ix 129 153 158 159 163 170 176 178 183 186‘ 188 191 194 197 199 202 204 206 22212. 7-14 7-15 7-16 7-17 Scrap Disposal . . . . . . . . . . . . . . . . . Specification. . . . . . . . . . . . . . . Standardization. . . . . . . . . . . . . . Substitution . . . . . . . . . . . . . . . . . Supply Forecast. . . . . . . . . . . . . . . . . Tariff and Import Regulation . . . . . . . . . . Transportation . . . . . . . . . . . . . . . Value Analysis . . . . . . . . . . . . ... . Occurrence benefit, and evaluation factors for the 18 purchased materials, products, or services research topics . . . . . . . Research which produced most worth-while results when done by staff, buyer, or administrator alone, in companies with purchase research staff. . . . . . . . . . . . . . . . . . . . Involvement of purchase research staff in re- search on purchased materials, products, or services, by company size . . . . . . . Administrator involvement in purchase research on purchased materials, products, in companies researching each topic. . . . . Administrator involvement in research on pur- chased materials, products, or services. . Buyer involvement in purchase research on pur- chased materials, products, or services in companies researching each topic . . . Buyer involvement in research on purchased mater- ials, products, or services. . . . . . . . . or services 213 216 218 221 224 227 229 231 233 237 239 241 242 Companies researching vendor topics, percent indicating most worth-while results. . . . . Companies researching vendor topics, by com- Pany Size 0 O O O O O O O O O O O O O O O 0 Companies researching vendors, by standard industrial classification. . . . . . . . . . Analysis of Financial Capacity . . . . . . . . . Analysis of Production Facilities. . . . . . . . Finding Potential Supply Source. . . . . . . . . Estimate of Distribution Costs . . . . . . . . . Estimate of Manufacturing Costs. . . . . . . . . Supplier Attitude Survey . . . . . . . . . . . Trade Relations Data . . . . . . . . . . . . . . Vendor Performance Evaluation. . . . . . . . . . vendor Sales Strategy. . . . . . . . . . . . . . Occurrence, benefit, and evaluation factors for the nine vendor research topics. . . . . . . Research which produced most worth-while results when done by staff, buyer, or adminiStrator alone, in companies with purchase research staff. . . . . . . . . . . . . . . . . . . Involvement of purchase research staff in re— search on vendors, by company size . . . . . Administrator involvement in purchase research on vendors in companies researching each topic. 0 O O I O O I O O O O O O O O O O O 0 Administrator involvement in research on vendors. . . . . . . . . . . . . . . . . . . xi 255 256 259 262 265 268 271 275 277 279 282 284 286 288 291 293 Table 8-18 9-2 9-3 9-4 9-5 9—6 9-7 9-8 9-9 9-10 9-11 9-12 9-13 9-14 9-15 Buyer involvement in purchase research on vendors in companies researching each topic. 0 O O O O O O I O O O O O O O O 0 Buyer involvement in research on vendors . . Companies researching purchasing system topics: percent indicating most worth—while results. . . . . . . . . . . . . . . . . Companies researching purchasing system topics, by company size. . . . . . . . . . . . . Companies researching the purchasing system by standard industrial classification . . Blanket Orders . . . . . . . . . . . . . . . Data Processing Equipment. . . . . . . . . . Forms Design . . . . . . . . . . . . . . . . Formulation of Price Index . . . . . . . . Inventory Control. . . . . . . . . . . . . . Learning Curve . . . . . . . . . . . . . . . Payment or Cash Discount . . . . . . . . . . Small or Rush Orders . . . . . . . . . . . . Method for Evaluating Buyer Performance. . . Method for Evaluating Purchasing Department Performance. . . . . . . . . . . . . . Method for Evaluating Supplier Performance . Occurrence, benefit, and evaluation factors the eleven purchasing system research ' topics 0 O O O O O O 0 O O O O O O O O O xii for 295 297 304 309 310 313 317 319 322 324 327 329 331 334 337 339 341 9-18 9-19 9-20 9-21 10-1 10-2 10-3 10-4 10-5 10-6 Research which produced most worth-while results when done by staff, buyer, or administrator alone in companies with purchase research staff. . . . . . . . . . . . . . . . . . . . Involvement of purchase research staff in re- search on the purchasing system, by company Size 0 O O O O O O O O O O O O O O O O O O 0 Administrator involvement in purchase research on the purchasing system in companies re- searching each topic . . . . . . . . . . . . Administrator involvement in research on the purchasing system. . . . . . . . . . . . . . Buyer involvement in purchase research on the purchasing system in companies researching eaCh topic 0 O O O O O O O O O O O O O O O 0 Buyer involvement in research on the purchasing system C O C I O O O O O O O O O O O O O I 0 Companies performing related activities; per- cent indicating related activities of greatest importance. . . . . . . . . . . . . Companies performing related activities, by company size . . . . . . . . . . . . . . . . Companies performing related activities; by standard industrial classification . . . . . Companies performing each related activity, by industrial classification . . . . . . . . Importance of related activities performed solely by the purchase research staff or solely by buying personnel in companies with staff . . . . . . . . . . . . . . . . . Purchase research staff involvement in related activities in companies with staff, by com- pany size, as a percent of those companies performing each related activity . . . . . . xiii 343 345 347 349 351 353 361 364 366 367 377 378 Table 10-7 10-8 10-10 10-11 12-1 12-2 12-3 13-1 13-2 13-3 13-4 14-1 1J4-2 14-3 Buying personnel involvement in related activities . . . . . . . . . . . . . . . . . Data sources used in purchasing research; data sources considered most useful . . . . . . . Companies using each data source, by company Size 0 O O O O I O O O O O O O O O O O O C 0 Data sources used, by standard industrial classification . . . . . . . . . . . . Companies utilizing each data source for puc- chasing research, by standard industrial ClaSSification o o o o o o o o o o o o o o 0 Experience of eight purchase research supervisors. . . . . . . . . . . . . . . . Educational background of 23 purchase re- searchers. . . . . . . . . . . . . . . . . . Experience of 23 purchase researchers. . . . . . Comparison of aggregate financial data between companies with, and those without, a purchase research staff . . . . . . . . . . . . . . . Company plans to establish purchase research staff. . . . . . . . . . . . . . . . . . . . Estimates of the future importance of purchasing research, by company size. . . . . . . . . . Estimate of the future importance of purchasing research, by industry classification . . . . Topics researched, topics produced most worth- while results. . . . . . . . . . . . . . . . Involvement of personnel in research done. Related activities performed and considered of greatest importance; involvement of research staff in activities performed . . . xiv 383 388 389 391 432 437 439 461 466 471 473 487 493 495 Chart 1 Exhibit Exhibit Exhibit Exhibit Exhibit 11-1 11-2 CHARTS AND EXHIBITS Growth in establishment of the staff research function. . . . . . . . . . Purchase research and analysis project report . . . . . . . . . . . . . . . Indicators for need of purchase analysis project. . . . . . . . . . . . . . . Plan of research . . . . . . . . . . . . Report of savings. . . . . . . . . . Titles of purchase researchers . . . . XV 407 414 419 420 436 APPENDICES Page Appendix 1 Questionnaire and Letters. . . . . . . . 501 Appendix 2 Summary of Responses, by Industrial Classification . . . . . . . . . . . 506 2-1 Food and Tobacco. . . . . . . . . . . . . . . 506 2-2 Transportation Equipment. . . . . . . . . . . 508 2-3 Chemicals . . . . . . . . . . . . . . . . . . 510 2-4 Machinery, except Electrical. . . . . . . . .' 512 2-5 Primary Metals. . . . . . . . . . . . . . . . 514 2-6 Electrical Machinery, Equipment & Supplies. . 516 2-7 Paper . . . . . . . . . . . . . . . . . . . . 518 2-8 Crude Petroleum and Natural Gas . . . . . . . 520 2-9 Fabricated Metal Products . . . . . . . . . . 522 2-10 Stone, Clay, and Glass Products . . . . . . . 524 2-11 Textile Mill Product & Apparel. . . . . . . . 526 2-12 Ordnance; Leather; Professional, Scientific, Optical Equipment; Miscellaneous Manu- facturing. . . . . . . . . . . . . . . . 528 2—13 Mining. . . . . . . . . . . . . . . . . . . . 530 2-14 Petroleum Refining. . . . . . . . . . . . . . 532 2-15 Rubber and Plastics . . . . . . . . . . . . . 534 2-16 Lumber and WOod Products. . . . . . . . . . . 536 2-17 _Printing and Publishing . . . . . . . . . . . 538 Appendix 3 Job Descriptions . . . . . . . . . . . . 540 3-1 Purchasing Research Analyst . . . . . . . . . 540 3-2 Manager-Purchasing Research . . . . . . . . . 543 3-3 Staff Assistant-Commodity Studies . . . . . . 546 3—4 Purchasing Analyst. . . . . . . . . . . . . . 548 xvi CHAPTER I OBJECTIVES, NEED, LIMITATIONS OF STUDY Introduction The purpose of this study is to provide new information on the staff purchasing research function within the pur— chasing department of large American industrial firms. The industrial purchasing function occupies a position of extreme importance and influence in the total operation of a firm, for the average large industrial firm spends approximately fifty percent of its sales dollar for goods and services purchased from others.1 The purchasing function, the securing of necessary raw materials, supplies, and ser- vices to support operations, and the provision for capital equipment acquisitions where deemed necessary, is performed almost universally by personnel within purchasing or procure- ment departments in all but the smallest of industrial firms. Decisions made in this area, by purchasing executives, deter- mine the direction and flow of a majority of the firm's 1A survey of the disposition of receipts by the one hundred largest United States non-financial companies in 1958 showed that fifty-four percent of the total receipts from sales in these firms was spent for goods and services purchased from others. In contrast, only twenty-seven percent of sales re- ceipts was spent for wages, salaries and labor benefits. First National City Bank Monthly Letter: Business and Econ- omic Conditions (“New York, September,1959), p. 105. financial resources and significantly affect the firm's profitability. In many firms, purchasing represents the largest single dollar control area with which management is concerned. The efficiency with which this department operates, and the resulting effectiveness of its decisions,easi1y can mean the difference between a firm's ability to prosper within a competitive economy, or to operate with only a minimum of financial success, or even to cease existence entirely. The basis for the purchasing executives' decisions on ;purdhased commodities and sources of supply, as well as those pertaining to internal department operating procedures, is information about possible alternatives and calculated con- sequences. When purchasing raw materials and products the purchasing executive's decision will be based on estimates and information on such aspects as various suppliers' ability and willingness to deliver a satisfactory product, suppliers' probable production costs and amount of competition existing between potential suppliers, various suppliers' marketing strategies and goals, present and future supply availability and.competing demands for the materials, likelihood of dis- ifuPtion of supply, relative transportation advantages, and possible material alterations or substitutions. The final raw material purchase decision is based on a complex of factors, and the more and better information the purchasing executive has available, the more likelihood there is of reaching an optimal decision. This same reliance upon, and determinancy of" reliable information as a basis for decisions exists for the other purchase categories with which the purchasing executive is concerned. Additionally, the efficient administration of the internal operations of the purchasing system depends on information, analysis, and evalu- ation of possible alternatives, their repercussions on other, related functions of the firm, and their overall potential costs and benefits. The scope of the decisions.made by the purchasing execu- tive demands personnel with an analytical ability and a management perspective, if full potential is to be realized from the purchasing function. The efforts made in acquiring adequate information, and the subsequent analysis of such information as is necessary to allow proper selection from alternative courses of action, may be termed purchasing research. Undoubtedly, each buyer, or purchasing administrator, should in the course of each day's work spend time in gathering and analyzing facts, as a basis for decision making. 4 Within recent years a trend seems to have been developing toward the establishment of full-time specialists within the purchasing department to perform a staff function of collection and analysis of data pertinent to purchasing decision making. Ford Motor Company was the first company to receive consider- able amounts of publicity on their method of staff organiza- tion to do purchasing research, when in the late 1940's they established a Purchasing Analysis Section within their pur- chasing department.2 General Electric Company established a staff Value Analysis Department in 1949,3 and a Purchasing Research Department was established at United States Steel Corporation in 1952.4 Conversations with industrial purchasing executives indicate a growing interest in, recognition of, and establishment of, the staff purchasing research function. Need for Study The use of staff personnel within an organizational struc- ture to facilitate the work of the line personnel in performance of the primary duties of the organization is a well accepted 2Albert J. Browning, "Purchasing--A Challenge and an Opportunity," Purchasing, XXIII (December, 1947). PP. 99-101. "Value Analysis . . . a purchasing technique that is saving hundreds of thousands of dollars each year for the General Electric Company," Purchasing, XXVIII (June, 1950), pp. 94-101. 4J. B. Delaney, "Purchasing: Research Gets Staff Status in Broad Program of U.S. Steel," Iron Age, CLXX (December 11, 1952) . pp. 95-96. practice. A considerable body of literature exists on the use of staff personnel within an organization.5 One of the frequent uses of staff personnel is to perform various research functions. The staff research function as one of three pri- mary uses of staff personnel was commented on by one author as follows: Because of its technical research nature, this group of staff services usually has its contact with a special aspect of the management process. Research in materials, products, facilities, and people, both basic and applied, are included in this group. Examples are plant develop- ment, product development, materials analysis, and social science and market research. Studies have established that staff personnel frequently are used for performance of research in such functional areas as marketing and personnel,7 but no comparable studies have 5See,for example, Ernest Dale, Planning and Developing the Company Organigational_Structure, Research Report No. 20 (New York: American Management Association, 1952), pp. 67-83; Improving Staff and Line Relationships, Studies in Personnel Policy No. 153 (New York: National Industrial Conference Board, 1956), 99 pages; Organization of Staff_§gnctions, Studies in Personnel Policy No. 165 (New York: National Industrial Con- ference Board, 1958), 104 pages. 6Robert C. Sampson, The Staff Role in Management (New York: Harper and Brothers, 1955), p. 45. 7See,for example,Richard D. Crisp, Company Practices in Marketing Research, Research Report No. 22 (New York: American Management Association, 1953), 63 pages; A Survey of Marketing ngearch: Organization, Functipn , ngget, Compensation (Chica- go: American Marketing Association, 1958), 92 pages; James Graham Jones, Jr., "A Situational Analysis of the Scope, Organi- zational Structure, and Function of Personnel Research in the Manufacturing Industry" (unpublished Ed.D. dissertation, Wayne University, Detroit, 1955), 147 pages. been done on the employment of such staff personnel in the functional area of purchasing. There is a need for infor- mation on this important aspect of the performance of the purchasing function within industrial firms. Available information on the staff purchasing research function consists largely of magazine articles scattered in the trade journals. These articles have appeared with increas- ing frequency in the last five years but, although useful in presenting information on purchasing research practices in specific companies, do not attempt to assess the prevalence and activities of the staff purchase research function in any large segment of American industry. Little information of an aggregate nature is available on staff purchasing research practices. The purchasing function is, justly, receiving increasingly greater amounts of attention by both business managers and business scholars. One indication of this attention is the number of publications on purchasing and materials management released in the last three years by the American Management Association--more than published in all prior years combined. Additionally, a formal Purchasing Division was established within the American Management Association in 1961. The reasons for giving increasing attention to various aspects of improvement of purchasing efficiency within the firm are many. It is difficult to realize that the purchasing function has not received more attention in the past, when one considers the influence that the actions of industrial purchasing executives have on the overall efficiency of the firm and the economy. Considering the importance and potential contribution of the purchasing function, it is one of the last relatively unexplored frontiers in industry's quest for greater efficiency. Advances in our knowledge of this function, its performance, and potential, portend sizeable benefits to industrial con- cerns, through increased efficiency; to consumers, through provision of better products at lower prices: and to the econ- omy as a whole, through more efficient utilization of our natural and human resources. It is felt that the information this study will present on the staff purchase research function will provide a contribution to the advancement of purchasing knowledge.‘ Definition of Staff Pgrchgging Research For the purposes of this study, staffgpgrchasing research is defined as systematic investigation anggfact finding, by, gggff specialists, undertaken to improve4purchasing_performance. These staff specialists doing research on the purchasing function are located, organizationally, within the purchasing department and devote the majority of their time to the provision of data required by buying and administrative personnel performing the purchasing function. While staff personnel doing work of a purchasing research nature may be referred to in different organizations by such titles as "Purchase Researcher," “Value Analyst," "Purchase Analyst," or "Purchasing Consultant," the important qualification for this study is that they are full—time employees within the purchasing organization, devoting the majority of their time to duties of a research rather than a buying or administra- tive nature. While it is recognized that much purchasing research might be done by buying or administrative personnel within the purchasing department, this study will concentrate on an analysis of purchase research work done by specialized staff personnel. Some data will be presented on purchasing research done by buyers or administrators, but this is not the primary purpose of this study. The data on purchasing research performed by buyers or administrators is presented mainly to permit comparisons of research done by companies with staff and that done by companies without staff, and to compare results of research done by staff personnel with results of research done by others within the purchasing department. Hypotheses The major hypothesis of this study is that the staff purchasing research function is an emerging managerial func- tion, exercising an increasingly important influence on materials decisions, and becoming established as an important area of activity within the purchasing department of major industrial corporations in the United States. To substantiate this general, overall hypothesis, the following more specific hypotheses will be tested by this study: 1. The staff purchase research function has been estab- lished in a substantial number of the 500 largest United States industrial firms. 8 2. The utilization of a purchase research staff is related to company size. 3. The staff approach to purchasing research has been largely a post-World war II development. 4. The number of personnel in a staff research capacity within the purchasing department is related to the total num- ber of personnel within the purchasing department. 5. Companies with a staff purchase research function do more research and produce more worth-while research results than companies without a staff purchase research function. 10 6. The results of research done by staff purchase research personnel are valued more highly than research done by buyers or administrators within the purchasing department. 7. In companies with a purchase research staff, that staff alone does the complete research on many of the sub- jects researched. 8. The utilization of a purchase research staff assists buyers and administrators, by relieving them of certain research duties. 9. Frequently staff purchase research personnel are involved in activities of an administrative nature, in addition to research duties. 10. Companies with a purchase research staff employ a larger number of data sources in developing information necessary for purchasing research, than are employed by com- panies without a purchase research staff. 11. The individuals employed in a staff purchase research capacity represent a high level of educational achievement, interms of numbers holding college degrees. 12. Companies with a purchase research staff evaluate the general benefit received from all types of purchasing research more highly than companies without staff. ll 13. Companies with a purchase research staff evaluate the future growth potential of purchasing research in their com- panies more highly than those companies without staff. Objgctivgp of Thig Stggy The purpose of this study is to establish, based on evi- dence gathered by personal interviews and a mail questionnaire, the position, scope, and benefits of the staff purchasing research function within the 500 largest United States indus- trial firms. In order to test the hypotheses of this study, information will be presented on the following aspects of pur- chasing research in major industrial firms in the United States: 1. Prevalence of the staff method of organization for performance of purchasing research. 2. Historical growth of staff purchasing research. 3. Numbers of personnel employed in a staff purchase research capacity. 4. Reasons for establishment of staff positions, and the stated objectives of the staff purchase research function. 5. Subject areas in which research is done. 6. Evaluation of results of purchasing research. 7. Procedures used to administer the staff purchase .research effort. 8. Data sources used in purchasing research. 12 9. Methods used to calculate benefits from staff pur- chase research activities. 10. Background and compensation of personnel employed in staff purchase research positions. 11. Future growth of staff purchasing research. Limitapions of Thi§,Stggy. 1. Only Large Industrial Firms Included: Data have been gathered on the purchasing research practices of only the 500 largest United States industrial firms. No information is included on small or medium size firms‘ purchase research Ipractices, or on purchase research practices in utilities, transportation concerns, government agencies, or financial concerns. The results of this study should not be accepted as typical of American industry, but only of large industrial firms. 2. Interview Sample: Most of the data on research method- cflcgy, operating procedures, specific research projects, amthods of organization, methods used to evaluate results of research done, and backgrounds of personnel employed in staff researthposition , were obtained from the ten companies per- sonally visited. The companies interviewed were not randomly selected from the 500 largest United States industrial firms, Ibut instead only firms which utilized staff purchasing research .Personnel.were interviewed. 13 3. Confidential Nature of Data: Information on speci- fic company practices cannot be as complete as the reader ndght wish, due to the confidential nature of the data. The identity of specific companies has not been disclosed, and in some instances minor alterations have been made in the de- scription of specific research projects to preserve the anonymity of companies furnishing data. No substantial changes in the content of the data were made. 4. No Evaluation of Specific Companies: While an attempt will be made, based on the results of the questionnaire, to evaluate the results achieved through utilization of a re- search staff, no attempt will be made to evaluate, in terms of desirability or adequacy, the efforts and methods used by the specific concerns interviewed. Organization of Study Chapter II presents an examination of early literature on the purchasing function, undertaken to provide a background for this study. Chapter III surveys the available literature on the use of staff personnel for the performance of purchasing research and indicates information on this subject which is available from other studies. The description of the method- ology used to gather data upon which this analysis of staff purchasing research was made is discussed in Chapter IV, and the limitations of these data are pointed out. 14 Chapter V presents information on the prevalence of the staff purchase research function, its historical evolution, and the number of personnel engaged in this function. Additionally, information on the organization of staff purchasing research in the companies interviewed is presented in this chapter. Chapter VI presents a summary of the findings from the mail questionnaire on research done, the evaluation of research results, and the involvement of personnel in research in the 500 largest United States industrial firms. Chapters VII, VIII, and IX present, respectively, a detailed analysis of the major categories of Research on Purchased Materials, Products, or Services; Research on Vendors; and Research on the Purchasing System. Examples of specific research projects in the companies interviewed are presented as illustrations of the research on the specifis topics in each category. Chapter X presents an analysis of related activities performed by staff purchasing research personnel and the data sources used in the purchasing research. The methods and procedures used in administration of staff purchase research activities in the companies inter- viewed are presented in Chapter XI. Information on the educational background, experience, and compensation of staff reseach personnel in the companies interviewed is presented in Chapter XII. 15 Chapter XIII presents an analysis of the benefits, dif- ficulties, and future of the staff purchasing research function, and Chapter XIV presents the the summary and conclusions of this study. 16 CHAPTER II HISTORICAL DEVELOPMENT OF PURCHASING Introduction As a background for the study of the staff purchasing research function, an examination of early literature on the purchasing function was undertaken. An attempt was made to document the deve10pment of early literature on purchasing, to determine the concepts of early authors on the subject of purchasing, and to highlight the types of problems, and recommended courses of action, pointed out in this early literature. Although the popular current textbooks indicate that interest in the purchasing function is thought to be a twentieth century development,1 this was found to be contrary to fact. 1For example, following are quotations from three of the current textbooks: "Only during the last fifty years has purchasing come to be recognized as a separate and important sphere of business management . . . . The first book devoted specifically to the purchasing function was published in 1911 . . . . Even in this book purchasing did not receive full recognition since the author . . . entitled his book The Supply Dppartment. "At about the same time occasional articles began to appear in some of the tedhnical trade publications dealing with some of the aspects of purchasing." J. H. Westing and I. V. Fine, Industrial Purchasing (2nd ed.: New York: John Wiley and Sons, Inc., 1961), p. 3. "A recognition of industrial procurement as an important business function was first forced upon industry during World war 1." Howard T. Lewis and Wilbur B. England, Procurement: 17 This section presents, chronologically, the early writings which were found on the subject of purchasing. Magazine arti- cles are reviewed through the year 1910, by which year such articles were appearing rather frequently. Books on purchasing are reviewed through 1928, in which year two books appeared which made strong recommendations for the establishment of staff research personnel within the purchasing department. This search of early literature on the purchasing function was not exhaustive, as this was not the primary purpose of this present study. The early literature does point up that the purchasing function was established as an important area of activity, and was being written about, much earlier than is commonly assumed. Further research on the historical evolution of the purchasing function is needed. literature Prior to 1900 One of the early classic books in management provides evidence that purchasing was established as a separate function Phinciples and Cases (3rd ed.: Homewood, Illinois: Richard D. IIWin, Inc., 1957), Preface. "Procurement has only recently become an important and ccmrelated function of management. It was unusual indeed, Prior to World War I, for purchasing to be ranked as an inde- Pendent activity . . . . World War I forced top management's attention to the buying function . . . . Werld War II really established procurement as a major function of management." Henry G. Hodges, Procurgmpnt: The Modern Science of Purchasing (New York: Harper and Brothers, 1961), p. l. 18 over 100 years ago. The second edition of Charles Babbage's book, On the Eggnomy of Machinery and Mangfggpppp£§_(l832), made reference to the purchasing function in two places. In discussing the organization of duties for a mining concern, one of the ten officers responsible for governing the opera- tions of the mines was "A materials man [who] selects, pur- chases, receives and delivers all articles required."2 Later he mentioned, "It will have been found necessary to establish an accountant's department . . . and this department must be in communication with the agents who purchase the raw pro- duce . . . ," and in describing the importance of the division of labor he further noted that "a great reduction in the cost of the article which is brought to market" can be accomplished by utilizing "the precise amount of skill . . . necessary for the execution of each process . . . [and] throughout every stage . . . from that in which the raw material is procured, to that in which the finished produce is conveyed into the hands of the consumer . . ."3 Another of the references made to purchasing before the turn of the century was in an 1870 trade magazine article entitled "Purchasing Building Materials," which pointed out 2Charles Babbage, On the Economy of Machinepy and Manu- facturers (2nd ed.: London: Charles Knight, 1832), p. 202. 31bid., p. 216. 19 that through judicious purchasing a firm may be able to effect substantial savings in total production costs: After a bill of the necessary amount of lumber has been prepared, it will be found an economical practice to communicate with lumber dealers in various parts of the country, for the purpose of determining the price for the kinds of lumber required. In this way a shrewd and judicious builder or buyer may often save from twenty to fifty per cent in the price of his lumber. For exam- ple, if an elegant suburban villa were to be erected in the vicinity of New York City, and it were desirable to procure first-rate lumber at the lowest cash price, it would be well to communicate with dealers of lumber in Maine, Georgia, Virginia, or other localities from which the market is supplied with cheap and choice lumber. By addressing postmasters, editors of certain papers, or some other persons in those localities where large quan- tities of lumber are sawed, it will not be difficult to come into communication with reliable dealers, who would respond to a bill of lumber with satisfactory promptness. It appears that interest in, recognition of, and writings specifically about the purchasing function in the area of railroad management preceded the same interest, recognition, and writing in the industrial field. This early interest in railroad management can probably be explained in part by the fact that railroads were among the largeSt types of business organizations in the latter half of the nineteenth century. The first book found devoted exclusively to the purchasing and materials functions was written by Marshall M. Kirkman, Comptroller of the Chicago and Northwestern Railroad, and 4"Purchasing Building Materials," The Manufacturer and Builder, XI (February, 1870), p. 57. 20 appeared in 1887. This book, The Handling of Railway Supplies-- Their Pprchgpe and Disposition,5 was concerned with the pur- chasing functions of railroad organizations. In introducing this book, Kirkman emphasized the impor- tance of the purchasing function to the management of a rail- road, and the lack of knowledge on the subject as follows: The intelligence and fidelity exercised in the pur- chase, care and use of railway supplies, influences directly the cost of construction and operating, and affect, therefore, the reputations of officers and the profits of owners. Accounting officers are also interested in the subject, as it is connected with the details of their office. To many (perhaps the bulk of railway offi- cers) the handling of railway supplies is an unknown quantity. The subject needs elucidation on many accounts. Kirkman advocated that a purchasing agent be employed, if a railroad was to most advantageously perform the purchasing and materials functions, and pointed out the difficulties which arose when the purchasing function was not centralized under one individual, as the following quotation shows: The purchase of goods embodies many varied talents and experiences. The ability to buy advantageously, depends largely upon the knowledge of men possessed by the purchaser and his skill in taking advantage of this knowledge. His value will, moreover, be dependent upon the discretion allowed him, and his judgment in exercising it. The position also requires technical skill. The person filling it must be experienced, otherwise his acts will not command the confidence or respect of his associates. 5- 'Marshall M. Kirkman, The Handlipg of Railway Supplies-- Their Purchase and Digposition, (Chicago: Chas. N. Trivess, 1887). pp. 223. 6Ibid., Preface. 21 His wisdom and fairness must be such that if he selects material contrary to the requisition made upon him, the person thus over-ruled will tacitly acquiesce therein and abide by the demonstration of its wisdom afterwards. Unless the operating officer has this respect for the pur- chaser, he will quite likely not use the article thus bought, or, if he does, will not give its advantages fair expression. The assistance that an experienced purchasing agent can extend to his associates is hardly to be estimated. His duties not only familiarize him with all new devices, but his observation enables him to point out those most likely to lessen expenses or add to the efficiency of a property.7 Kirkman indicated that not all railroad organizations had seen fit to centralize the purchasing function under a pur- chasing agent, and commented that only with the services of a purchasing agent will the purchasing function be efficiently discharged, as the following quotation shows: The practice of designating a particular person to buy the supplies that a railway company needs, is not universal, though more prevalent than formerly. At one time it was the custom to permit the various heads of departments to buy. The practice was based upon the presumption that they knew better than anyone else and that their knowledge of the technicalities connected with the thing they wanted made them especially fit to buy advantageously. The argument was, however, fallacious . . . . It was found, moreover, that when purchases were thus distributed, those making them were in many cases constrained to look upon the act as merely an incident of their office, something in the nature of a PSIQUiSite which they were at liberty to avail themselves at pleasure. It resulted from this that excesses grew up where pur- chases were not supervised by an alert and trustworthy manager. There was, moreover, enormous waste of material 7Ibid., p. 40. 22 through excessive purchases and duplication of orders, while prices became greatly inflated through the ignorance and veniality of purchasers.8 Kirkman also commented on the lack of attention often given to the selection of personnel to fill the position of purchasing agent, and deplored such casual selection of per- sons for such an important position: The great benefits that accrue to a railroad from a good purchasing agent are not so generally esteemed as they should be. Judging from the changes that occur, continuance in office is not thought to be a matter of especial importance . . . the place is too often looked upon as one that any man with ordinary intelligence can fill acceptably: a position at once agreeable and meas- ureably lucrative, but not of great importance. No greater mistake could be 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. Further indications of this early interest by railroad organizations in the purchasing function are provided by trade journals in the railroad field. In 1890, three issues of Tpp_ Railroad Gazette contained articles on the purchasing function, which discussed the organization of the purchasing function and the duties of the purchasing agent, benefits of standardization and determination of amounts of materials and supplies to stock, 81bid., p. 42. 91bid. 23 . . . 10 , and the d1spos1tion of surplus. The 1898 volume of this same journal contained no less than seven articles, or letters to the editor, on the subject of purchasing. One article con- tained abstracts from a paper by the Purchasing Agent and Superintendent of Tests, Long Island Railroad, presented at the OctOber 1898 meeting of the New York Railroad Club, which indicated that the purchasing job should not be a clerical function. The duties and qualifications of the position were stated as follows: The Purchasing Agent should be something more than a mere price clerk . . . he should, before he is compe- tent to hold this responsible position, become familiar with the different classes Of supplies used in all de- partments . . . post himself as to the different kinds and qualities of railroad supplies on the market, with which object some study of the processes of manufacture at the mills and factories is of great advantage, so that he may be able to select his supplies with some judgement, and not make the selection depend solely on price . . . .11 The following statement regarding the prOblem of buying tools that appeared in an 1892 issue of one of the engineering publications might still be applicable to some firms today: If a person, when he wants a machine tool, could wait six months for it, until he could examine all that are made of the kind he desires, he would then be able to 10"Purchasing and Care of Supplies," The Railroad Gazette, XII (February 14, February 21, March 14, 1890), pp. 105-06, 126-27, 172-73. 11"The Purchase and Inspection of Railroad Supplies," The Railpoad Gazette, xxx (October 28, 1898). p. 777. 24 select the best, if his judgment could be trusted to tell what is best after so prolonged a siege. Now most tools are selected quickly, because they are needed at once, and what appears to be the best is taken and set to work. Hence many poor tools are got where better ones could and would be taken if more time for investigation were had. There are of course establishments where the most suitable tools are selected and recommended by experts, and a few of these deserve all praise for candor and fairness, but many of them do not push forward the best tools, but advo- cate instead those most profitable to them as dealers, and if a buyer falls into the hands of such he may suffer for it. There seems to be a need of a more perfect means by which buyers can be made to know the comparative capacities and value of machine tools, so that when they need such tools they may not be in any great doubt as to that which is nearest to their wants.1 The following two quotations from the early 1890's pointed out the importance of the buyer's position within an industrial firm and the misuse of this position: I don't know what the machine business is coming to. Generally when a big company is formed, a favorite or a relative of some member is made buyer, and the drummer who can talk the smoothest sells his goods. I tell you, sir, if there is one place more than another in a large concern that requires an honest, shrewd, experienced, practical man to make money in, it is the buyer's.13 The greatest fault practiced by impractical buyers is that of initial cheapness. To such a person oil is oil and coal is coal, irrespective of the quality or the source of the product. The cause of their being impractical buyers is that old cause, "talk is cheap," and the fluent person often gets a position he is qualified by neither nature or experience to fill.14 12"Machine Shop Notes," The Engineering Magazine, IV (De- cember, 1892), p. 477. 13Ibid., p. 478. 14"Machine ShOp Practice," The Engineering Magazine, VI (October, 1893), p. 114. 25 J. Slater Lewis, in his book The Commercial Organization of ngtories which appeared near the close of the century, pro- vided some useful ideas on the organization of industrial establishments. In his "Staff Organization Diagram" he in- cluded the position of a "Suppliers Order Clerk" reporting to the "General Manager."15 The importance of proper attention to purchasing in the successful administration of a factory was shown by the following comments: The Manager, too, must know the best markets for purchasing materials, and be fully alive to all the tricks and dodges of each class of trader.16 The economical purchasing of stores is one of the most important factors in the successful administration of a manufacturing establishment . . . . Stores cannot, of course, be purchased advantageously without that par- ticular shrewdness which is characteristic of a successful buyer; and no system of bookkeeping, however complete, can possibly dispense with that personal quality. But at the same time a complete record of prices and tenders received from time to time, and an orderly and methodical system of requisitioning . . . are essential to the economical purchasing of stores. The lowest price is not by any means always the cheapest, and this remark applies not only to heavy goods, but to the lightest possible articles. For instance, a crank forging may be offered at such a low price that the buyer is tempted to give the order. He discovers, however, when the forging arrives, that. in consequence of its rough and lumpy conditions he not only has to pay more for the forging per se in consequence of its unnecessary and 1SJ. Slater Lewis, The Commercial Organization of Factories (London: E. & F. N. Spon, 1896), pp. 474-75. 16Ibid., p. 8. 17Ibid., p. 54. 26 abnormal weight, but that the extra labor involved in machining down to dimension is out of all proportion to the benefits accruing from the supposed bargain in first cost.18 Many of Lewis' ideas are still appropriate today. The development of specialists in purchasing did not, however, seem to be as highly developed as it is today, for Lewis pointed out: The Works Manager should be consulted in regard to the purchase of all material used in the works. In some instances the whole of the purchasing operations may with advantage be left to him . . . . It is, nevertheless, very important that the authority for purchasing be kept within strictly defined lines, and only exercised by officials who have been duly authorized, and who clearly understand what they are doing.19 Literature, 1900-1910 Around the turn of the century articles specifically on the industrial purchasing function began appearing in some of the engineering magazines. As already noted, articles on railroad purchasing had appeared earlier in some of the rail- road journals. Hugo Diemer, a professor of engineering and a prolific contributor to various engineering publications, in 1900 wrote an article entitled "Functions and Organization of the Fur- chasing Department," in which he made several comments con- cerning the functions of this department, the qualifications 131bid., p. 108. 19Ibid., p. 132. 27 personnel in purchasing positions should possess, and the paper work to facilitate performance of the function.2 FEgarding the qualifications necessary for performance of the purchasing job, and selection of buyers, Diemer commented: The successful accomplishment demands that the pur- chasing agent shall be a man who has a working knowledge Of the particular industry for which he is to buy material . . . . To salesmen, the ignorant, affable young clerk who has been promoted to the position of purchasing agent is a familiar type. He is freguently the cause o§.a sales- man's prolonging his stay in a city several days, until finally he sees the man with whom he can have an intelli- gent conversation. It is quite evident that, where this is the case, the young man is a hindrance from an economic standpoint, since the additional cost of sales departments on account of prolonged stays is sufficient to increase materially the unnecessary expense connected with the placing of an article on the market. The securing of the most desirable delivery involves a knowledge of business methods and forms in which, un- fortunately, purely technical or shOp men have generally had but little training: and this fact is the excuse for the common practice of appointing, as purchasing agents, 21 clerks who have had but little technical or shop knowledge. On the subject of price, Diemer commented: As to the third function of the purchasing department, that of securing good terms and low prices, much depends upon the shrewdness and tact of the purchasing agent. Courteous attention to salesmen is always desirable, and can be accorded without loss of time if nothing but strictly business conversation is indulged in.22 \ 20 . . . . . Hugo Diemer, "Functions and Organization of the PurchaSing Ibpartment," The Engineering Magazine, XVIII (March, 1900), pp. 2111310., p. 833. 221bid., p. 836. n on. 28 Diemer concluded his article with a statement of the lmyer's workload, which by today's standards might be con- sidered excessive, if the buyer was doing a thorough, analy- tical jOb of purchasing: All of the above systems can be successfully conducted by a purchasing agent with a competent stenographer as assistant, and he will need no other help if his orders do not exceed fifty or sixty a day.23 The importance of material specifications to the deter- mination of total production costs was the subject of certain 24 Short articles which appeared around the turn of the century. These articles concentrated mainly on the engineer's respon- Sidailities in specifying materials, and contained many of the suggestions found in today's literature on value analysis. The following quotation is typical of these early writings on material specifications: Good judgment and common sense are matters of primary importance in drawing up an engineering specification. The purpose of such a document may be said to be the attaining of a certain result for the least amount of :money compatible with proper execution of the work in- ‘volved: but curiously enough, the stipulations sometimes made in a specification, defeat that very object. An excellent illustration of this point was given recently by . . . [who] told of a specification for an engine received by his firm.some time ago which was so overloaded with what might be called fads, or, at any rate, with what might quite well have been dispensed with, and consequently \ 231bid. 24See, for example, "Current Topics," Cassier's Magazine, XXIV (June, 1903), p. 176: and XXVI (September, 1904), p. 507. 29 contained so many names of persons who were to supply particularzpieces, that the price was enormously increased. An article, in part concerned with the purchasing function, . . 26 . . appeared in The Engineering MagaZIne in 1903. This article was largely concerned with systems necessary for the account- ing of, and payment for, materials entering the factory, and viewed the authority of the purchasing agent as quite limited: The volition and discretion of the purchase agent extend only to an examination of sales agent's samples, and a recommendation of them if satisfactory to him. If satisfactory also to the department of the plant, then the quotation goes on the prOper card, and the purchase agent can select his vendor, unless he is directed where to place the order.27 In 1905, in introducing another article on purchasing, the editors of The Engineering Magapine said: The Engineeping Magazine has been the source of much of the existent literature dealing with the organized study and management of two of the great elements in the economy of manufacturinge - labor and general expense. we believe it will be of interest to supplement these with a further study of the application of scientific business methods not only to the internal handling, but also to the supply, of the third prime factor in manufacturing-- materials-- The Editors.28 \ 25"Current Topics," Cassier'ppMagazine, XIV (April, 1901). P- 508. 26Horace L. Arnold, "Purchase by the Organized Factory," The Engineering Magazine, XXV (June, 1903). pp. 399-408. 2‘7Ibid., p. 402. 2 . . . . . 8William D. Ennis, "The Relation of PurchaSIng to Produc- tion," The Engineering Magazine, XXIX (July, 1905), p. 519. 30 This article, although largely concerned with the forms and records used to facilitate purchases, took a somewhat larger view of the purchasing function and the responsibilities and work of the buyer than the 1903 article previously quoted. Appropriate quotations on the responsibilities of the buyer follow: Assuming that the works superintendent is responsible for the consumption of materials per unit of output, while the business manager is accountable for the cost thereof, there appears a necessity for a third element in industrial organization, having jurisdiction over the prices paid for materials. This is the function, as usually understood, of the buyer. He is technically dif- ferentiated from both superintendent and manager, bearing no formal responsibility regarding the consumption of materials, either absolute or in proportion to production; nor, usually, regarding the costs per unit of production, so long as the prices paid are low. This strict limita- tion of the accountability of the purchasing department is, and should be, never adhered to. Properly considered, buying has other relations intimately associating it with considerations of production-intensity and profit, the nature of these relations, and their utility, depending upon the kind of industry and its mode of organization. Ennis also referred to the need for price knowledge and determination of‘price by the buyer, as follows: . . . there should be intelligently designed records showing the variations in prices of the principal supplies purchased, accompanied by thorough analyses showing the reasons for the variations. Any opportunity for compari- sons of prices with those paid for the same materials by others should be taken advantage of, and the facts recorded. To be most familiar with the markets, the buyer should be supplied not only with his own trade papers, catalogues and 29Ibid., p. 519. 31 other publications, but also with the trade papers cover- ing the markets he most often enters.30 Ennis also referred to the need for specialization within the purchasing department, and recommended: Where the organization is large, so that the personal attention of the buyer cannot be given to the details of all purchases, the materials should be grouped in general classes and each class handled_by one subordinate. Special knowledge 5% just as essential in purchasing as in manu- facturing. He also commented on the organizational centralization of 'the purchasing function in large, multi-divisional companies: In the recent "integrated" mode of organization of many industries, involving the combination under one direction of a number of geographically separated plants, it has seemed wise to form a new basis for buying, con- sisting in the establishment of a central purchasing department, which takes direct charge of the buying of the larger and repetitional items, supervising at the same time the local purchasing of smaller items at the various plants . . . .32 The lack of attention given by some managements to pur- chasing was pointed up by another 1905 article. Before dis- cuSsing the necessity for system and records in purchasing, the author commented that the purchasing department . . . is usually the last to pass from under the personal control of the proprietor of the firm. 30Ibido , p0 5280 32 There are many concerns that have found it necessary to secure experienced men from outside for their manu- facturing and sales departments, and yet are satisfied to run their purchasing department in the same old way . . . These things show that the mass of business houses have not yet discovered the fact that their purchasing depart- ment needs the application of modern methods of business economy.3 In 1905 the second book specifically devoted to the pur- chasing function, and the first book on other than railroad purchasing, was published, as one of the volumes in a home study series. Book on Buvigg_contained eighteen chapters, eacm.by a different individual.34 The first part of the book (pph l-80) was concerned with the "principles" of buying, Vfliile the second part (pp. 81-216) consisted of eleven chap- ‘terp describing the forms and procedures used in various Company purchasing systems. This book was introduced by the statement that too little attention had been paid to the pur- chasing function in the past: But little attention has, up to this time, been paid to the science of buying; this too, in the face of the fact that there is no department that contributes any more to the success of a business than that concerned ‘with the purchase of material, stock, and supplies. 33Harold A. Wright, "The Fine Art of Buying," The World's m, x (July, 1905), p. 6439. 34H. T. Kett, et al., Book on Buying ("The Business Man's Idbrary," Vol. V; New York: The System Company, 1905), 216 Pages. 33 When it is considered, that buying requires not only keen, shrewd, business judgement, but also a vast amount of technical knowledge compactly arranged, it is evident that the systematization of the department of purchasing,35 too, is worthy of careful research, study, and treatment. Book on Buying makes several comments on the effects of the performance of the purchasing function on the success of a business, two of which follow: The secret of the great importance of good buying lies here: The buyer looks always to the profits of the con- cern which he represents . . . . Here is the first place at which profits may be made. Here is the first place in business organization that ability may be shown.36 In every line of business dependent upon selling, the importance of good buying is adequately recognized. While there is a tendency on the part of the salesman to define hi§_work as that of the man "who keeps the smoke coming out of the factory chimneys," and to always carry the idea that hg_is on the end that brings in the money, yet the relative importance of selling and buying is no more clearly shown than by the fact that incompetence or in- ability on the part of the salesman mgy_bankrupt his firm; on the part of the buyer it is sure to.37 In discussing the knowledge and skills required to do an adequate purchasing job, Book on Buying gave much emphasis to What it called "knowledge of the market": Nor is knowledge of prices more than a beginning of knowledge of market. The mere fact that a certain price rules is no sure guide. The shrewd buyer must look be- yond the mere price and must reach into the causes which have made that price, and those that are material in its remaining at that point, or in causing its fluctuation up or down.38 k 353313., p. 3. 361bid., p. 23. 372.193.. p. 32. 381bid., p. 12. 34 This book emphasized the advantage to the buyer of kmowledge of production processes, and suggested means by (finch the buyer might keep himself current on this subject: A knowledge of the various processes of production-- particularly for the buyer of a special line--is at all times of importance. Owing to the great number of pro- cesses to which even the simplest products are now often subjected, it is not possible for the general buyer to keep himself thoroughlyposted on this important require- ment. But the buyer of a restricted line can at all times inform himself through the traveling trade or technical journals, and from other sources as to the present day methods and processes.39 The concluding chapter introduced the possibility of contdning several of the materials functions under the responsibility of the purchasing agent, which is similar to the materials management concept so widely discussed today: It is now the common practice in by far the larger percentage of manufacturers and works to keep separate the purchasing agent's duties as follows: (1) Purchasing of raw material. (2) Storing of raw material (3) Stocking of finished components. Where conditions are as have been treated before in this article, it will be found that by combining in one depart- ment these various functions, that not only will factory organization be furthered but the resulting benefits of good factory organization will accrue. Other articles on the subject of purchasing appeared after 1905, in the various engineering journals. The Eggigggginq Magazine (which in November 1916 was re-titled k 39 Ibid., p. 29. 4OIbid., p. 195. 35 Industrial Management) appears to have carried the majority . 4 . . . cm'such articles. 1 These articles were primarily concerned vdih the forms and records which made up the systems used in purchasing. Cassierflg Maqagine first published an article specifically on purchasing in 1908,42 which described the effect in one company of changing the responsibility for supervision of the purchasing function from clerical to engineering personnel, and concluded: The purchasing agent alone determined where the orders were to be placed for all goods, which discretion ‘he exercised to the best of his ability, having absolutely no friends to please in the trade, and being under no obligations whatever to favor anyone more than another. NOr did the foremen or heads of departments undertake to specify when making out their requisitions whose make or ‘brand of goods should be used.43 In 1908 The Engineering Magazine began a series of articles _°n the organization for production of manufacturing companies. From these articles the organizational level which the \ cl 1The Engineering Magazine contained the following arti- bees: J. Cecil Nuckols, "A Complete System for the Purchasing Partment," xxxv (April, 1908), pp. 26-32; A. c. Ward, "The urchasing Department of a Manufacturing Organization, " XLVI (December, 1913). PP. 349-'55; Herbert R. White, "Records for the Purchasing and Supply Department," XLVI (January, 1914), '99- 571-76: William H. Morse, "The Purchasing Agent and High glass Product," XLIX (June, 1915), pp. 333-35: H. B. Twyford, 8Ecralidamental Requisites in Purchasing," LII (March, 1917), pp. ~05. 2James M. Cremer, "The Engineer as a Purchasing Agent," Cassier's Magazine, XXXIV (August, 1908), PP. 322-32. 43Ibid., p. 332. 36 pmrdhasing function had achieved in some companies soon after tMaturn of the century can be readily seen. The first such aflfiele concerned organization of the Lynn, Massachusetts («mks of General Electric, and contained an organization chart showing the "Purchasing Agent" on a level with the "Mechanical Superintendent," and "Superintendent of Production," and the "Factory Accountant." All these positions reported to the ' n o 44 General Manager, who in turn reported to a Vice preSident. Also in 1908, the organization of the Westinghouse Elec- tric: and Manufacturing Company was discussed: Under the plan of organization of the Westinghouse Electric and Manufacturing Company there are six depart- ments directly concerned in production, viz: l. The Correspondence Department, 2. The Engineering Department, 3. The Purchasing Department, 4. The Manufacturing Department, 5. The Raw and Finished Material Stores, 6. The Shipping Department. The heads of the first three report directly to one of the vice-presidents while the last three are in charge of the manager of works who reports also to a vice-president.45 B<>\oks on Purchasing, 1911-1921 The third book devoted to the purchasing and materials fixnetions, The Supply Department, published in 1911, primarily \ 4George F. Stratton, "The Management of Production in a Great Factory: Division of Responsibility and Authority in the General Electric Company's Shops," The Engineering Maga- Eigg, XXXIV (January, 1908), p. 572. 45H. M. Wharton, "The Production System of the Westing- Tmuse Electric and Manufacturing Company," The Engineering Dhgazine, XXXIV (March, 1908), p. 891. 37 . . . . 46 cxmcerned railroad purchasing and materials practices. The author, H. C. Pearce, General Storekeeper of the Southern recific Company, stated that supply departments were estab- lished and maintained on some railroads . . . as long as 25 years; notablyrthe Chicago & North Western; the Chicago, Milwaukee and St. Paul; the Union Pacific; the Burlington; and the Great Northern. The last ten years have brought great consolidation, new methods and economies, particularly as to the system of buying from manufacturers on specifications. This neces- sitated a more thorough and complete supply organization, and today, with one exception, there is not a system of any importance that has not a supply department, the business of which is to provide, distribute and account for all materials. Pearce advocated a type of materials management organiza- tion in which there was an "officer in charge of materials and supplies, " to which a "Purchasing Agent, " "Fuel Agent, " "C3enera1 Storekeeper," and "Engineer of Tests" reported,and E3Elid: Age On properties which the amount of materials used does not warrant an organization of this kind there should be a supply agent who would be responsible for both the buying and distribution. On larger systems, however, un- questionably the proper organization is an officer in charge of both purchases and distribution, with a subhead to do the buying and another to maintain the stock and have charge of the distribution. 46H. C. Pearce, The Supply Department (New York: Railway Gazette, 1911), 112 pages. 47Ibid., p. 2. 481bid.. P. 108. 38 Three books on the purchasing and materials functions appeared in 1915, indicating a growing interest in the subject. The first of these, Materials and Supplies,49 was in three sections: the first on "Purchasing Methods," the second on "Setting Up Material Standards," and the third on "Store- keeping." Each section contained chapters written by several different individuals. The "Purchasing Methods" section con- tained brief, general discussions of the procedures recom- Imended for use in handling a concern's purchases, and included Cflmapters on "Deciding Whether To Make or Buy," and "How Price and Service Are Secured." The second book to appear in 1915, Purchasing,50 was written by C. S. Rindsfoos, who was President of the United States Purchasing Corporation, a buying company which per- 15<>rmed the purchasing functions for other companies for a fee. TDIIe author, understandably, attempted to promote the idea of buying companies, and stated: The author believes there are many reasons why the ideal purchasing department of the not far distant future will be in the form of a separate company. In fact, one or two such companies are already organized and in 9Materials and Supplies ("The Factory Management Series"; Chicago: A. W. Shaw Company, 1915), 216 pages. 50C. S. Rindsfoos, Purchasing (New York: McGraw-Hill Bodk Company, Inc., 1915), 165 pages. 39 successful operation--successfu1 in the saving they effect for their clients no less than in the profits they earn.51 This bodk gave little attention to the forms and procedures of purchasing; instead it discussed subjects such as determina- tion of price, service, and terms. Chapter Seven, entitled "Strategy," contained some interesting suggestions regarding the use of strategy in purchasing, as the following paragraph shows: The strategist is a student of human nature. The application of strategy in buying, as well as in selling, involves a knowledge of human nature and the ability to portray. The buyer must study the man with whom he deals, seek out his weaknesses, discern what is in his mind, learn the policies of the house he represents and act or portray his own part accordingly. One man can be flattered; another can be bullied. One man can be won by an appeal to his sense of fairness; whereas another who is always looking for an Opportunity to get the better of the buyer can be made to think he is succeeding and so be made to fall into his own trap. It is no less essential to know the failings of the seller than it is to conceal one's own desires, weaknesses and thoughts.52 The third of the books to appear in 1915 was a brief, general approach to the subject, written by H. B. Twyford,'o IMrchasing Agent of the Otis Elevator Company.53 Chapters were included on "Ethics of Buying," "Organization of the Sllbid. , p. 104. 2 5 Ibid., p. 69. 53H. B. Twyford, Purchasinq--It§ Economic Appect app, Proper Method (New York: D. Van Nostrand Company, 1915), 236 pages. 40 Impartment," "Obtaining and Tabulating Proper Records," plus <flmpters on purchasing problems of different types of industries. As had several other authors previously, Twyford commented on the lack of knowledge available on the subject of purchas- ing, stating: Constructive thinking in its application to the pro- duction department has been elaborated on in many volumes, and in the technology journals and periodicals. The literature on the art of salesmanship is voluminous and highly scientific. The problems connected with accounting methods have been analyzed and discussed exhaustively. The intricacies of finance have been sifted and examined, and placed before students of the subject in an interesting and attractive form. This is in contradistinction to the literature devoted to the philosophy and art of buying, which is neither extensive nor exhaustive, although it is a subject of equal importance and is an attractive and alluring study.54 Twyford placed great emphasis on the necessity for a pur- Chasing agent to systematically collect and study data relating to the materials he was buying and the vendors with whom he dealt, as the following quotation illustrates: 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 successful 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 has charge of such work as is being 54Ibid., p. 17. 41 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. It appears that for some reason no books on purchasing appeared for the next five years. Although many authors indicate that it was only during the war years of 1914-1918 that.the purchasing function first received considerable :recognition, no books on purchasing were found between the Years 1916-1920 . Books on Purchasing, 1921-1928 In 1921 a second book appeared by H. B. Twyford. This ‘book, entitled Purchasing gpdStorinq,56 was very similar to his earlier, 1915 book. In the year 1922, no less than six books appeared which were either entirely devoted to purchasing, or had major Farts devoted to the purchasing function. Some of the state- nmnts in these books are of interest in showing the prevailing attitude toward purchasing and the purchasing agent. _¥ 55Ibid., p. 26. 56H. B. Twyford, Purchasing and Storing ("Factory Manage- ment Course," Vol. IV; New York: Industrial Extension Insti- tute, 1921), 435 pages. 42 Albert E. Bull's book, published in London, attempted to cmver the work of the buyer in all lines; retail, wholesale, . . 7 . nmnufacturing, import and export.5 His comments on the position of the buyer, relative to the salesman, are most interesting: Buying, on the whole, is rarely as important as selling. Salesmanship, in which is involved the opening of new mar- kets, the extension of trade, the actual creation of a com- mercial concern, demands greater ingenuity, a bolder course of action, a finer imagination and a wider power of resource than buying can ever do. A salesman must be hopeful and creative. He should possess robust health and have plenty of vital forces to burn up. A buyer can be morose and ill and cross-grained and dispairing, without doing himself or his cause much harm.58 The only purchasing book found authored by a woman was Published in 1922.59 Helen Hysell's comments on the increasing recognition of the purchasing manager within the organization Structure, and also her material on analysis of individuals, are of interest. BUSINESS CYCLES AND PLANNING AHEAD-~The purchasing agent should be in the "crow's nest" or "lookout" of the business craft equally, if not more often, than the sales director. The sales department may figure out its plans for a year ahead, but, without the purchasing agent's cooperation in obtaining the raw materials to manufacture, or the finished materials for them to resell, on terms at a price that will 57Albert E. Bull, Buying Goods: Th§;Commercial Buyer andgHis Work (London: Sir Isaac Pitman & Sons, Ltd., 1922), 96 pages. 58Ibid., p. 1. 59Helen Hysell, The Science of Ppgchasing (New York: D. Appleton and Company, 1922), 261 pages. 43 meet competition at the time of the sale, the sales department, as well as the financial department, will be greatly handicapped and the aim of all departments-- profit-dwill be that much lessened if not entirely consumed.6O Hysell also gave advice on how to analyze character and disposition of salesmen: For example, the broad, high, square-shaped forehead indicates analytical power, intelligence, perseverance, and severity. The more it tends toward rounded, and cornerless outlines, the more flexibility of character does it indicate. The retreating forehead indicates imagination, feeling, wit and keen perception. The pro- jecting forehead is a sign of weakness of will. The eyes indicate the feeling rather than the intel- lect, though there are a few rules that are more or less reliable. The chin and lips are watched not only for construc— tion, but also for expression. Thin lips usually indicate industry and order, etc. If the lips are drawn down at the corners they show a weak or pessimistic disposition. Large, well-defined lips show energy and vitality. Lips, however large, if well formed and well closed, indicate power, ability, energy and good sense.61 Salesmen, as a rule, are reluctant to offer to shake hands with the purchasing executive as they have learned, through experience, that many purchasers dislike the practice. It is well, however, for the purchasing direc- tor to offer his hand to the salesman. This gives an additional opportunity for judging the type of man with whom he is about to talk.62 601bid., p. 102. Ibid., p. 44. 62Ibid., p. 50. 44 John C. Dinsmore, Who at the time was Purchasing Agent at the University of Chicago, wrote a book on purchasing xflfieh treated briefly the procedures for performing the pur- chasing function, and had several chapters devoted to the purchase of specific types of commodities.63 His comments indicated that study and preparation were just as much of a necessity for the individual wishing to do a competent pur- chasing job, as for any other occupation: I want to drive home the fact that it is just as impossible for a man without preparation so to spend money that he will best serve his firm, as it is suc- cessfully to follow any other trade or profession without preparation. It is equally impossible for the purchasing agent to continue to grow if he does not continue to study.64 Madison Cartmell, in a book primarily devoted to store- keeping and concentrating on procedures65 commented on the Growing importance being accorded to performance of the pur- Chasing function, but also recognized that not all firms Considered the purchasing functions as requiring specialized personnel: The purchasing department is a comparatively new fac- tor in business organization. Its general adoption reflects changing conditions in purchasing and an increasing 63John C. Dinsmore, Purchasing: Principles and Practices (Englewood Cliffs, N. J.: Prentice-Hall, Inc., 1922), 295 pages. 64Ibid., p. 1. 65Madison Cartmell, Storpp and Material Control. Inclgdinq Procurement by Manufacture and by Pprchase (New York: Ronald Press Co., 1922), 459 pages. 45 realization of the important part played by good buying inthe success of any business enterprise. There are many large concerns, however, which persist in the old method of departmental buying.66 The other two bodks to appear in 1922 primarily emphasized the stores function rather than the purchasing function, although devoting some space to the performance of purchasing.67 In 1924 a book by H. D. Murphy appeared, which was a very lxrief treatment of the duties of the purchasing agent.68 William N. Mitchell authored a book in 1927 which made a Specific reference to research within the purchasing depart- Imuant.69 An organization chart included by Mitchell for a large purchasing department showed "Research" reporting to 1ihe "Assistant Purchasing Manager." Reporting to "Research" ‘Nere "Vendor Relations" and "Library Service."70 No narrative accompanied this chart; thus, one cannot tell whether it was -‘ 66Ibid., p. 257. 67Henry H. Farquhar, Factory Storeskeeping: The Control and Storage of Materials (New York: McGraw-Hill Book Company, Inc., 1922), 182 pages; Alexander Hamilton Church, The Making of an Executive (Bodk II, Part 4, "Purchasing and Storekeep- ing"; Scranton, Pennsylvania: International Textbook Company, 1922) . pp. 1-55. 68Harry Duncan Murphy, The Fundamental Principles of Pug: chasing (New York: Purchasing Agent Company, Inc., 1924), 83 pages. 69William Norman Mitchell, Purchasing (New York: Ronald Press Company, 1927), 385 pages. 70Ibid., p. 168. 46 neant as a functional or organizational chart, or a combina— tion of both. Two books appeared in 1928. The first, Principles of Scientific Purchasing, was written by Norman F. Harriman, who . . . . 7 was employed in purchasing with the Union Pac1fic Railroad. 1 Relative to the importance of the purchasing function, and 'the progress which had been made up to that time, Harriman said: The science of buying is recognized more clearly in its proper perspective today than ever before. Increas- ing consideration is being given not only to the first cost but also to the longer range factors of fitness, interchangeability, renewals, replacements, general' maintenance, wearing gualities, and cost per unit of utility. The tendency to buy at so much per unit of guality or utility, instead of per unit of guantity, is one that will increase. The idea is fundamentally and economically sound.72 Harriman's book is significant to this study mainly be- <:ause of the recommendations made regarding scientific, systematic collection of data, by specialists, as a basis for purchasing decisions.73 Specifically, he noted, and recom- mended use of individuals called "Purchase Engineers" to aid the buyers in investigating potential areas of cost reduction. ¥ 71 . . . . . . . Norman F. Harriman, PrinCiples of SCientific PurchaSing (New York: McGraw-Hill Book Company, Inc., 1928), 301 pages. 72Ibid., p. 21. 7314231.. PP. 113, 122-23, 229-30. 47 Ifie specific comments on the duties of the "Purchase Engineer" are reviewed in Chapter III. Another book which also appeared in 1928, ScientigiggPur- chasing, was authored by Edward Tisdale Gushée and Lionel Frank Boffey.74 These authors approached the subject of purchasing from an analytical point of view, emphasizing the importance <3f, as did Harriman, systematic data collection by specialists. {Ehese authors referred to an "Economics Division" within the Kharchasing Department, and stated: The economics division is an extremely important part of the purchasing organization. Broadly, the function of this department is to maintain all records relating to the prices of products, to study materials and markets, to analyze the prices paid for commodities and equipment, and generally to point the way to savings through more intel- ligent specifications and supervision of sources of supply. This division or its equivalent is essential for every purchasing department which expects to make major savings. Economy in purchasing is not a matter of selecting the lowest of a number of bids, but of knowing that the material bought is adopted for requirements, efficiently produced, and bought at a price which represents a fair profit to the seller. 5 The author's comments on the work of, and justification for, the "Economics Division" will be examined in detail in the next chapter. E 74Edward Tisdale Gushée and Lionel Frank Boffey, Scienti- fic Purchasing (New York: McGraw-Hill Book Company, Inc., 1928), 196 pages. 75Ibid., p. 59. 48 These authors also emphasized proper timing of purchases, tased on analysis of data and stated: There are some purdhasing agents who believe, or profess to believe, that to buy successfully demands a sixth sense--a sort of intuition or "hunch" as to the trend of general business and the tendency of specific markets. That belief is utter nonsense. As a matter of fact, the purchasing agent who claims that he follows a "hunch" in a particular transaction will find, on self-analysis, that his action is really based on what he has read or heard. Market studies, economic analyses, graphic charts accurately and regularly revised, established policies of purchasing to take the utmost advantage of prevailing conditions--these are facilities which are essential to enable the purchasing agent to time his buying most effectively, provided he has the wisdom to interpret business conditions and the courage to act in conformity with the interpretation.77 The authors also recommended the use of "price analysis," c=<3nsisting of an evaluation of labor, material, and overhead Cxasts in targeting a fair price for a given purchase: A quantity of bronze castings are to be bought. Quotations are asked from two approved sources of supply. Source A quotes 1/4 cent per pound under Source B. Both sources have demonstrated their ability on previous occasions to meet the buyer's specifications of quality and delivery. The obvious course is to settle the matter by awarding the contract to Source A. But the buyer in this instance follows the practice of analyzing the bids. His record of past purchases shows that castings from the same patterns were ordered from Source A some months previously. The quantity and 76Ibid., p. 99. 77Ibid., p. 104. 49 price on that occasion were identical with the current bid. Knowing the proportion of copper, tin, lead, and spelter in the castings, the buyer readily ascertains that the composite price of the materials has declined since the previous purchase to a point that warrants a reduction of 3/4 cent per pound in the price of the castings. Conclusion This completes the review of literature on the purchasing .function. Appropriate journal articles through 1910, and INDORS through 1928, were reviewed. This review had two use- ffiil results: First, it established the date of the litera— ‘tJJre on the subject of the staff purchase research function (the two 1928 books by Harriman and by Gushée and Boffey) . Second, it provided a background of information on the evo- lnation of thought concerning the purchasing function. This research into purchasing literature established that there were people interested in the purchasing function, land.writing about it, even before the turn of the twentieth century. This refutes commonly held, and often stated, be- liefs that interest in purchasing is a product solely of this century, and primarily only after World War I. Purchasing is a mudh older and more recognized function than commonly thought. Further research is needed on the early development of the purchasing function and early purchasing literature. 78 Ibid., p. 111. 50 Chapter Summary As a background for the study of the staff purchasing research function, an examination was made of early litera- ture on the purchasing function. The literature on the purchasing function extends back into the nineteenth cen- tury, contrary to the statements in several of the popular textbooks. Charles Babbage, in his classic work on industrial management, On the Econgmy of Machinery and Manufacturers, Published in 1832, made reference to the purchasing function in two places. Writings on the purchasing function by railroad management Seem to have preceded similar interest in the industrial field, as trade journals in the railroad field show. The first Ameri- can book exclusively on the purchasing and materials functions, \The Handling of Railway Supplies--Their Purchase and Disposition, was published in 1887. Before the end of the nineteenth century, articles had been Published which discussed topics such as: seeking competitive bids (1870) , organization of the purchasing function (1890) , duties of a purchasing agent (1890) , standardization (1890) , Capital equipment purchasing (1892) , and the responsibilities 0f the purchasing agent (1898) . More articles on purchasing appeared after the turn of the century. The articles discussed subjects such as dealings with 51 salesmen, specifications, materials management, price analysis, organization of a purchasing department, and centralized pur- chasing. By the year 1910 several such articles concerned solely with the purchasing function had appeared. These articles indicated the similarity of problem areas of that time to those currently discussed in today's purchasing literature. The 1905 book, Bodk on pring, was the first book found that was devoted exclusively to the purchasing function in other than railroad organizations. Approximately 15 books on 'tliea purchasing function had been published by the year 1927, ‘Vfljuch provides an indication of the growing interest in study and writing on the purchasing function. In 1928 two books were published which presented well cieveloped managerial approaches to the purchasing function. Both books, one by Norman F. Harriman, Principles of SgiLentific listrchasing, and the other by Edward Tisdale Gushée and Lionel F'Irank Boffey, Scientif;gyPurchp§inq. concentrated primarily oTithe management aspects of purchasing, as opposed to the SPecific forms and procedures used to facilitate purchasing Operations. Both emphasized the necessity for systematic cmllection and analysis of data as a basis for informed pur- chasing and materials decisions, and advocated the employment of non4buying specialists for the collection, analysis, and presentation of this decision making data. Journal articles after 1910, and books after 1928, were not reviewed, for the purpose of this particular research was to establish the earliest recognition of the purchasing function in the literature, and to trace the early develop- ment of this literature. This research did establish that interest in the purchasing function developed considerably earlier than recently written literature on purchasing would lead one to believe. Further research into the early development of thought on the purchasing function, and the factors influencing this development, is needed. 52 53 CHAPTER III LITERATURE ON THE STAFF PURCHASING RESEARCH FUNCTION Introduction As a background for this preSent study of the use of .staff personnel for research in purchasing,a search was made t<> determine what literature was available on this subject. Ifiie review of literature was of value in formulating the , Present study for three reasons. First, it established the depth and scope of presently available knowledge on the EBuloject. Since relatively little literature on the subject “Vales found, it provided a partial indication of the need for ii estudy of this nature. Second, it provided information on the degree to which the staff approach to purchasing research had been accepted by industry. The fact that an increasing number of articles detailing specific company practice in tlhe utilization of staff purchase research personnel had been ‘Nritten since World War II showed this to be an organizational Practice which appeared to be used in a substantial" but un- known, number of companies. The third contribution of the literature review was that it provided some basis for struc- turing the study, for the articles on specific company's staff purchase research practices indicated how this staff function was organized, on what research topics a staff might be 54 involved, and the methodology which might be employed in the actual performance of purchasing research. Since the objective of this study was to investigate the use of specialized staff personnel for the performance of purchasing research, only that literature relating to the use of a research staff is reviewed in this chapter. There is a considerable amount of literature availablecn1tflu§8ubject of value analysis in purchasing,1 and much of this literature was consulted in the course of this study; however, it is not reviewed in this chapter unless it specifically discussed the use of staff. The literature on the staff purchasing research function reviewed in this chapter is presented in three sections. The first section presents the earliest known literature recom- mending the use of staff personnel within the purchasing department for the performance of purchasing research. The 1For example, yplue Engineering (Elizabeth, N.J.: Engie neering Publishers, 1959, 165 pages), contains papers pre- sented at the Electronic Industries Association Conference on Value Engineering. This book uses the term "value engineering" synonymously with the term "value analysis." Cutting Costs by Analyzinnglue§,(New York: National Association of Purchasing Agents, 1952, 80 pages), a handbook of suggested techniques for value analysis, includes examples of specific projects. Numerous articles have appeared in various trade magazines. Two of these articles were: "Purchasing Spearheads Value Analysis Program," Purchasing, XLV (December 22, 1959), pp. 49-50: and "Purchase Analysis: It's a Job for Buyers," Egg- chasing, XLIX (July 18, 1960), pp. 90-91. 55 second section reviews the literature on specific company practice in the employment of a purchase research staff. The third section presents findings of four surveys which pre- sented some information on the use of staff in a group of companies for the performance of purchasing research. Egply Literature The earliest reference to the use of staff personnel for the performance of purchasing research was found in the two 1928 books by Gushée and Boffey and by Harriman which were referred to in the previous chapter.2 Both these books devoted some space to a discussion of the reasons for the utilization of staff personnel for purchase research (although not using the term "purchase research staff"), and the duties that would be performed by these personnel. The Gushée and Boffey book presented a suggested organi- zation chart for a firm "with a large volume of purchases," and indicated a position of "Chief Clerk--Economics Division" reporting to the purchasing agent.3 This organization chart also listed the following four areas of activity of this 2Edward Tisdale Gushée and Lionel Frank Boffey, Scientific Purchasing (New York: McGraw-Hill Book Company, Inc., 1928), 196 pages; and Norman F. Harriman, Principles of Scientific Purchasing (New YOrk: McGraw-Hill Book Company, Inc., 1928), 301 pages. 3Gushée and Boffey, op. cit., p. 63. 56 position: Price Record File, Commodity Studies and Market Analysis, Publications and Vendor Catalogs, and Preparation of Data for Standardization Committees. Regarding the qualifications an individual should have for the position of Chief Clerk--Economics Division, the authors stated: It is desirable that the head of the economics division of the purchasing department shall be a commercial economist. He must have a thorough grasp of the condi- tions which affect supply and prices, and the ability to present those conditions in text and graphic form for quick visualization by the purchasing agents and buyers.4 In speaking of the organization and work of this division, Gushée’and Boffey stated: . . . compilation of information which will lead to sound buying is a paramount duty of the well-organized purchas- ing department. In the concern where volume of purchases is large a special division of the purchasing department should be assigned to the work of compiling information . . . . The work of such a division can be carried out in the small concern by a single assistant of the purchasing agent . . . . The division in question may be styled the "economics division." Its purpose is to compile and preserve all information of an economic nature that may be needed to guide the purchasing agent and the buyers in selecting the proper source of supply and in buying at the right time, in the right quantity and quality, and at the right price. In discussing the areas of activity of this division they stated that the work would be largely in the areas of 41bid., p. 59. 51bid., p. 81. 57 statistical analysis, product research, and vendor analysis, as follows: One of the mOst important functions of the economics division is its charting and statistical work . . . the charting falls broadly in three classes: 1. That which shows general business conditions or trends. such as a wholesale or composite price movement, car movements, stocks on hand, labor employment, stock ex- change variations, and the like. 2. Charts which show the prices for materials entering into the major items of purchase, such as copper, lead, various forms of steel, rubber, oil, lumber, cotton, and other commodities. 3. Charts which reflect the performance of the departmentfs There will be many variations of such statistical studies and graphic presentations which it will be found advisable to have the economics division undertake . . . . Many studies will produce no practical results, but the apparent waste of effort in such cases will be offset by a single statistical analysis which will point the way to savings that more than pay the entire operating costs of the purchasing department. The entire work of the economics division is based on the assumption that scientific pur- chasing is possible only when major purchasing decisions are made after carefully weighing, measuring, and comparing all the facts which have a bearing on the purchase. The economics division should work closely with the buying division. Each day the buyers should be given a list of the market prices of basic materials with which they are concerned and a labor index if it is available for those industries, for reference and as a guide in their negotiations. When a buyer contemplates an important pur- chase he should consult all the data bearing on that pur- chase which the economics division can place before him. The decision as to the action to be taken must rest with the buyer, but when his decision is at variance with the 61bid., p. 85. 58 conclusions of the economics division the logical course is to submit the entire matter to the purchasing agent before proceeding. In conjunction with the buying and inspection divisions, the economics division should make detailed studies of pur- chased items. The records of the division, showing the amounts expended for the various classes of purchases, will suggest the items which warrant special study with a view towards making savings. These studies may lead into the construction and design of the article, with a thorough investigation of sources, quantities, and an inevitable emphasis on standardization. When completed, recommenda- tions should be made as to changes in quality, construction or design, specifications, the quantity and time to buy, cost approximation of the revised product, and the probable price trend. Such studies must be made with tact and judgement . . . The results of such studies will be gratifying in most cases. Frequently, the recommendations made at the com- pletion of a study will, if carried out, cut the unit cost of an article in half and even greater reductions will occasionally be made. A record of special importance which the economics department should maintain is a "pound-price" file. This is applicable to all forms of machinery, equipment, and fabricated materials. The reduction of the prices charged for such items to a price per pound gives a valuable basis for analysis of the cost. Similar records should be kept of the cost per square foot and cubic foot on various kinds of construction work.7 Financial reports, giving all available information on the volume of business, gross and net profits, and general stability of concerns with which the company deals, should be included in the records of the division. The data may be procured from stock market reports, published statements, statistical service companies, and commercial agencies. A record of the total amount of business, in dollars and cents, given to each vendor should also be kept. 7Ibid., p. 87. 59 In summary, when any important purchase is contem- plated, the economics division should be able to provide all essential information to enable a proper decision to be made. This information must include a record of all previous purchases of the item; the concerns from which the purchases were made; their performance; the prices paid, both unit and pound; the market levels of the major materials entering into the cost of the article at the time of previous purchases, and the present levels of the same materials for comparison; the financial reliability of the various bidders for the present order; the possibility of a cheaper purchase of the item in the near future; the unit and pound prices of items of simi- lar construction; the amount of business done with each firm quoting on the present requirement. The buyer or purchasing agent to whom this type of information is available will not be required to guess at the right quality, quantity, time, source, and price. He will have the facts which should lead him, in the majority of cases, to proper conclusions. It is this reliance upon knowledge instead of guesswork which dis- tinguishes scientific purchasing from rule-of-thumb buying.8 It can thus be seen that many of the major functions which today are performed in purchasing research departments of major industrial firms were spelled out in this early text. That the economics division should exercise only staff authority within the purchasing department is shown by com- ments on the relationship of the economics division to the buying personnel: His [the buyer's] observations will usually be influenced or supported by data coming to him from the economics or statistical division of his own company, by information from salesmen, and by his general knowledge of market 81bid., p. 88. 60 conditions; but the responsibility for determining the policy to be followed rests with the buyer.9 The overall importance of the analytical work of a pur- chasing research nature is shown by the following remarks: Modern purchasing is more of an analytical than a trading function, and the buyer who studies the material, its price structure, and the economic features of supply and value, will show greater savings than one who relies solely on instinct. In the management of the department the purchasing agent should regularly call his division heads and buyers into conference. They should be encouraged to suggest and develop improved methods for their own work, and that of the department as a whole. It will be of particular value at these conferences to establish the buying policy for the current period and the near future. The statistics of the economics division will be the foundation of the policy, but the buyers will frequently furnish supporting or opposing data gathered from conferences with salesmen.lo ‘It is undeniably true that the concern whidh aims to pro- fit by scientific purchasing must appropriate a more liberal sum for the administrative cost of purchasing than was formerly considered necessary. Research costs money, and this is just as true in purchasing as in other fields. But any form of commercial research which returns ten dol- lars in profit for every dollar expended in the effort, and continues that return long after the original invest- ment has been paid and forgotten, is assuredly worth while. That is what scientific purchasing may be expected to do in the typical industrial concern if it is seriously studied, organized, and applied. The estimate is conservative. It is predicted on the results achieved by scientific purchas- ing in many progressive industries of today. 9Ibid., p. 39. 10Ibid., p. 169. 11Ibid., p. 187. 61 Another purchasing text which appeared in 1928 contained similar recommendations regarding the practical necessity for using staff personnel for the collection, analysis, and evalua— tion of purchasing data.12 Specifically, the author recom- mended use of a "Purchase Engineer" and stated the following regarding this individual and his work: Some large concerns have a special expert, called a Pur- chase Engineer, for the purpose of controlling prices by the judicious use of engineering and economic knowledge. The duties of the purchasing engineer are many and varied. He is not only an information bureau for the purchasing agent but also acts in a technical advisory capacity as well. He studies fundamental factors that control price movements, as well as principles that underlie the produc- tion of raw materials and fabricated products. He inves- tigates and checks the market prices of fabricated pro- ducts peculiar to a business, to make sure that they are consistent with the price trends of raw materials and labor. Inasmuch as the purchase engineer does not con- duct actual buying negotiations, his opinion is unbiased one way or another by the psychology of salesmanship. Many and various problems which continually arise in con- nection with buying, and which the purchasing agent has not the opportunity to go into thoroughly, are referred to the purchase engineer in order that the true facts of the case may be obtained and properly analyzed. These facts, based on analytical study of the fundamental fac- tors involved, as well as the current conditions which affect the situation, of necessity bring to the purchasing agent a picture of the underlying causes of events and the probable future trends. This aids him in making decisions as to the policy upon which his purchasing activities should be based. In other words, the bargain- ing "order giver" of former days is replaced, through the aid of the purchase engineer, by a well-informed purchas— ing agent. 12Harriman, op. cit. 62 An approach of buying from the engineering angle will show clearly that the strategy of buying is not so much a mat- ter of price as of essential values. This plan is used by the very efficient purchasing department of the Western Electric Company.13 Harriman argued that a company cannot afford not to have specialized staff service and advice if it is to do an adequate job of purchasing, saying: No purchasing agent can rely on his individual quali- fications to solve successfully the present and future problems of buying. If he is to succeed, he must have the proper equipment for his work. Fagilities for research, engineering talent for thegpreparation oggspecifications, testggnd inspection equipment, statisticalyservice, effi- cient records for all phases of purchasing--these are essentials in modern buying. It may be argued that only corporations of unusual buying power can afford to equip their purchasing depart- ments along these lines. That argument is unsound. The medium-sized concern, with a limited purchase budget, may not afford a laboratory of its own, but it can utilize private and semipublic research organizations. Expert test and inspection service can be secured when needed without maintaining a special staff for the purpose. The employment of an engineering assistant and a compiler of charts and statistics to aid the purchasing agent, will slightly increase the salary list of the department, but the additional expenditure will make possible economies many times as great. A purchasing agent cannot buy effi- ciently and economically if he lacks the necessary organi- zation for his work.14 The authors of both of these books had, at this early date (1928),a clear and concise picture of the potential benefits which could accrue to the purchasing organization, and thus 13Ibid., p. 122. 14Ibid., p. 229. 63 the firm, from the use of staff research specialists within the purchasing department. The suggestions of these authors seem to have had relatively little immediate impact on cor- porate purchasing practice, although four of the 304 firms surveyed in this present study did indicate the establishment of a research staff in the year 1930. If these books had appeared at a time other than just before the Great Depression, they might have had a more profound influence on corporate pur- chasing organization and practice. No mention of the use of a staff for purchasing research was found in the literature on purchasing which appeared between the time of publication of these two books and the end of World War II. Company Practice Following World War II, articles began appearing which described the practice of specific companies in the utiliza- tion of staff personnel to collect, analyze, and present data useful for purchasing decisions. The first such article appeared in 1946, and described the duties of a position of purchase engineer, as follows: The purchase engineer in the "pure state" places no orders, compares no prices, supervises no inventory, works up no contracts. His job is to develop highly pertinent engineering data for the buyers to use, and to act as engineering liaison between the purchasing department and the production, company sales engineering, maintenance 64 and other engineering executives. Of course, his tasks can be made to include some of the standard purchasing functions, or he can be one of the plant engineers assigned to the purchasing department on a part—time basis; there are no limitations on his working basis. This author went on to state that the large automobile manufacturers were among the first to establish such positions, and that they had been in existence, under one title or an- other, for the "past thirty years." No specific companies were cited. Results of this present survey do not bear out Cady's statement about the time at which subh positions were established, for the earliest date of establishment of a purchase research staff by any of the seventeen companies with staff in the Transportation Equipment Industry which responded by questionnaire was 1930. Except for the company indicating establishment of staff in 1930, no other firms in that industry indicated establishment of staff until 1946. However, the positions referred to by Cady could have been in the engineering department, as the quotation from his article indicates. This present study is concerned with the use of staff purchase research personnel only within the purchasing department, which may account for the variance between his statement and the results of this study. 15 . . E. L. Cady, "How Purchase Engineers Function," Purchas- ing, XX (April, 1946), p. 112. 65 The first company to receive considerable amounts of publicity on its staff method of organization to perform purchasing research was the Ford Motor Company. A 1947 article by the Vice-President of Purchasing indicated that, as a result of a management study, Ford had established a commodity research department, to provide short—and long.. term information on basic commodities to buyers; and a purchase analysis department to give buyers help on product and price analysis. Purchasing devoted its July 1948 issue to the Ford pur- chasing organization; this issue contained several articles on their purchasing research activities.17 Victor G. Lottman, formerly Manager of Sales Research for the Ralston Purina Company and Manager of Economic Research for Booz, Allen & Hamilton, headed the research effort, as Director of the Purchasing Research Department. This Research Department was divided into the following two sections: a Research Sec- tion and a Statistical Section. The Research Section made recommendations on basic purchasing policy and procedure, 16Albert J. Browning, "Purchasing--A Challenge and an Opportunity," Purchasing, XXIII (December, 1947), pp. 99—101. 17"Organization for Purchasing," Purchasing, XXV (July, 1948), pp. 150-51; Victor G. Lottman, "Research Leads to Sound Purchasing Policies," Purchasing, XXV (July, 1948), pp. 173-75; "Purchase Analysis Helps Determine . . . the Right Product . . . the Right Source . . . the Right Price," Purchasing, XXV (July, 1948), pp. 176-80. 66 and also made long—term forecasts of material availability and price. The Statistical Section developed statistical data on commodities, price trends, and performance trends. Additionally, the Purchasing Research Department coordinated the work of Purchase Analysts, located in a staff capacity within each of the buying divisions, who assisted buyers in price analysis, development of price trends, market analysis, financial analysis of vendors, cost analysis, product analy- sis, and analysis of incidental costs. Many additional articles have appeared on the Ford purchasing research organi- zation and its activities.18 A recent article indicated that in 1960 there were 180 men in the Ford purchasing research organization.19 The General Electric Company's staff value analysis or- ganization, established in 1947, was described in a 1950 20 article. At the time of this article, there were three 18Victor G. Lottman, "Cost Reduction through Purchasing," Purchasing, XXV (August, 1948), pp. 118-20; Victor G. Lottman, "The Techniques of Cost Reduction," Pprchasing, XXV (November, 1948), pp. 93-95; "Purchase Analysts Save Money for Ford," American Business, XX (January, 1950), pp. 16—17; "Purchase Analysis Savings Run into Six Figures," Purchasing, XXX (June, 1951), p. 117. 19Dean Ammer, "The Purchasing Department: Ford's Cost Control Center," Purchasing, XLVIII (May 23, 1960), p. 55. 20"Value Analysis . . . a purchasing technique that is saving hundreds of thousands of dollars each year for the General Electric Company," Purchasing, XXVIII (June, 1950), pp. 94-101. 67 staff people in their Value Analysis Department. The original aims of this department were to increase knowledge of basic value: to determine how nearly each individual part, com- ponent, and material in the company's new products contained basic value; to establish methods for analyzing and measuring value; and to provide the necessary action to assure value on a companydwide scale. According to this article, the first purchased item analyzed saved $300,000 annually. The value analysis approach of General Electric concen- trated on studies to learn what different materials, changes of specifications and design would reduce costs, while still adequately performing the necessary function or utility. As originally set up, ten tests for value were employed: 1. Does the use of the item contribute value? 2. Is its cost proportionate to its usefulness? 3. Does it need all of its features? 4. Is mica pack used for insulation? 5. Can a useable part be made by a lower cost method? 6. Can a standard product be found which will be useable? 7. Is it made on proper tooling, considering quantities used? 8. Do materials, reasonable labor, overhead, and profit total its cost? 9. Will another dependable supplier provide it for less? 10. Is anyone buying it for less? Frequent articles since have appeared on the General Electric value analysis program, and these articles indicate the staff has increased considerably in size from the three 1James H. Leonard, "The Coming of Age of Value Analysis," New York Purchasing Review, July, 1960, p. 18. 68 persons in 1950. Many of the individual General Electric plants have their own full-time staff value analyst.22 In 1949 the Vice President for Purchasing at General Electric, in a talk reprinted in Purchasing, referred to the establishment of a Commodity Research Division at General Electric to give buying personnel pertinent information on the supply situation of basic purchased materials and com— ponents.23 This information was later amplified on in an article by C. Willard Bryant, Manager of Materials, General Electric, in which he stated their staff purchasing research program began in 1948, with a Manager of Purchasing Research, who had reporting to him a Statistical Analyst and a Purchas- ing Analyst. The function of these people was to prepare economic information and reports for the use of buyers. One activity was the publication,on a frequent'basis of a "Price Information Bulletin," giving market price history and short— term price forecasts for about one hundred commodities; another was the construction and maintenance of purchase price indices; another (and the main activity) was the pre- paration of a ten-year commodity forecast on copper, a ten- 2"General Electric's Program Still Sets the Pace," Egg: chasing, XLII (May, 1957), pp. 70-73; Dean Ammer, "Purchasing Coordinates Plant—Wide V-A Program," Purchasing, XLV (December 8, 1958), pp. 64-65; Richard A. Quinn, "Value Consulting Pays Off," Purchasing, XLIX (October 10, 1960), p. 95. 23Harry L. Erlicher, "Purchasing for Greater Value," Pur- chasing, XXVII (August, 1949), p. 68. 69 year commodity forecast on steel, and a five-year commodity forecast on aluminum. A third company to receive considerable publicity on its organizational arrangement to perform purchasing research was United States Steel Corporation. An article in Iron Age described the Purchasing Research Department, established in 1952, and the stated reasons for its establishment: "1. Buyers do not have the time for effective planning, and 2. Even if they have, purchasing research is better done objectively on a broad front."25 The objectives of this department were to develop and analyze information on suppliers, price, inventories, con- sumption, and new commodities; forecast future material avail- ability; find substitutes for items in short supply; and develop benchmarks for evaluating purchasing performance. This article concluded, probably incorrectly, that this department was, ". . . first of its kind in American industry. Other com- panies . . . have been trying to do a similar job, but with the difference that the function had not been clearly defined."26 24 . . . C. Willard Bryant, "Planning To Meet Materials Shortage . . . The Function of Purchasing Research," Purchasing, XXXV (August, 1953), PP. 81-83. 25J. B. Delaney, "Purchasing: Research Gets Staff Status in Broad Program of U.S. Steel," Iron Age, CLXX (December 11, 1952), pp. 95-96. 2 6Ibid., p. 96. 70 Additional articles on the U. S. Steel program followed.27 In 1954 a doctoral dissertation was written for the pur- pose of determining the responsibilities of materials manage- ment in the determination of value of purchased materials.2 This dissertation was primarily concerned with the adminis- trative problems of value analysis, defined as "investigation of materials requirements to insure a proper balance between performance, ultimate cost, and availability of supply,"29 As a part of the study, which concentrated on the responsi- bility of the purchasing administrator, case studies of three large, decentralized manufacturers which utilized a purchase research staff were presented. The companies were not identi- fied. These case studies were used to illustrate the use of purchase research staff at a headquarters office to do studies of a larger magnitude than could be carried out by materials administrators at the operating level. These three specific case studies presented information on the major objectives of the staff purchase research program in each of these three companies. No aggregate analysis of the staff purchasing 27For instance, "Purchasing Research," Purchasing, XXXVIII (May, 1955), pp. 92-97; and Robert F. Benson, "Purchasing and Commodity Research," in Purchasgng for Profit, AMA Management Report No. 20 (New York: American Management Association, 1958), pp. 58-62. 28Stanley Simon Miller, "Value Analysis in the Procurement of Materials" (unpublished D.C.S. dissertation, Graduate School of Business Administration, Harvard University, 1954), 386 pages. 29Ibid., p. 8. 71 research function was attempted in this dissertation. Following the initial articles concerning the staff organizational arrangement for purchase research at Ford, General Electric,and U. S. Steel have come several other articles on purchasing research describing the activities of particular companies which adopted the staff organiza- tional concept. In 1954 an article appeared describing the aims and procedures of the procurement research section of George D. Roper Corporation, Rockford, Illinois.30 A speech by H. K. LaRowe, Director of Purchases, American Cyanamidyto the 1954 meeting of the Chemical Market Research Association, described the work of their staff purchasing research activity in furnishing information to the buyer. The advantages of a full-time purchase research man in the smaller company were pointed out by a description of the pro- gram at Sprague Electric Company, North Adams, Massachusetts.32 Further articles appeared describing the purchase analysis 0 . . 3 R. F. Hornbach, "Planning a Cost Reduction Program," Purchasing, XXXVI (May, 1954), pp. 99-103. 31 "Market Research for the Buyer," Chemical and Engi- neering News, XXXII (October 4, 1954), p. 4026. 32"Save $ with Purchasing Research," Purchasing, XXXIX (November, 1955). PP. 71-73. 72 group, begun in 1953, at International Business Machines Corporation;33 the work of the Purchasing Analyst, or Pur- chasing Engineer, at Brown Instrument Division of Minneapolis- Honeywell Co.;34 the activities of the Technical Assistant at Purolator Products Company;35 the staff purchase analysis program, begun in 1956, at Cleveland Graphite Bronze Company;36 the formal purchase analysis program, begun in 1952, at Eaton Manufacturing Company, which had expanded to four full-time analyst positions by 1957;37 and the duties of the Purchase Researcher at Corning Glass Works.38 In discussing the value of the output of the two Purchasing Engineers at Tennessee Eastman Company, the comment was made: Purchasing Research will never be a substitute for negotiation . . . . But in two years we have proved it is an excellent tool for the negotiator. When a buyer 33"Purchase Analysis More Than Pays Its Way," Purchasing. XL (April, 1956). PP. 86-89. 4 3 "A One-Man Value Analysis Unit," Purchasing. XL (June, 1956). pp. 90-92. 35"We Cut Purchasing Costs 3 Ways," Purchasing. XLII (June, 1957). pp. 83-86. 36 p. 63. 37 "Purchase Analysis in Action," Steel, CXLI (July 8, 1957), "Purchase Analysis Improves Competitive Position," Pp;- chasing, XLIII (November, 1957). pp. 99-102; and a more recent article, T. M. Rohan, "New Ideas Cut Buying Costs . . . Purchase Analysis Team Breaks Precedent To Trim Costs," Iron Age. CLXXXVII (February 23, 1961). pp. 66-67. 38Ned Kellogg, "The Forward Look in Purchasing," Purchasing, XLIV (January 20, 1958), pp. 71-74. 73 has complete information on a material he's equipped to deal with vendors on a much more knowledgeable basis than if he got his data on more or less of a hit-and-miss basis. And purchasing research also helps the division intelli- gently advise management on trends in price and availability of important raw materials, desirable inventory levels and lead times, and possible substitutes.39 Monsanto Chemical Company's statistical forecasts of raw materials markets, prepared by two purchase researchers, were the subject of a 1958 article,40 as was the two—year—old pur- chasing research program, employing thirty-eight full-time specialists, of the Chrysler Corporation.41 Information was also presented on the work of the Purchasing Analyst at the company headquarters of Kaiser Aluminum and Chemical Corpora- . 4 . . tion; 2 the job of the Raw Material Analyst at Merck and 4 . . . . Company; 3 the work of the statistical section Within the 44 Western Electric purchasing department; and the projects completed, and resultant savings, by the full-time Value 39"Purchasing for Profit Saves Over $5,000,000," Purchas- ing, XLIV (February 17, 1958), pp. 75-77. 40"Statistical Forecasts Minimize Commodity Market Risks," Purchasing, XLIV (April 14, 1958). PP. 69-81. 41"Purchasing Research Brings Big Profits," Purchasipg, XLVI (January 19, 1959), pp. 74-79. 42"Purchasing at Kaiser Aluminum." Purchééiflflu XLVI (March 16, 1959). pp. 73-75. 3"Purchase Research for More New Products," Purchasing, XLVII (September 14, 1959). pp. 75-78. 4"Sound Decisions Are Based on Sound Information," Pur- chasing, XLVII (September 28, 1959). PP. 88-89. 74 Analyst reporting to the purchasing agent at General Motors' Electro Motive Division in LaGrange, Illinois.45 A recent article discussed, briefly, the purchase research programs at U. S. Steel, Chrysler, Eaton Manufacturing Com- pany, Monsanto Chemical Company, Mallory Metallurgical Com- pany, and Lockheed Aircraft Company, and indicated: "More and more companies are employing technical specialists to fill the gap between buyers, engineers, and plant operating managementfl' Aggregate Data Although an increasing number of articles began appearing after World War II on staff purchase research practices in specific companies, there have been few attempts to study the prevalence, organization, and practices of staff purchase re- search in the aggregate. No literature was found which reported the results of any extensive study of the staff purchase re- search function. What information is available on the preva— lence, organization, and practices of the staff purchase research function in the aggregate has been largely a "by-product" of a study directed at some other aspect of purchasing. The four studies which did present some aggregate information on the staff purchase function are reviewed in this section. 45"Purchase Analysis Cuts Costs, Sharpens Buying Skills," Purchasing, XLVII (November 9, 1959), pp. 78-79. 46”How Brain Trusters Span P.A. -- Engineering Gaps by Purchasing Research," Purchasing Week, IV (April 10, 1961), pp. 24-25. 75 1. 1948 N.I.C.B. Study In 1948 the National Industrial Conference Board made a study of purchasing practice in industrial firms, drawing data from nearly 300 companies, in 25 industry classifications.47 No data were given on the practice of purchase research by staff in these companies; however, one of the main findings of this study was: An increase is reported in purchase price analysis and material research activity in anticipation of the return of normal supply conditions. A number of com- panies have set up, or are now organizing, separate staff divisions within their purchasing departments to conduct this work. These divisions are manned by personnel with economic, engineering, production and purchasing backgrounds.48 Also, in discussing the increasing recognition being accorded to purchasing, it was concluded: Of particular interest is the growth in purchasing research. Progressive management has become increas- ingly aware of the value of current and pertinent data concerning price, supply and demand trends, and future prospects which can be supplied by procurement specialists who are in constant touch with the market. Such special- ists can often make significant contributions to reduced production costs by uncovering new sources of supply and substitute materials, by assisting in the work of standardization, and by suggesting new and more efficient manufacturing techniques to suppliers.49 47£pggpg§inq for Industry, Studies in Business Policy No. 33 (New York: National Industrial Conference Board, 1948), 40 pages. 48Ibid., p. 1. Ibid. 76 These conclusions indicate that organized purchasing research was being recognized as a separate function, best performed by specialists. Data on specific company practice, as shown by the trade magazine articles discussed previously, appear to bear out the trend suggested by this N.I.C.B. study. 2. 1956 Berry Study In 1956, Harold A. Berry conducted a survey "of 350 nation- ally recognized leaders of the purchasing profession,"5 directed at gathering information about the organization of the purchasing functions within industry. As part of this survey, information was obtained on the employment of purchas- ing engineers and cost or value analysts. This survey found that purdhasing engineers were employed by 15% of the reporting companies. Six and two-tenths percent of those companies with purchases of less than five million dollars annually employed purchasing engineers, 15.1% of those with purchases of from five to fifty million dollars annually, and 51.5% of those 51 with purchases of over fifty million dollars annually. 50Conversation with this author indicated this represented actual responses from 350 leading members of the National Asso- ciation of Purchasing Agents. 51George W. Aljian (ed.). Purchasing Hangbook (New York: McGraw-Hill Book Company, Inc., 1958), Sec. 2, p. 33. 77 IMrchase engineers were defined as doing specification analy- sis; estimating production costs of new purchased parts, and cost changes due to engineering changes; reviewing equipment and facility lists submitted by potential vendors; and serving as liaison between purchasing and engineering on technical problems. This same survey also presented data on companies employ- ing purchasing research specialists. The following table was presented, which indicated the use of cost or value analysts within the survey group. As might be expected, greater use was made of these positions in the larger companies. "Table 2-9. Companies employing cost or value analysts" Under $5 $5-$50 Over $50 Million,% Million,% Million,% Tota1,% Cost Analyst 3.1 5.0 36.4 7.8 ‘Value Analyst ... ... 3.0 0.3 Procurement Research ... ... 3.0 0.3 3. 1959 Pprchasing Magazine Survey In 1959 Purghasing conducted a mail survey of "hundreds of purchasing agents" to determine the acceptance of value analy- sis programs. No information was given on the number or characteristics of the respondents. Value analysis was defined 52M” Table 2-9, Sec. 2, p. 34, 78 as "the study of the relationship of design, function and cost of any product, material or service with the object of reducing its cost through modification of design or material specifications, manufacture by more efficient processes, change in source of supply (external or internal) or possible elimination or incorporation into a related item."53 To the question, “Does your company have a Value—Analysis Program?," 40% answered affirmatively. Of those answering "yes," 13% stated they had had such a program less than a year, 43% from one to three years, 13% from three to five years and 31% over five years. To the question "Who is responsible for value analysis at your company?," 77% indi- cated the purchasing department head; 28% said individual buyers; 27% said a committee; and 12% said value analysis specialists were responsible. (Respondents could check more than one answer.) It can be assumed that the value analysis specialists were staff personnel. 4. 1960 Michigan State University Survey In 1960 a mail survey was conducted by graduate students in the Department of Personnel and Production Administration, College of Business and Public Service, Michigan State Uni- versity, primarily for the purpose of determining personal 53"Purchasing's Stake in Value Analysis." Purchasing. XLVI (June 8, 1959). P. 45. p. 79 characteristics and mobility patterns of purchasing executives? A questionnaire was sent to 500 purchasing executives with the titles of Vice-President of Purchases, Director of Purchasing, Purchasing Agent, or Materials Manager in the states of Illinois, Indiana, Michigan, Ohio, Pennsylvania, and Wisconsin. The names of these executives were selected from the mailing list of one of the trade magazines, and all executives were in durable goods manufacturing firms. Specifically, the sample was made up of executives in the following six industries: Primary Metals; Fabricated Metal Products; Machinery, except Electrical; Electrical Machinery, Equipment, and Supplies; Transportation Equipment; and Miscellaneous Manufacturing. A 43% usable response was received. To gain a further indication of the advisability of making this present study on the staff purchase research function in major United States industrial firms, this author requested that questions be added to the above questionnaire which might provide some answers to the prevalence of the staff purchase research function, its growth trend, and the number of per- sonnel employed in a staff purchase research capacity in those 54Tom H. McKinney, William A. Sykora, and Robert T. Valentine, "A Study of Purchasing Administrators in the Metal Fabricating and Assembly Industries in Illinois, Indiana, Michigan, Ohio, Pennsylvania, and Wisconsin" (unpublished study by graduate students in the Department of Personnel and Production Administration, Michigan State University, 1960), 62 pages. 80 firms surveyed. Three questions on purchasing research were included at the close of the questionnaire,as follows: "Do you have one or more individuals in a staff position Within the purchasing department who devote 50%(or more of their time to some phase of purchasing research? a. If yes, how many individuals are in such a capacity? b. In what year was such a position §i£§p_estab1ished?" Results of the questionnaire showed that 35% of the respondents had "individuals within the purchasing department who devote 50%»or more of their time to some phase of purchas- ing research." The size of the firm (measured by annual sales) appeared to have had a direct influence on the use of purchase research personnel. Of the firms in the $l-10 million category, and the $10-15 million category, 31% and 27%,respectively,had purchase research personnel. Twenty-nine percent of the firms in the $50-100 million category had research personnel, while of the firms in the $100-500 million category, and the over $500 million category, 42%»and 63%, respectivelthad staff purchasing research personnel. The average number of research personnel employed by firms with such personnel was 5.5. The firms in the larger size categories had the largest average number of research personnel. One of the firms in the largest size category (over $500 million annual sales) reported 150 persons in a 81 purchase research capacity; another in this category reported a staff of 40. The relatively recent appearance of staff purchase research personnel also was shown by the survey. Thirty-three, or over 53%.of the 62 firms with purchase researchers which indicated the date such a position was first established, indicated establishment of the position between the years of 1956 and 1960. An additional 20, or 32% of the 62 respondents answering this question, established their first purchase research position in the years 1950 to 1955. Thus, in total, of the 62 firms with researchers responding to this question, 52, or 84%, established their first purchase research position in the last ten years (1950 or later), indicating the recent estab- lishment of the staff purchasing research function, and its rapid growth. The results of this preliminary survey were considered most encouraging, for they did indicate a substantial use of staff purchase research personnel by large industrial firms. Also, the results provided evidence that the growth in use of staff purchase research personnel was fairly recent and was sizeable, as had been suspected from the growing amounts of literature on this subject in trade magazines. The data from this 1960 survey add to the confidence that can be placed in the results from this present study, for the 82 results of the two surveys did not substantially differ. Those differences that did occur probably can be explained by the characteristics of the sample. All firms in this earlier 1960 study were in metal working industries, while many other industries were also included in the present study. The slightly higher average percent (35%) of firms utili- zing staff research personnel in the 1960 study, compared to the average percent (32.6%) for this present study, is prob- ably due to the fact that only durable goods manufacturing firms were included in the 1960 study, while many firms in other tlmui durable goods manufacturing were included in the present study. This present study did find that 40%.of firms in durable goods manufacturing industries utilized staff purchase research personnel. Since the respondents in the 1960 study could not be identified, it was impossible to break the results down by specific industry for comparison of results with this present study. Chapter Summapy As a background for this present study of the use of staff personnel for the performance of research in purchasing, a review was made of available literature on the use of research staff in purchasing. The literature review assisted 83 in formulating this present study for it showed the lack of published information on many of the aspects of staff pur- chasing research,but it did indicate increasing interest in the subject, and provided knowledge of the practices of staff purchase research in certain companies. The first discussion of the staff purchase research function was found in two textbooks on purchasing which appeared in 1928. Both books recommended the use of special— ized staff personnel within the purchasing department to collect, analyze, and present data to the buyer and adminis- trator as a basis for better purchasing decisions. In one of the books the staff specialist was termed "Chief Clerk - Economics Division," while in the other book the staff special- ist was termed "Purchasing Engineer." These books listed as research areas for the staff many of the areas presently researched by staff personnel. Articles on the subject of the staff purchase research function began appearing in trade magazines following World War II, and such articles became increasingly frequent during the 1950's. The first company to receive large amounts of publicity through magazine articles on their staff organiza- tion for purchasing research was Ford Motor Company, which established its Purchase Research Department in the late 1940's. General Electric Company and United States Steel Company 84 established similar staff purchasing research activities in the late 1940's or early 1950's, and both companies also have received considerable trade magazine publicity on their pur- chasing research activities. No extensive studies of staff purchasing research, in the aggregate, were found. At the request of this author, graduate students at Michigan State University who were making a study of the personal characteristics and mobility of purchasing executives included on their questionnaire three questions on the staff purchase research function. Two hundred eight firms in the metal working industry responded to the questionnaire, and 35%»of these firms employed one or more individuals within their purchasing department who devoted 50% or more of their time to purchasing research. This study showed that those firms with staff research personnel had an average of 5.5 persons in that capacity, and that 84% of firms with staff first established such a position in the last 11 years (1950- 1960). The results of the 1960 unpublished survey at Michigan State University lend support to the results found in this present study, for essentially similar results on the number of companies utilizing a purchase research staff were found by both studies. 'Ihe slight differences in results probably can be explained by the differences in the industries surveyed. 85 CHAPTER IV RESEARCH METHODOLOGY Introduction Since staff purchasing research has never been the subject of an extensive study, the empirical phase of this study concentrated on staff purchasing research in the 500 largest industrial firms in the United States. To collect information for the study, several large industrial firms with staff purchasing research personnel were personally interviewed. Following this, a mail questionnaire was utilized to collect information on purchasing research, as practiced by the 500 largest United States industrial firms. The information obtained on purchasing research in those firms without a purchasing research staff was utilized as a control against which to compare the information obtained on purchasing research by those companies with a purchasing research staff. Company Interviews 1. Selection of Companies To gather specific information about the practices of purchasing research staffs, interviews were conducted with purchasing personnel in ten large industrial firms which used 86 a research staff within the purchasing department. The firms selected for interview were industrial firms and not.merchan- dising or service firms, since this study was limited to pur- chasing research in industrial firms. Also, all firms were on the Fortune list of "The 500 Largest U. S. Industrial Cor- porations."1 In the interviewed firms, information was obtained on purchasing research practices such as: topics researched, research results produced, research procedures, organizational structure, badkgrounds of research personnel, evaluation of purchasing research, and status of the staff purchasing research function. Although complete anonymity of the ten interviewed com- panies is being maintained, a summary of their industrial classifications and dollar sales is shown in Tables 4-1 and 4-2. Table 4-1. Companies interviewed, by standard industrial classification (Bureau of the Budget, 1957) Classification Industry Number of Number Companies 28 ' Chemicals and Allied Products 3 32 Stone, Clay, and Glass Products 1 33 Primary Metals 2 35 Machinery, except Electrical 1 36 Electrical Machinery, Equipment & Supplies 1 37 Transportation Equipment _;_ TOTAL 10 l"The Fortune Directory: The 500 Largest U.S. Industrial Corporations," Fortune, LXII (July, 1960), pP. 131-50. 87 Table 4-2. Companies interviewed, by dollar sales, 1959 Dollar Sales Number of Companies $100 — 499 million 4 $500 - 999 million 3 $1 billion and over 3 TOTAL 10 2. Interview Procedure Personal interviews, each requiring two to four days time, were conducted during the summer of 1960 in nine of ten companies. The tenth company was interviewed in April, 1961. A11 interviews were conducted in the home office of the company and thus little information was gathered on activ- ities of staff research personnel located geographically apart from the headquarters office. Only personnel within the pur- chasing or materials departments were interviewed, and about 90% of the total interview time was spent with staff pur- chasing research personnel. The interviews were of a non-directive nature, although the interviewer did use an interview outline. The sincere cooperation of those people and companies who gave freely of their time to make these interviews possible is greatly appreciated. 88 3. Limitations of Interviews The companies interviewed were not randomly selected, but instead, were ones known to utilize staff purchasing research personnel. No information was collected on pur— chasing research which might have been performed by other departments within the companies, such as Traffic, or Methods and Procedures. Although all interviews were two or more days in length, adequate time was not available in any given company to pursue all aspects of purchasing research. The Mail Questionnaire 1. Development and Pretest Based on the interviews conducted during the summer of 1960, a questionnaire on purchasing research was developed. During the fall of 1960 this questionnaire was pretested with the 22 purchasing executives attending the 1960 Executive Seminar in Purchasing and Materials Management at Michigan State University. After these purchasing executives had com- pleted this preliminary questionnaire, interviews were con- ducted to determine inconsistencies in, or misinterpretations of, the questions. Based on this pretest, the questionnaire was modified and a revised questionnaire was mailed during February, 1961, for further pretest, to 26 purchasing execu- tives known to be interested in cooperating with this study. 89 Included in this pretest was the chief purchasing executive in each of the companies in which interviews had been conducted. Based upon the results of this pretest, the final cover letter and questionnaire were developed (Appendix 1). 2. Mailing List The mailing list used was the 1960 Fortune list of the "500 Largest U. S. Industrial Corporations."2 Nine firms were deleted from this list, either because the firm was primarily a holding company, because it was known that company policy would preclude completion of the questionnaire, because the company had no centralized purchasing function, or because the name and title of the appropriate chief purchasing execu- tive could not be located. Thus, the final mailing list was composed of 491 corporations. The name and title of the chief purchasing or materials executive in each of the 491 companies was obtained primarily through the use of directories such as Poor's Register of Directors and Executives3 and the Standard Advertisipg Regis- 4 ter. Each firm's primary industrial classification was Ibid. 3Poor's Register of Directors and Executives: United §pates and Canadg_(New York: Standard and Poor's Corporation, 1961), 3198 pages. 4Standard Advertising Register (New York: National Register Publishing Company, Inc., Vol. XLV (April, 1960), 2076 pages. 90 determined from the 1961 Dunn and Bradstreet Million Dollar Directory,5 and the company size by 1959 net dollar sales as given in the Fortune list. 3. Mailing and Response Each questionnaire, accompanied by an individually typed and addressed cover letter, was mailed to be received by the chief purchasing executive in each company on Tuesday, March 21, 1961. Enclosed with the questionnaire was an air mail return envelope, and a return postal card for use by respon- dents who wished to request a summary of the completed study. Within two weeks, a 35%»response had been received. At that time the follow-up letter was mailed to those executives who had not responded (Appendix 1). By the cut—off date of April 24th, 304 replies, a 62% usable response, had been received. The size and industrial classification of the 491 companies sampled, and the 304 usable responses, are given in Table 4-3. An additional 31 responses were received, but not used for one of the following reasons: inconsistent answers, letters indicating unwillingness to take the necessary time to complete the questionnaire, indications of company policy precluding 51961 Dunn and Bradstreet Million Dollar Directory (New York: Dun? and Bradstreet, Inc., 1960), 3328 pages. "The Fortune Directory," loc. cit. 91 mm m m 0N e Nm m 0 mm 0H muUSGOHm pmHHH< pom mHMOHEmHU wN m m N m o m mowuumsch UmHHH< new muHHuHHnum .muHucHum em mH H H HH m HN H H HH m muospoum pmHHH¢ pom Hmmmm 0N o N H H monoume pom mHsuHcHsm mN m e H h m N muoufisusm pmwoxw .muosvonm 6003.0Gm uwHEsH «N H H e m H moununmm Eoum 0cm: unannoum buauacam guano new Huumdda mm m H m m mH H mH m muodcoum HHHE mHHuxmB NN v N H H m N m H muousuommocmz ooomnoe HN Ne m N om n Nb e m mm OH muofiUOHm UmHUCHM pom poom ON H H N H H mMHHommmoo< pom oocmcpno mH o N N muouomuucoo Hmumsmw I cowuosnumcoo one IpHHsm cusp Hmsuo coHuooHumcou 0H H H H H mHmsm ammoxm .mHmuwcHz UHHHmqu Icoz mo msflhhhmso 0cm mcacaz vH mH m N m m 0N n v 0H m mow Huhsumz pom EsmHouumm dunno MH 4 m H m a H mchHs Hmoo NH .HH m H H n a m arenas Hmuoz oH no S Hwy OOOH mom mow OOH Hmu OOOH mom mme OOH COHumHHUmwQ coaumuamammMHo HRHLMWwW (OB .Hmso loom IOOH .895 (CH. Hobo loom IOOH Honda . . . . Iammmmu noncommmm mHnmmD uuHH muHHHmz mecmmEoo mo HwnEoz Anoma>mm .hmmH .ummpsm esp mo smonsmv COHDMUHMHmmmHU HMHHumsocH pumpcmum CH mmHmm mmmHv muHm mcmmfioo pom COHumoHMHmmMHo HmHHumsocH ma umHH mcHHHmz HuumHHou mo muoHHHHe .mlv OHQMB 92 eon mN mm omH ob Hoe mm be 4mN NHH Haeoe N H H m N H muauuuseuH OGHHSHUMHSGMZ mSOOGflHHOUmHS mm m H N e H N a upoou Hmuaudo mum oasduum IODOSmumucmfisuude msHHHOHucou GEM .OHMHHCOflUm .HMGOHmmOMOHm mm em 5 a NN a Hm m m Hm e Hausdasvm uoHumuaoduumue em 4N e H «H m em a H HN HH uuHHdmsm our ucmEmHsgm.>umsH£Umz HmUHHuoon om om H 4 ON m me N e mN 4H HmoHapome Homoxm .mamcHnomz mm mH N H e m NN N H 0H m unusstgm coaumuuodmcmue com huwcflsomz .mosmcpuo ammo IXm .muosooum Hmuwz meMUHHQmm em mN H e mH m ea m m mN m uuauuusuuH Hmuuz Newsaum mm NH H H. 4 3 N NH m 3656on uumHo pub .88 6:89 Nm m m e a muosboum umaumuo 6cm Hugummg Hm b N a m N 4 H H muoseonm mUHHuMHm moomGMHkumHz cam Hmnnom 0m 6 H m N m N H a N umanuusbuH puumHum ecu muHuHmum ssmHouuum mN ,Homanz Hm». ooQH mam mme OOH Hm» OOOH mam mmv oOH uoHudHauuuo :oHumonHuumHo coaumoam ..oe .88 u8m u8H amass (PH. .88 loom :02 amps: (HuumHo noncommom anmmD uuHH mcHHHuz mchmmaoo mo Honeoz HpmuH>om .ammH .uwmpsm use no smuusmv coHumoHHHuuuHo HuHuuusecH upmacmum coscHucoo .mnv mHAMB 93 return of the questionnaire, or questionnaire returned too late to be included in the punch card tabulation and sum- marization of the responses. In all but six of the 26 industrial classifications at least a 50%.response was received. All industrial classi- fications with less than a 50% response, or with small num- bers of companies responding, were either dropped due to no response, or merged with other industrial classifications to maintain anonymity of the responding companies, as follows: SIC #16 (Construction other than Building Construction - General Contractors) and SIC #25 (Furniture and Fixtures) ,were the only two industrial classifications with no responses and therefore were deleted in presentation of data by indus- trial classification. Each of these two classifications had only two firms in the original sample. Classifications merged to preclude individual company identification and to produce industrial classification cells of more meaningful size were: the 47% response in SIC #22 (Textile Mill Products) and the 25%.response in SIC #23 (Apparel and other Finished Products made from Fabrics); the 29% response in SIC #10 (Metal Mining) and the 80% response in SIC #11 and #12 (Coal Mining); the 43%.response in SIC #38 (Professional, Scientific, and Controlling Instruments; Photographic and Optical Goods), the 75% response in SIC #31 94 (Leather and Leather Products), the 67% response in SIC #39 (Miscellaneous Manufacturing Industries), and the 50% response in SIC #19 (Ordnance and Accessories). 4. Limitations of Questionnaires The following are some of the possible limitations of the data and analysis resulting from the mail questionnaire: a. Not Necessarily Random Samplpr—Since there is no assurance that the 304 companies responding were a random sample, the results of this questionnaire may not conform exactly to the entire population of the 500 largest industrial firms in the United States. However, the large number (304) and the high percentage of usable responses (62%) tends to establish con- fidence in the data collected by this questionnaire, and is considerably higher than that obtained by most studies of this nature.7 Since this study has been limited to staff purchasing For example, Richard D. Crisp, Company Practices in Mar- keting Research, Research Report No. 22 (New York: American Management Association, 1953). In this study 425 question— naires were mailed to companies selected from the "most recent AMA mailing list." 180 questionnaires were completed and included in this survey, or a 42.4% return. In 1959 the American Marketing Association (Chicago) published A Sugyey of Mgrketing Research. To gather data for this report, 2892 questionnaires were sent to member firms in the American Marketing Association, and 575 additional ques- tionnaires were sent to firms belonging to other national associations. The total return was 39%. Their comments in the Forward: "No claim can be made that the results of a mail survey such as this can be projected to the entire universe of companies. The large number and satisfactory percentage of returns, however, lend credence to the findings." 95 research in only large industrial firms, obviously the results cannot necessarily be projected to smaller firms. Analysis of Table 4-3 shows that a high usable response percentage was obtained for both total company size cells (as measured by 1959 net sales). and most total standard industrial classification cells. A 53% usable response was received from the total number of companies in the under $100 million cate- gory; a 61%.response in the $100-499 million category, and a 76%.response in both the $500-999 million and over $1,000 million categories. This high usable response percentage by both size cells and by the majority of standard industrial classification cells provides further evidence to support confidence in the results of this survey. b. Scope of Answers-~In some of the 491 companies which re- ceived questionnaires, there was no corporate level purchasing organization, but instead purchasing was autonomous within major divisions of the corporation. In these companies, the questionnaire was sent to the chief purchasing executive of In 1960 the American Management Association (New York) published a study entitled Purchasing Department Organipgtion and Authority, AMA Research Study 45. based upon a question- naire sent to the purchasing executive of 750 companies selected at random from 's Re ister of Di ectors and Ex- ecutives. A 19% reply was received, "a response remarkably high for a seven-page questionnaire." 96 one of the major divisions. While the cover letter and questionnaire requested the executive to answer for his company, there is evidence that some of the respondents answered for only their own division, rather than the com- pany as a whole. Such cases are few in number, and, con- sidering the total number of companies responding, probably have had little effect on the total results. c. Thoroughness o; Freguency of Resegrch Not Determined-- The respondent was asked only to indicate the topics on which purchase research was done in his company during 1959 or 1960. From the responses one can make conclusions only about the ppmpg; of topics researched. No conclusions are possible concerning how frequently, in a given company, research was done on a particular topic; how thoroughly the research was done; or how much time was spent, beyond the "minimum total of one day'g time," in research on'a particular topic. d. Possible Misinterpretation of Questions--The topics on which the respondent was asked to indicate whether or not research was done in 1959 or 1960 were not defined, nor were the terms "purchase research staff," "buyer," or "administra- tor," in the interests of keeping the questionnaire as short as possible. Although all terms employed in the questionnaire are commonly—used ones, various shades of interpretation were possible, and some unknown degree of error may have been 97 introduced into the results because of possible misinterpre— tation. e. Limited Statistical Anaiysis Made --Since there was no assurance that the responses to the questionnaire represented a random selection of companies, no elaborate statistical analysis was attempted. The large amounts of data obtained, however, and the conclusions drawn from these data, should provide a basis for a more refined future analysis. Analysis 9; Data Based on the questionnaire responses, conclusions can be drawn regarding the following aspects of the staff purchasing research function: prevalence, growth, relation to company size and industrial classification, number of personnel, topics researched, research results, involvement of personnel in research, related research activities performed, data sources used, and future growth. Where possible, on each of the above aspects of purchasing research, a comparison was made between the group of companies which had staff and that group of com- panies which did not have a research staff. 1. Research Done and Results To assist in presenting information on the probable effect of staff purchasing research, the following three new measures have been employed: 98 a. Occpirence Factor--The occurrence factor measures the probable effect which the presence of a research staff had on the number of companies which researched a topic. It is the ratio of the percent of companies with staff to the per- cent of companies without staff which indicated research on a topic. Thus, if on a given topic 50% of the companies which had a purchase research staff indicated this topic was researched, and 25% of the companies without staff indicated research on this topic, the occurrence factor would be 2. This occurrence factor of 2 shows that twice as large a percentage of companies with staff researched the topic than was done by companies without staff, and provides an indication of the increased probability of companies researching a topic when they have a purchase research staff. An occurrence factor greater than 1 means that a larger percent of companies with staff researched a topic or group of topics than the percent of companies without staff which researched the topic. A factor of less than 1 means that the percent of companies with staff which researched the tOpic was less than the percent of companies without staff. The occurrence factor provides no indication as to the quantity of research done on a particular topic (in excess of one day's time) or the number of times a particular company researched that topic. 99 b. genefit Factor--The benefit factor is the ratio of the percent of companies with staff to the percent of companies without staff which declared a topic as having produced most worth-While results. Thus, an occurrence factor greater than 1 would indicate that the percent of companies which had a research staff and declared a topic as having produced most worth-while results was larger than the percent of companies without staff which declared the topic produced most worth-while results. This factor provides an indication of the effect of the presence of staff on the likelihood of a particular topic being judged to produce most worth-while results, and is affected by two things: first, the results achieved from research, and second, the percent of topics researched (obviously, if a topic was not researched it could not have produced most worth- while results). Ic. Eygiuation Factor--The evaluation factor provides an indi- cation of the probable effect of the presence of a purchase research staff on the evaluation of results from topics actu- ally researched. This factor is the ratio of the percent of companies with staff to the percent of companies without staff which declared most worth-while results produced when a topic was actually researched. Thus, an evaluation factor greater than 1 would indicate 100 that a larger percent of companies with staff declared most worth-while results on a topic actually researched than was declared by companies without staff which researched the same topic. This evaluation factor gives an indication of the value of research done on a particular topic in those companies which had staff, compared to companies without staff. 2. Involvement of Personnel An analysis was made of the involvement of the adminis- trator, and the buyer, in purchasing research in both com- panies with, and without, staff. To indicate the probable effect that the presence of a purchase research staff had on the involvement of these personnel in research, the percentage involvement of both the administrator and the buyer in com- panies with staff was compared to the involvement in companies without staff. This comparison of involvement was computed on two bases: (1) the percent of companies in which each category of personnel was involved in research on a topic, and (2) the percent of companies actually researching a topic in which each category of personnel was involved. In addition, data are presented to show the involvement of purchase research personnel in research in companies which had staff. 101 Chapter Summary This study on the staff purchase research function was based on empirical evidence gathered by two principal methods. Interviews, each lasting from two to four days, were conducted in the summer of 1960, and April of 1961, with purchasing personnel in ten large United States industrial firms, to determine information such as the following: method of organi- zation for purchasing research; operating procedures; status of purchasing research; background of personnel doing research; and types of projects engaged in. The ten companies inter- viewed all had one or more personnel primarily in a staff pur- chasing research capacity. The second source of information on the practice of pur- chasing research was a mail questionnaire sent, by name and title, to the chief purchasing or materials executive in 491 of the companies listed in the Fortune "Directory of the 500 Largest U. S. Industrial Corporations."8 The questionnaire was mailed to be received on March 21, 1961, and a follow-up letter was sent on April 4, 1961 to all executives who had not responded. As of April 24th, 304 usable questionnaires had been received, or a 62% usable return. No claim is made that the results from this mail question- naire can be projected to the total population of major United 8"The Fortune Directory," loc. cit. 102 States industrial firms, for the responses were not neces- sarily random in character. However, the large percentage of usable returns permits confidence in the findings, and provides valuable and hitherto unavailable information on purchasing research. Based on the questionnaire responses, conclusions can be drawn on the following aspects of the staff purchasing re— search function: prevalence, growth, relation to company size and industrial classification, number of personnel, topics researched, research results, involvement of personnel in research, related research activities performed, data sources used, and future growth. Where possible, on each of these aspects of purchasing research, a comparison was made between companies with, and those without, staff in the following chapters. Three new measures were employed to present information on the probable effect of a purchase research staff: (1) Occur- rence Factor, a ratio of the percent of companies with staff to the percent of companies without staff which researched a topic. This factor provides an indication of the effect of presence of research staff on the probability of a topic being researched; (2) Benefit Factor, a ratio of the percent of com- panies with staff to the percent of companies without staff which declared a topic as having produced most worth-while 103 results. This factor provides an indication of the effect of the presence of research staff on the likelihood of a particu- lar topic being judged as having produced most worth—while results; and (3) Evaluation Factor, a ratio of the percent of companies with staff to the percent of companies without staff which declared most worth—while results produced when a topic was actually researched. This factor provides a general indication of the effect of the presence of research staff on the value of research done. 104 CHAPTER V GROWTH AND ORGANIZATION Prevalence Of the 491 questionnaires mailed to the chief purchasing executive in large United States industrial firms, 304 usable responses were received. Almost one-third of the companies respondianutilized staff purchase research personnel. Ninety-nine (32.6%) of the 304 companies which responded indicated that one or more staff pur- chasing research personnel were employed within their purchas- ing department. Two hundred five companies (67.4%) reported they had no staff purchasing research personnel. The fact that almost a third of the responding firms had one or more staff purchasing research personnel indicates that a significant number of large industrial firms have accepted the staff approach to purchasing research. The percent of responding companies which indicated utili- zation of staff purchasing research personnel remained almost constant for the questionnaires received in each of the five weeks during which questionnaires were being returned. Given this response pattern, it appears that had all of the 491 questionnaires been returned, the percent of companies which reported use of a purchase research staff would not have 105 differed noticeably from that indicated by the 304 responses received. History The current literature on purchasing research indicates that the staff purchase research function is a relatively recent phenomenon. The Ford Motor Company, which established full-time purchase research positions within the purchasing department in the late 1940's, usually has been pointed to in the presently available literature as the first organization to formally establish the staff purchase research function.l Results of this present survey, however, indicate that staff purchase research personnel were utilized in several companies considerably p512; to World War II. At least six companies in the survey group reported the assignment of at least one person to purchase research prior to World War II. One corporation, in the Chemical Industry, indicated establishment of a formal purchase research function in "l900 or earlier"; another firm, in the Electrical Machinery, Equipment, Supplies Industry, established its staff purchase research function in 1926. Four firms indicated establishment 1The first article on the Ford Purchase Analysis Department appeared in the December 1947 issue of PurchasinQ'; and' was subsequently followed by other articles on the Ford organi- zation. (Chapter III gives a chronology of these articles.) 106 of the staff function in 1930: one in the Transportation Equipment Industry, one in Paper, one in Chemicals, and one in Food and Tobacco.2 While these dates must be accepted as approximations, due to the difficulty the present chief pur- chasing executive of a firm would have in pinpointing exactly an organization change which occurred over 30 years ago, there is evidence that the staff purchase research function had been established many years ago in some companies. Thus, staff purchase research is not solely a post—World War II develop- ment, as people have been led to believe. The lack of know- ledge about, and publicity on, the development of this function may be due partly to the unwillingness of those firms early using staff purchase research to make public an approach which gave a competitive advantage, and partly because no known attempt was made in the past to make any comprehensive study of the subject. The establishment of the staff purchase research function has enjoyeg_its major growth during the last ten years. Eighty- seven percent of those companies surveyed which had staff purchasing research personnel and furnished the date of 2Possibly the books by Gushée and Boffey, and by Harriman (see Chapter III), both of which appeared in 1928 and strongly recommended the establishment of staff specialists within the purchasing department, had some influence on the actions of these four companies. 107 establishment of the function started the activity during 1950 or later. Chart 1 graphically presents data on the post-World War II growth pattern in the establishment of this function. Table 5—1 presents data on the year in which a person was first assigned to purchase research in the 78 com- panies with staff which furnished the date when the purchase research staff was first established. By five-year intervals, the growth pattern of establishments followed this pattern: six companies (8%) established their staff purchase research activity prior to 1941; none indicated establishment of the function between 1941-1945; nine (1r%) established the function between 1946-1950; 21 (27%) between 1951-1955; and 37 (47%) between 1956-1960. Of significance is the fact that over the last fifteen years (1946-1960) the number of new establishments of the staff purchase research function has approximately doubled every five years. The year 1960 was the largest single year for establishment of the function, for seventeen (22%) of the companies with staff furnishing date of establishment indicated this as the year in which a man first was assigned to purchase research. A projection of the number of companies first establishing the function in the first quarter of 1961 (five) indicates that 1961 may well become the year with the largest number of establishments. Certainly there is an increasing growth Number of Companies 108 Chart 1. Growth in establishment of the staff research function 20 f f b 19 ' /. / 18 ’ / 17 16 - 15 ’ I-‘ l" H H H \D O H N w b r t v —V 1 1 gm ‘L A 4 A l 1 n 1 I J_ l l 4 I 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 Year in Which Person Was First Assigned toPurchase Researcha aSix companies which established the function prior to 1940 not shown. bNumber of establishments in 1961 projected, based on num— ber of establishments in first three months of 1961. 109 Table 5-1. Year man first assigned to purchasing research, by company size Number of Companies, by Size (1959 Sales, Million Dollars) Year of Establishment 1000 and cumu' Under 100 100—499 500—999 Total lative over Total 1961 (lst Q) 2 3 5 78 1960 1 13 2 1 17 73 1959 1 4 2 1 8 56 1958 2 1 2 5 48 1957 1 1 1 3 43 1956 3 1 4 40 1955 5 1 l 7 36 1954 5 2 7 29 1953 2 2 22 1952 1 1 1 3 20 1951 1 l 2 17 1950 2 1 2 5 15 1949 1 l 10 1948 l 1 9 1947 1 1 8 1946 1 l 7 1940—45 7 1930-39 1 2a 1a 4 6 Before 1930 1b 1c 2 2 No. cos. supply- ing date of establishment 5 44 13 16 78 No. cos. not supplying date 3 15 1 2 21 a1930. b1900. c1926. 110 pattern in the establishment of staff purchasing research. The following three factors may have influenced the historical growth pattern in establishment of staff purchase research: First, although no companies indicated establish- ment of the function during World War II, it was during this period that some purchasing departments added specialized personnel, suCh as special expediters and sub-contract special- ists, to help solve some of the difficult materials problems of the war years. The experience that purchasing departments had with these specialists may have provided the impetus in some companies for the later utilization of another specialist, the staff purchase researcher. Second, the pattern of estab- lishment appears to show some relationship to the business cycle. Chart 1 shows that the number of companies newly establishing the staff research function dropped in 1951, 1953, and 1956-57. These years generally are conceded to have been of a recession nature. The business slow—down of 1960 does not appear, however, to have affected the trend in new estab- lishments. Only three of the 304 reporting companies indicated they had discontinued, or reduced resources devoted to,the staff purchase research function during 1959 or 1960. The third comment on the growth pattern concerns the increased growth beginning in 1950. It was at about this time that increasing numbers of articles describing specific companies' 111 activities in this area began appearing in trade magazines. These articles may have had considerable influence on other companies' actions in establishing a purchase research staff. Relation to Company Si§§_ The utilization of purchase research staff increased as company size increased. Table 5-2 shows, by 1959 net sales categories, the percent of companies in each category which utilized staff purchase research personnel. The percent of companies in the largest dollar sales category (over $1 billion) which utilized research staff was 4.6 times greater than the percent of companies in the smallest dollar sales category (less than $100 million). Table 5-2. Relationship between company size and utilization of purchase research staff Percent of Company Size Number of Number w/ Companies (1959 Dollar Res ondents Purchase Utilizing Sales) p Research Purchase Re- Staff search Staff Under 100 Million 60 8 13.3% 100 - 499 Million 180 59 32.8% 500 - 999 Million 35 14 40.0% 1,000 and Over 29 18 62.M% TOTALS 304 99 AVERAGE PERCENT 32.6% 112 The utilization of purghase_research staff was greater in companies with largerppurchasinq staffs. Table 5-3 shows that those companies in the larger dollar sales categories did have larger purchasing staffs; and also that there was a general pattern of increased utilization of purchase research staff with increased purchasing department size. In those companies with not over 25 persons in purchasing (exclusive of secretarial and clerical), only 20% made use of research staff; in those with between 26 and 50 persons in purchasing, 27%1had staff; in those with between 51 and 75 persons, 52% had staff; in those with between 76 and 100 persons, 60% had staff; While in companies with over 100 persons in purchasing, 70% had a purchase research staff. There was also, as might be expected, a relationship between company size and the year in which a person was first assigned to purchasing research. Those companies in the larger size categories, on the average, had established the purchasing research function earlier. Of the six companies which reported establishment of staff purchase research prior to World War II, six were in the'bwo largest dollar sales categories. Table 5-1, previously referred to, shows that half of the companies with staff in the over $1 billion sales category had established the staff by the year 1951. Half of the firms in the $500-999 113 HMHHmumnomm mo 0>HmsHoxm .aOHumuHcmmHo mchmnonsm Hszu :H .HmoHHmHU pom .Hmccomumm mo Hones: may wHMUHUCH uos oHo muswocommmu 02Hclmucmza H mON mm HH mH HN vH HNH mm Nm m madaoe fiHv 5H NH m o m m 0H o H H Humzmca oz $05 m HN o m H m m h H OOH Hm>o Row 0 m .H m H H m o H H OOHIon RNm NH mH N N N N m m o 0 mthm xmm mH m o o m H NH m H o omlmm RON NH m H o H o m m H o mmnHm $0 OH H o o m o m H N o OmImN Rom HH 5 o o m o o h N o mNIHN .xomN NN m o o m o 0H m m H ONImH on mN n o o o N mH H HH o mHIHH .XOH Nm 0 o o o o mH m 5H H 0H|m .Xo mN N o o H 0 0H N NH 0 mIH mmmum wmmum mmmum mmmum mmmum mmmum mmmum mmmum mmmum mmmum mumum HMUHHmHO Soummmmm 0\3 \3 0\3 \3 0\3 \3 0\3 \3 0\3 \3 HEM mumumuowm mmmsonsm . H mo m>Hm5Hoxm auH3 Hmuoa H0>0 o coo H mmmloom mm¢IOOH 00H moss mchmnohsm mchmmEoo . . m :H chsomumm £8003 Bunion c0332 mmHmm $65 «new an 318 :80 no 3852 . mo .oz 138. mmmum NO GOBHMNBHNUS Dam GOHUMNBGMOHO OCHMMSUHSQ m0 muflm Gmm3umfl QHCmGOHHMHOM HmGGOmem noumomwu mmmnoudm .mum magma 114 million category had established a staff by 1954; in the $100-499 million category by 1957; while in the smallest size category (under $100 million) it was not until 1959 that half of the companies had established a research staff:3 Relation to Industry_§1assification Three industries stand out as ones in which the trend in establishment of the staff purchase researdh function appeared earliest: Chemicals; Electrical Machinery, Equipment, and Supplies; and Transportation Equipment. Table 5-4 presents data, by industry classification, showing the year in which the purbhase research function was first established in the 78 companies with staff which provided these data. The industries in which a majority of the firms with staff had established the research function before 1956 are as follows (percent indicates number with staff which established the staff function prior to 1956): Food and Tobacco (67%), Paper (67%), Electrical Machinery, Equipment, and Supplies (75%), Chemicals (58%), Transportation Equipment (61%), and Primary Metals (63%). In seven industries a large percent of those companies with staff established the function only in the last two years (1959 or later): Crude Petroleum and Natural Gas (80%), Tex- tile Mill Product and Apparel, only one firm (100%), Lumber 3Approximately half of the companies in both groups indi- cated their purchasing organization was primarily centralized. (Question 1); thus, these data were not used for further analy- sis in this study. VI 115 m m H H oH mHmumz mumsHum mm H H H e mmMHo 6am NmHo .mcoum mm o mUHummHm 6cm Magnum om o mcHaHmom ssmHouuom mm H H m H H e mH mHmoHEmro mm o mcHanHnsm 6cm mcHueHnm em H H m “mama mm H H mauseoum coo: e “whens em H H Hmummm< 6cm posooum HHHz 0HHuxme mN.NN H H H H H m ooomnoa 6cm ooom H~.om H m H H e mmo Hohsumz w EDwHouumm mosmo MH H m «H.NH mchHz HH.6H e w r95 f 00346789012345678901.f f3. 444455555555556683 690099999999999999990t B1341111111111111111CS .O mucmEQmHHQmumm mo Hmmw an soHumHHUme anumsocH OHM .ummum omanHnmumm :0an mchmmsoo mo 000292 COHuMUHMHmmMHU HMHHumsocH >9 .noumwmou mumnousm 0p mEHUIHHsm owcmHmmm umHHm somumm Ham» .wum mHnma 116 GOHumoHMHmmmHo muumsocH >9 mecmmEoo mo Hmuou .mumo mumoHocH uoc oHo mchmmEoo HN mochm .mmmum QuH3 mchmmEoo mo H0355: can» HmHHmEm on >08 N v H H H H m N m N n n o m m m 5H m mm mHH0m5m 7 3 4 1 1 l 1 00.6 0 m .1 mHmflonwmmm 8 .2 q. 2 .1 1. a BH.¢H 1.. HMHOE r0 4. 1 .1 l .1 m¢.m 9 9 . 9 mHOmH>Hmmsm 7. 6 .1 go o . .0 w meonmwmmm q. 2 .1 1. l m5.N om.N Hmuoe ...... 9 3 3 5 2 2 3 9 9 mm.o A... mHOmHEwQSm % ob. 2 3 0 . 0 mo.~ l mHMQUHMOmOm TI; 5 5 4. 2 ..1 1.. 1 ..1 3 0 Hmuoe :. 1 1. 1 oo.N n. 1. r mHOmH>Hmmsm ,6 Hz mN.o e .m U mHmHUHmmmmm ,0 2 mh.H d a 5 .U .5 nu :. n. 5 n e chcomem 1.. J. J. a“. an. 4 A“. a a r mo HmnHEsz O l 6 1 6 l 6 1 6 v 0 V O l 2 3 4 5 6 7 8 9 1 1 1 2 2 3 3 4 4 o N A a167 126 their purchase research staff; 50% of companies in the $500- 999 million sales category had one or more research supervisors; 36% of companies in the $100-499 million sales category; while only 25% of companies in the smallest sales category (under $100 million) utilized the services of a research supervisor (Table 5-91,The presence of the position of research super- visor may be an indication that the staff purchase research function had assumed departmental status, however;there is no assurance that this is so, due to wide variation in meaning and use of position titles. The larger companies employed the larger number ofrpersons 1n the posgrion of_purghase research supervisor. None of the companies in the smallest size category employed more than one research supervisor; only two companies in the $100-499 million sales category had more than one research supervisor (each had two supervisors); only one company in the $500-999 million sales category had over one supervisor (this company employed three supervisors); while eight (44%) of those in the $1 billion or over sales category employed two or more purchase research supervisors. 4. Researchers Plus Research Supervisors Since in many companies the research supervisor may per- form work of a similar nature to that done by the researcher, and may;devote only a small part of his time to actual 127 supervision, these two job categories are considered together here for analysis of number of "professional" purchase research personnel. In 48 (50%) of_the 96 companies with staff which furnished data on numberfiof personnel, the staff consisted of 9g1y one "professiona1fl _purchase research person. Fifteen companies (16%) had two "professional" personnel, and only nine companies (9%) indicated ten or more "professional" personnel employed in purchasing research (Table 5—91 These data indicate that, at present, "professional" purchase research staffs tend to be fairly small in size. 5. Secretarial and Clerical The numberrof secretarial and clerical personnel assigned to purghasrug_re§earch increased as the size of the firm in- creased. Twenty-four of the firms in the two smaller size categories indicated no secretarial and clerical personnel assigned to purchase research. None of the firms in the two smaller size categories had over four secretarial and clerical personnel in purchasing research. Two of the 14 firms (14%) in the $500-999 million sales category had four or more secretarial and clerical personnel in purchasing research, while seven (39%) of the 18 firms in the over $1 billion sales category had four or more secretarial and clerical personnel in purchasing research. Two of these 128 firms had over ten such personnel in their purchase research staff (Table 5-7). 6. Research Staff as a Percent of Purchasing Staff In approximate1y ha1f (48%) of those companies with staff, the purchase research graff accounted for five percent or more of the tota1remployees in the purchasing department,excluding secretarial and c1erical personne1_in the computation. In 28% of the companies with staff, the purchase research staff accounted for seven percent or more of the total employees in purchasing (excluding secretarial and clerical personnel in the computation). TablefidD presents the data on the percent of total purchasing staff made up of research personnel in the 82 companies with staff which reported the number of personnel in both the purchasing department and the staff purchase re- search function. Hisrory, Organiration, and Objectives .gr_Starf Purchase Research In Selected Companies This section presents information on the staff purchasing research function in selected companies. These companies were among the ten companies in which interviews were conducted during the summer of 1960. Case studies describing the history, organization, objectives, and status of staff purchasing research in eight large manufacturing firms are presented, to 129 Table 5-10. Total "professional" personnel (researchers and supervisors) as percent of total purchasing staff (exclusive of secretarial and clerical) "Profes- sional" Purchase Total Research Under 100- 500- 1,000 Personnel 100 499 999 and Over Number Percent as Percent of Total Purchase Staff Number of Companies (1959 Sales, Million Dollars) Less than 0.5% 1 1 2 2% .5 - .9% 3 1 2 6 7 1 - 1.9% 1 7 2 4 14 17 2 - 2.9% 5 2 7 9 3 - 3.9% 5 5 6 4 - 4.9% 8 1 9 11 5 - 5.9% 1 4 1 2 8 10 6 - 6.9% 5 1 2 8 10 7% and over 5 l4 1 3 23 28 No figurea 1 7 4 5 17 a In 17 companies the number of personnel within the purchasing department was not furnished. 130 provide illustrations of actual company practice and experi- ence in utilization of a purchase research staff. Although much more extensive data were obtained regarding the purchase research function in each of these companies, care has been taken in presenting these data to respect the confidence of these companies and to preserve their anonymity. Certain portions of the data have been disguised, although no sub- stantial misrepresentation of fact has been made. Since all the quoted statements in this section were obtained by inter- view, they may not be verbatim quotations. 1. Company A Company A manufactured industrial products, primarily in the metal working field. Most of its products were mass produced, highly engineered items sold to other firms for incorporation into final products. Purchasing, which accounted for around 54% of the sales dollar, was handled on a decentralized basis, with each division maintaining its own purchasing staff. The Director of Purchases reported to the President of the corporation. Reporting to the Director were four managers: Manager, Purchase Research and Analysis Sec- tion; Manager, General Traffic; Manager, Steel and Raw Material Purchases; and Manager, Production Parts, Machinery, and Mill Supply Purchases. 131 The formally stated objective of the Purchase Research and Analysis Section was to: "Coordinate and participate in parts purchasing programs to effect economies through con- tinuous review of: source selection, price analysis, design modification, material specifications, make or buy programs, new product costing and sourcing,and price negotiation." The Manager, Purchase Research and Analysis stated the main objective of his section was to put vendor negotiations on a realistic basis, saying: Purchasing in this company is an analytical job in which the buyer "tears down" a particular item in terms of its cost elements to get a fair price. We do not believe in the old system of haggling with a vendor. We want our negotiations on a realistic basis. We want our buyers to know what costs are involved, which involves knowing types and quantities of raw materials and pur- chased items that go into a product, knowing what methods a vendor must use to produce a given product, knowing average hourly labor rates and time required to produce the product, and knowing the burden allocation, in order that he can arrive at a realistic price. For instance, one thing we get involved in is how much profit should be allowed a vendor when he incurs a five cent an hour labor increase? Should his burden amount also be in- creased? Our philosophy in purchasing research is that the people in the buying groups should be doing the same job that we are doing, as time permits. And we also encourage people in the buying groups to submit items to us for cost improvements. However, the buyer normally is not able, due to lack of knowledge or time, to con- duct the studies necessary to put our buying on a realis- tic basis. We exist to fulfill a function that largely would not get done otherwise. Reporting to the Manager, Purchase Research and Analysis were three full-time purchase analysts, plus a secretary. 132 At the time of interview, there were two vacant purchase analyst positions, due to a recently imposed corporate "hiring freeze." An attempt was being made to use temporary positions with- in this section for training purposes. The Director of Pur- chases stated: "We deliberately try to give our new, young people training in purchasing research. We feel that this type of training is perhaps more important than buying train- ing; therefore, we attempt to give them this purchasing re- search experience first." There were no other purchasing research positions within the company, although each division did have a cost reduction committee, including a purchasing representative, to value analyze products. The position of Purchase Analyst was first established in 1952. Additional positions were not added until 1955, when the present Director of Purchases assumed his position. According to this Director, in describing the emphasis on and growth of purchasing research from 1955 to the present: "It was evident to me that a buyer, if he is doing an adequate job, has a full, eight-hour day in front of him,and that we could not expect the buyers to take the time to do depth analysis of purchasing problems. I felt that someone has to be able to sit back and take the 'ivory tower approach' to purchasing, look at what we are doing, and recommend changes 133 which will increase efficiency." The full—time position of Manager, Purchase Research and Analysis was established in 1959, to provide full departmental status and supervision of this activity. Considerable resistance by plant purchasing personnel to purchase research was experienced h1the initial stages of its growth, although it was now felt that purchase research had earned the respect and cooperation of plant purchasing personnel. 2. Company B Company B was an industrial goods producer. Purchasing was handled on three levels within the corporation: (1) the corporate purchasing office determined and administered over- all purchasing policy, and procured many large-dollar items directly, or negotiated national contracts; (2) four divisional purchasing agents, located in various parts of the country, procured those items for which they had been assigned pro- curement responsibility, within policy limits set forth by corporate headquarters; and (3) plant purchasing specialists released against contracts negotiated by the central office or by one of the divisional purchasing agents, and placed local orders (under $200). The Corporate Director of Purchases reported to the 134 President of the corporation. Reporting to him were a Manager, Purchase Research; four Division Purchasing Agents; four Purchasing Agents at the corporate offices; and a Mana- ger of Administrative Services, who supervised all clerical and expediting work. The formal purchasing research effort had as its objec- tive to point out new areas of study in purchased materials or services, and to assist buyers in study of those areas where the possibility of more economical purchases were possi- ble. In the words of the Research Manager, "Our main function is to define the problem, put a dollar sign on it, and to feed information to buying personnel so that they can do a more effective buying job." After establishment of the research function, purchase research also became heavily involved in the development of adequate material specifications, in operating a training program for buyers, and in serving as a "funnel" for communication between purchasing and other departments of the company. The formal research effort was initiated in 1956 with the establishment of the Manager, Purchase Research. Recently an Assistant Manager, Purchase Research was added, making a total of two research persons, plus one secretary. 135 3. Company C Company C was a producers goods manufacturer, in which operations were centralized in a fairly small geographic area. Purchases accounted for only about 30% of the sales dollar, primarily because of company-owned raw material sources. The Purchasing Division was headed by a Vice-President, Purchases; reporting to him werea staff Manager of Trade Relations and the Purchasing Agent for the major plant location. Reporting to this Purchasing Agent were a Staff Assistant, Purchasing Research; two Assistant Purchasing Agents, each in charge of a major commodity class; and an Assistant Purchasing Agent in charge of expediting. The present Purchasing Agent formerly held the position of Staff Assistant, Purchasing Research. According to the Purchasing Agent, the staff research position was considered at some length before establishment, "for they felt that the profit potential in increased effi- ciency through purchasing was so great, but they moved slowly in order not to antagonize anyone." Before the position was finally established, visits were made to several other com- panies already using the staff approach. The formally stated objectives of purchasing research were: "Conduct research studies and prepare reports and special analyses to assist purchasing management in evaluating purchases and investigating raw materials, services, and sources of supply." The work 136 actually accomplished by Purchasing Research was largely a functional analysis of purchased materials, and an investi- gation of purchasing administrative procedures. Little in the way of economic analysis was done. The position of Staff Assistant, Purchasing Research was established in 1955. When originally established it was given supervisory status, notwithstanding that it was a "one-man department." The Staff Assistant's comment indicated the reason: "My job requires the respect of people within the operating and other service departments. To accomplish this the purchase researcher must be located at a certain status level. For instance, my use of the executive dining room enables me to have frequent contact with operating managers and other supervisory personnel." In 1960 an individual was hired for the newly established position of Purchase Analyst, reporting to the Staff Assistant. One clerical position was assigned to this section; there were no other staff purchase research positions within the corporation. 4. Company D Company D was a multi-divisional manufacturer of chemicals and related products. Each division maintained its own pur- chasing organization. In addition, at corporate headquarters there was a General Purchasing Department, headed by a Director 137 of Purchases. This department set policies and procedures under which the divisional and plant purchasing people operated and also negotiated contracts for all major raw materials used throughout the corporation. Reporting to the Director of Purchases were two individuals: The Manager, Purchasing Re- search; and the Assistant Director of Purchases. Reporting to the Assistant Director were six General Purchasing Agents; a Staff Assistant, Administration; and a Staff Assistant, Operations. The Director of Purchases indicated that the full-time purchase research function was established because of his conviction that if a buyer was doing an adequate purchasing job,he did not have the necessary time to study, in detail, the long run picture of the commodities he was buying and the vendors he was, or could have been,dealing with. Primarily, purchasing research existed to supply purchasing people with decision-making information. According to the formally stated objective, purchasing research existed: "To carry out pur- chasing research studies of specific commodities, of market conditions and of industries to assist in the development and formation of purchasing policies, plans and programs, and to provide management with information or recommendations per- tinent to purchasing factors to be considered in reaching their decisions." The activities of purchasing research had 5 138 in the past been almost exclusively in the economic and commodity analysis area. When originally set up, the pur- chasing research effort was to include one position devoted to the value analysis area, but this position was never filled, and such was not anticipated. Instead, the buying personnel performed this work as a part of their normal duties. The purchase research function was formally organized in 1953, with the establishment of the position of Purchase Research Analyst. The purchasing research function had since been expanded, and now was headed by a Manager, Purchasing Research, who reported to the Director of Purchasing. Re- porting to the Manager was one Staff Assistant-Commodity Studies, and one Statistical Analyst, who also did any neces- sary clerical work. Although not located in the Purchasing Research Section, the Staff Assistant-Operations, who reported to the Assistant Director of Purchasing, did work of a research nature on purchasing operations and procedures. He reviewed purchasing operations as carried out in the divisional and plant purchasing offices, to assure that the department was properly organized, that general office policies were being complied with, and that efficient purchasing procedures were being utilized. Purchasing research positions were felt to be on a par with the top buying jobs within the company, both in terms of status 139 and salary. Relations with divisional and plant purchasing personnel were felt to be very satisfactory, although there was relatively little direct contact between Purchasing Re- search and divisional and plant purchasing people. One limitation noted by the Manager, Purchase Research was that it was extremely difficult in this company to communicate with other departments, except through formal organizational channels. It was felt that Market Research had considerably higher status than Purchase Research within this company, partially because Market Research was located, organization- ally, at a higher level within the company. 5. Company E Company E was a manufacturer of industrial machinery. Purchases accounted for slightly over 50% of the sales dollar. The purchasing organization at the corporate headquarters was headed by a Director of Purchases who reported to the Execu- tive Vice President. The corporate purchasing office did not have any operative purchasing responsibility, but instead functioned as a policy-making and advisory office. Reporting to the Director of Purchases were an Assistant Director of Purchases, a Traffic Manager, and a Consumers Group Purchasing Agent. Also reporting to the Director, on a functional basis, was the Materials Manager, Industries Group. The Materials 140 Manager, who reported to the Manufacturing Manager, Industries Group, had responsibility for purchasing, scheduling, materials control, receiving and shipping, warehousing, in-plant trans- portation, and value analysis. This materials management organization for the Industries Group was adopted in 1960, and resulted in a transfer of purchasing for the Industries Group to the newly established Materials Manager, Industries Group. An Engineer in Charge, Value Analysis reported to the Materials Manager; he formerly reported to the Director of Purchases. There were no other full-time value analysis or purchasing research groups within the company. Their formal statement concerning value analysis was as follows: "Value analysis is strictly a teamwork effort. It requires that we bring into play all of the talent and ideas from within and without the company and to focus all attention on the objective of obtaining equivalent or better quality and performance at lower cost. The enthusiastic cooperation of all participants must be obtained and that means understanding and intelligent human relations must be practiced in every phase of the program." According to the Director of Purchases, value analysis, as originally conceived, was to consider only purchased items, but their thinking now was that it should enter into the design stage, with development of prototypes, and also work with the estimating department in arriving at 141 cost estimates for production: "It has a definite part in manufacturing operations, investigating areas of make or buy, method of manufacture, and type of tooling. We also feel that it should be concerned with overall company systems and procedures and should not be limited solely to purchasing. We desire to develop the attitude that value analysis is the property of all departments within the company, and not merely that of Purchasing." The company had relied heavily on outside consultants in setting up their value analysis effort. The Value Analysis Section was formed in late 1959, and as of August, 1960, their work had been primarily of a planning nature. A major part of the time of this section had been spent in setting up and administering "Value Analysis Seminars" put on to communicate the aims of value analysis to people within all departments of the company. Each Seminar was approximately a week in length, and the actual instruction was done by a consulting firm. The hope was expressed by the Engineer in Charge, Value Analysis that once the training needs had been satisfied, his section would become a purchasing research group, per se, deing studies on the purchase of particular materials or Parts, on inventory control systems, and in the systems and Procedures area. 142 Reporting to the Engineer in Charge, Value Analysis Sec- tion, were three persons: a Value Engineer, a Value Analyst, and one Secretary. 6. Company F Company F was a manufacturer of producers goods. Pur- chasing was headed by a Vice-President, Purchases, located ixltflmacompany's main offices. Reporting to the Vice-President, Purchases, was a Director of Purchases, who administered all purchases for one major end-product group. Additionally, reporting to the Vice-President was an Assistant to the Vice- President, who was responsible for coordinating purchasing policy between the Vice-President and other Directors of Purchases who were located in the other major end-product divisions of the company. Reporting to this Assistant to the Vice-President was the Manager of Purchasing Research. The objectives of the corporate Purchasing Research Department were fourfold: (1) To explore foreseeable require- ments for commodities, which would involve investigation of possible pool buying arrangements and proper timing of pur- chase commitments relative to price level changes; (2) To administer the program of cost reduction reporting, in order t0 recognize those who are creative in the purchasing function. (Purchasing Research became involved in cost reduction pro- jects, but primarily it attempted to provide impetus to the 143 buying organization); (3) To assist buying personnel in making studies, in any area directed at doing a better buying job. It was felt that if the buyers were doing an adequate job, they do not have the time necessary to make exhaustive studies, particularly if such studies require crossing lines of organization to obtain necessary data; and (4) To keep the Vice-President, Purchases advised on any special situations, in order that the Vice-President could keep his superiors informed. The Purchasing Research Department served not only the corporate purchasing office, but also served the personnel in the purchasing offices at the various company divisions, although a number of these divisions had their own full-time purchase research personnel. The Director of Purchases, at the central office, commented that he felt that management recognized their lack of knowledge in many areas necessary to enable optimum purchasing performance, and that they felt Purchasing Research was a coordinative staff function, looking into areas of potential improvement. The advantage of such a group was felt largely to be in initiating, stimulating, and coordinating research in various areas, with the bulk of the actual work being carried out by buying personnel. In the opinion of this Director of Purchases, the major disadvantage of the Purchasing Research activity, as set up and operated 144 in this company, was that it was a "catch—all,’ and occas- ionally became heavily involved in performance of certain related activities, to the detriment of its research efforts. The Manager, Purchasing Research indicated his general philosophy was that Purchasing Research existed "to fill any vacuum within the purchasing area." He felt that anything that contributed to the accomplishment of this stated objec- tive was a legitimate area for Purchasing Research to work in, and since the objectives of Purchasing Research had not been spelled out clearly, a definition of the specific interests of Purchasing Research had been a matter of verbal agreement between Purchasing Research and various corporate purchasing personnel and operative management. The purchasing research function was formally recognized in 1953, with the establishment of a full-time purchasing research position. The staff purchasing research function had grown gradually since 1953, and now had departmental status, headed by the Manager, Purchasing Research. Report- ing to him were seven persons: two Staff Assistants-Purchasing Research; two Purchasing Research Analysts; two Purchasing Research Clerks; and one secretary. More than one individual in this company commented that the work of the Purchasing Research Department had not always been well received by some members of the buying organization, 145 many of whom sometimes thought of Purchasing Research as an "ivory tower approach." Considerable difficulty had been experienced, in some instances, in getting the cooperation required for a particular study. It was indicated that over- coming this resistance was sometimes a long and difficult process. 7. Company G Company G was a multi-divisional manufacturer of chemicals and related products. Purchasing was decentralized under separate Directors of Purchases, located in each of the divisions. Each Director of Purchases reported to the appro- priate Division Manager. Within the largest major product division, reporting to the Director of Purchases for that division were the Purchasing Analyst and an Assistant Direc- tor of Purchases. The Assistant Director of Purchases, in turn, had two Purchasing Managers reporting to him. The formal purchasing research function had as its objec- tive to provide support, either in terms of data or services, to the buying personnel, in order that sounder overall pro- curement decisions could be arrived at. This objective was accomplished through provision of the following five functions: (1) Service the scientific areas, both with chemical informa- tion and also with purchases of any materials, supplies, and 146 services required for research projects; (2) Develop techni- cal assistance from vendors, which involve arranging semi- nars, talks or conferences between company purchasing per- sonnel and vendor technical personnel; (3) Prepare market studies, considering supply, demand, price, and vendors of major;and new, purchased commodities; (4) Develop sources for new raw materials, where none were presently available; (5) Make any special studies on purchasing problems as assigned by the Director of Purchases. The purchasing research function was formally recognized in 1953, with the establishment of the position of Raw Material Analyst, reporting to the Assistant Director of Purchases. In 1960 the Analyst was made responsible to the Director of Purchases. Two persons reported to the Raw Materials Analyst: an Assistant Raw Materials Analyst, established in 1960, to do work closely akin to that of the Raw Material Analyst; and a Purchasing Assistant, who handled primarily clerical duties. 8. Company H Company H was a multi-divisional company manufacturing a wide group of producers m3 ou omHMHumo 0H0? omHOHMMmmH c053 £0H£3 monoe muHsmmH mHH£3I£uHo3 umOE omUDGOHm m>mz ou omHMHUmo monoe owflonmme monoe umflmflz 33m}. Hmflmflz $3.33 mmfim 0.3 33m}; motto}. 33m} mchmmEoo mecmmEoo mchmmEOO mecmmEoo mmHHomm m mmoH>H0m Ho . u U Emummm .muosoOHm HH< mHoocw> . m o mchMQOHsm one .mHMHHmumz H u e ommmnoHsm mHommumo SUHmmmmm Honmz mmHHommumo HUHmmmmH HOnmE >9 .mHHg31zuHo3 umOE omHmHomo ocm maoo HUHmmmmm .Htm OHQMB 154 In the Research on Purchased Materials, Products, or Services category, those with staff did research on 62% of the topics, while those companies without staff researched only 38% of the topics. Thus, companies with staff researched 1.6 times as many topics in the Purchased Materials, Products, or Services category. The Research on Vendors category showed similar results, for those companies with staff indicated research done on 57% of the possible topics, while companies without staff indi- cated only 31%1of these topics were researched during 1959 or 1960. Comparison of these percentages indicates that in the Research on Vendors category, companies with staff did research on 1.8 times as many topics as was done by companies without staff. The Research on the Purchasing System category showed the largest difference between number of topics researched by those companies with purchase research staff and those without, for those companies with staff did research on almost twice (1.9 times) as many topics as was done by companies without staff. Those with staff indicated research done on 67% of the possible topics under this category, while those companies without staff researched only 36% of the possible topics. 155 Topics Produced Most worth-while Results A much larger number of research topics were declared as having_produced most worth—while results by those com- panies which_had a purchase research staff. Companies with a research staff indicated 1.8 times as many topics produced worth-while results as were indicated by companies without a research staff. Eleven and eight-tenths percent of the total number of topics were indicated by companies with staff as having produced most worth—while results; only 6.4%.of the total topics were so indicated by companies without staff (Table 6—1). From this, it is possible to conclude that 1: a company has appurchase research staffr it would_probably produce most worth-while results on 1.8 times as many research topics as it would if it did not have a staff. In the general c tegory of Research on Purchased Materials, Products, or Services, 15%.of the topics were indicated by companies with staff as having produced most worth-while results, as opposed to only 8%.by companies without staff, showing that those with staff regarded almost twice as many of these topics as having produced most worth—while results. Seven percent of the topics in the Research on Vendors category were indicated by those with staff as having produced most worth-while results, and only 4%.by those without staff. Thus, in this category, companies with staff indicated 1.8. 156 times as many topics as having produced most worth-while results. Companies with staff indicated 11% of topics in the Research on the Purchasing System category as having pro- duced most worth-While results. This percent was 1.7 times as large as the 7% of topics indicated by companies without staff as having produced most worth-while results. The results from tppics actually researched by companies which had_purchase research staff were valued slightly higher than the results obtained by companies without staff. Those companies with staff indicated that 18.8% of the total topics which they researched produced most worth-while results; those without staff indicated 18% of the topics actually researched produced most worth-While results (Table 6-1). Although the percentage of total topics actually researched which produced most worth-while results did not differ greatly between companies with and without staff, there was a con- siderable difference in evaluation of results on many of the individual research topics. The better-known research topics, such as Substitution, Standardization, and Packaging, were indicated as having produced most worth-while results When actually researched, by a higher percent of companies without staff. On the less well—known topics, such as Method of Pro- duction or Manufacture, Pricing Procedure and Structure, 157 Formulation of Price Index, and Learning Curve, a substan- tially higher percent of companies with staff indicated most worth—while results produced when these topics were actually researched. Specific instances of this are discussed in the next three chapters. In the Research on Purchased Materials, Products, or Services category, those companies with staff indicated 1.2 times as many topics which they researched produced most worth-while results as was indicated by companies without staff. Twenty-five percent of those topics researched by companies which had staff were declared as having produced most worth-while results, while only 21%.of those topics researched by companies which did not have staff were indi- cated as having produced most worth-while results. In both the Research on Vendors, and Research on the Purchasing System categories, companies without staff indi- cated a slightly higher percent of topics researched as having produced most worth-while results than was indicated by those with staff (14%.to 11%, and 19%.to 18%) respectively). Relation Between Company Size and Research Done Company size appeared to have some influence on the number of topics on which research was done in those companies which had purchase research staff. Company size did not appear to 158 affect the number of topics researched in companies withoup staff (Table 6-2). Table 6-2. Topics researched, by company size Size (1959 Sales, Companies Companies Million Dollars) with Staff without Staff Under $100 59% 38% 100-499 63 35 500-999 59 40 1,000 and over 67 35 Relation B etween Industry Classification and Research Done Companies with staff researched more topics than companies without staff in 13 of the 14 industry classifications. The only exception was in the Textile Mill Product and Apparel In- dustry. In the following six industry classifications the percent of topics researched by companies which had staff was at least twice as large as the percent of topics researched by companies without staff: Food and Tobacco; Transportation Equipment; Electrical Machinery, Equipment, and Supplies; Paper; Crude Petroleum and Natural Gas; and Mining (Table 6-3). 9 5 l N0.0H S0.0H S0.0H S0.0 NO.HH SN.O NO.OO OO.NO N0.00 OOOOOOO ON 1. ON O I: O Om u- Om O o OOHHOHHHOO can OOHOOHHO OH OH OH O O O NO Sm OO O H .Ooua oooz cam HOHSOH SH u- SH N 1: N OH I: OH O O OOHOOOHO OOO Honoom OH 1. OH O I. O OO I: Om O O OOHOHOOO SOmHoHumo OH ON SH N NH O HN OO ON O N OcHon OH HO ON S ON OH SO HO OO O O OOHHOHOOOOOOS .omHs aHmofloo .OHOHHSOHOO ..NOHnH "HOSHMOA “OUCMCUHO NH Om OH S OH O OO OO OO O H Hmumogm oat Hooooum HHHz OHHuxoe HN Om ON O ON NH Sm OO SO O O OOOHO ocm SOHO .maoum SH SH SH O OH O OO OS OO OH O .Ooao Hana: OOOOOHHHOO OH ON ON O OH OH ON NO NO O S mmw Hmnoumz UGO EDOHOHHOA OODHU OH ON NN O OH O HN OO ON OH O momma HN OH SH S OH O mm OS SO OH O OOHHOOOO O .OHOOO .MHmcHnomz HOUHHHUOHM OH NH OH O O O OO OO HO OH OH OHmums HHOSHHO NN OH OH O OH OH Om HO OO OH OH .omHm umooxm NHOOHHOOS ON OH NN OH OH HH Om HS HO ON OH mHmuHEOHo HH OH OH O HH S ON OO NO ON SH .OHOOO noHumuuommomue ON OH OH S O S ON OO Om Sm O ooomnoe tom ooom Ommum OOOHO OOOHO OOOOO OOOOO OOOOO OOOOO OOOHO 0\3 \3 Hmuoe O\3 \3 Hmuoe 0\3 \3. Hmuoe O\3 \3 UHmoe mHSB mcHuHomom oOHUHmmmmm noch mecmOeoo UHmoe mchHommm COHHOOHHHOOOHO mchmmEoo cho HH< mcHnonmmmm . . mchmmEoo MHumDocH muHDmmm mHanlfiuHoz mchmmEoo Hwnasz . mo “COUHmm umoz mcHumoHocH ucmonm COHHMUHMHmanU HmHHuwsocH SQ .muHome mHH£3I£uHo3 umoe omoopOHm nUHmou .omnonommH OUHQOB .mio OHQMB 160 Relation Between Industry Classification and Research Results In all induetry groups in which some companie§_had staff, the percent of companies with staff which indicatedfmost worth-while results produced was as high or higher than the percent for companies without staff. In the following seven industries the percent of companies with staff was two or more times larger than the percent of companies without staff which indicated most worth-while results produced on the total topics: Transportation Equipment; Paper; Crude Petroleum and Natural Gas; Stone, Clay and Glass; Textile Mill Product and Apparel; Mining; and Ordnance; Leather; Professional, Scienti- fic, Optical; and Miscellaneous Manufacturing (Table 6-3). For those interested in more detailed data by standard industrial classification, Appendix 2 presents the percent of companies which researched each topic, declared each topic produced most worth-while results, and declared each topic produced most worth-while results when actually researched. These data are presented in this appendix also for the three general categories of research topics and for all topics combined. Evaluation of Reeult§_of Research Performed by_the Research Staff The topics researched solely by staffpurchasingresearch personnel were evaluated as having produced most worth-while 161 results more frequent1y than those tepics researched solely by the buyer or solelypby the administrator. In those com- panies which had research staff, 29% of the total number of topics researched solely by this staff were declared to have produced most worth-while results, while in these same com- panies, only 17% of the total topics researched solely by the buyer, and 20% of the total topics researched solely by the administrator, were declared to have produced most worth-while results (Table 6-4). Thus, in total, the topics researched solely by the purchase research staff were declared as having produced most worth-while results 1.7 times more frequently than the topics researched solely by the buyer, and 1.45 times more frequently than the topics researched solely by the i administrator. From this it can be concluded that if a given company does research on a particular topic, theyprobability is that it wouldyregard the results of the research more highly if the repearch were done sole1y by the research staff than if it ypge done pele1y by the buyer or administrator. Involvement of Research Staff rueTopics Reseerched In those companree which had a research staff, that staff alone_grg_the reseerch on 23% of the total topics which were researchedy and was involved in 45% of the topics researched. 162 In the companies with staff, the staff e1ppe did the research on 5.4 topics, and was involved in 10.6 research topics (Table 6-4). Thus, the purchase research staff played a significant role in research done by companies with staff. From this it is possible to conclude that in a compapy, yrrh a purchase research staff, that staff alone wouldprobe ably do the research on approximately one-fourth of the topics researched, and wouldyprobably become involved in an additional one-fourth of topics researched, together with the buyer and/or the administrator. In total the staff would probably be in- volved in approximately half of the topics researched. Administrator Involvement in Purchasing Research The admrprstrator was involved more heavily in that research doneepy compenies without staff. The administrator e1ppe_was involved in research on 39% of the total topics which were researched by companies without staff, but in only 24%10f the total topics researched by companies which had a research staff. The administrator working alone and with others was involved in 54% of those total topics researched by companies without staff, but in only 41%.of the total topics on which companies with staff indicated they had done research (Table 6-4).‘ Although the administrator's involvement on those topics actually researched was less in companies with staff, he was 163 o.m N.HH O.S S.m o.oH o0>H0>CH 0H03 >Hom0900 9000 CH H0CComH0m 90H93 CH 0090H0000H 00Hmop m0 H0980C 0o0H0>< N.o m.m o.m m.m v.m >Hom0u00 9000 CH H0CC00H0m >9 >H0Hom 0090H0000H OUHQOH mo H0980C 0m0H0>< SOO SSO SOO nOHO. OSOO £03008. 0H... OH 003280 0.83 030000.. H000 OH H0CC00H0Q 9UH93 CH o09oH00m0H OUHQOH m0 9C00H0m $00 OON N Rm m nRON OOm N 0C0H 0 90H0000H 099 0H0 >Hom0u00 9000 CH H0CC00 1H0m 90H93 CH 0090H0000H mUHQOH m0 9C00H0m OSSH nSON OSON 00H500H 0393:9063 9008 000500Hm 90H93 >H0m0u00 9000 CH H0CC00 1H0m >9 NH0H00 U090H0000H 00Hmou m0 9C00H0m mm0um mm0um mm0um mm0um mm0um 0\3 .00 \3 .00 0\3 .00 \3 too 90H00mmm H0>Cm 09B HoumHuwHCH8o< 00090Hsm 09B 9C080>H0>CH H0CC00H0m .010 0H90B 164 involved in a larger number of research topics. The admin- istrator e1ppe_was involved in an average of 5.8 total research topics in companies with staff, but only 5 total topics in companies without staff. The administrator alone and with other personnel within the purchasing department was involved in research on 9.7 total topics in companies with staff, but in only 7.4 total topics in companies without a purchase re- search staff. The number of total topics on which the admin; istrator alone and in combination with others was involved was 1.3 times greater in those companies with staff; however, those companies with staff performed research on 1.75 times as many topics. From this it can be concluded that if a compapy has a ryseerch stafr! the administrator would be invo1yed in research on more topics than if the company did not have a staff. The ippreaee in number of topics in which he would be involved, howevery would not be as great as the increase in amount of research done, due to the assistance of the research staff. Buyer Invo1vement in Purchasing Research The buyer was involved in a largerepercent of those topics actually researched in the companies which did not have a pur- chase research staff. The buyer a1pne_did the research in 46% of the total topics researched by companies without staff, but 165 in only 22% of the total topics researched by companies with staff. The buyer alone and with other individuals within the purchasing department was involved in 63% of the total topics on which research was done by companies without staff, but in only 47%.0f the total topics researched by companies with staff (Table 6—4). The average number of topicsix: which the buyer elppe_was involved was slightly greater in those companies without re- search staff, but the average number of topics on which the buyer alone and with others was involved was greater in those companies with staff. The buyer e1ppe_was involved in 6.2 topics in companies without staff, but only 5.3 topics in companies with staff. The buyer alone and with other indi- viduals within the purchasing department was involved in 11.2 topics in companies with staff, but only 8.6 topics in com- panies without staff. Although the buyer alone and in com- bination with other individuals was involved in 1.3 times as many research topics in companies without staff, this increase was not as great as the 1.75 times increase in total number of topics researched by companies with staff compared to com- panies without staff. -Thus it can be concluded that in a c0mpany which has a purchase research staff, the buyer alone would probably be involved in a smaller number of topres than if the company 166 did not have a staff. But together with other individuals in the purchasing department he probably would be involved in a larger number of topicee This increase in topics in which the buyer would be involved when a research staff is present would not be as great as the increase in total number of topics researched when a staff is added. The staff does serve to relieve the buyer of certain research duties, per: mitting him to devote a greater amount of time to his actual purchasing responsibilities. Chapters VII, VIII, and IX present, respectively, a detailed discussion of research topics in each of the fol- lowing three major research categories: Research on Pur- chased Materials, Products, or Services; Research on Vendors; and Research on the Purchasing System. 167 CHAPTER VII RESEARCH ON PURCHASED MATERIALS, PRODUCTS, OR SERVICES Introduction The broad subject of purchasing research was divided into the following three major categories for purposes of analysis: Research on Purchased Materials, Products, or Services; Research on Vendors; and Research on the Purchasing System. Assignment of individual research topics to one of these three categories was somewhat arbitrary, for many of the research topics involve investigation which demands consideration of aspects relating to more than one of the general categories. In this and the following two chapters, discussions of each of the three major research categories, and individuali topics within each category, are based on two sources of information: specific company practices, gathered by inter- views in ten companies with a research staff; and the responses to the questionnaires sent the chief purchasing executive in 491 of the 500 largest U.S. industrial firms. This chapter presents information on Purchased Materials, Products, or Services topics concerning research done; research which produced the most worthOWhile results; and the involvement of the purchase research staff, the administrator, and the buyer 168 in this research. Chapter VIII presents a similar analysis for Research on Vendors, and Chapter IX for Research on the Purchasing System. Chapter X, Related Activities and Data Sources, presents an analysis of some related activities in which purchase research staff was involved, and the data sources used in purdhasing research. To provide detailed information on these topics, they are presented in these chapters in relation to both company size and industrial classification. Individual research topics were not defined in the ques- tionnaire, in order to keep the questionnaire as brief as pOSSible. Various research topics might have been construed raslightly differently by the responding executives; however, this pr0blem of interpretation is not believed to have sig- nificantly affected the results. Frequently, in the analysis of specific research topics in later sections of this and the following two chapters, an example of this general type research is given, based upon work done in one or more of the interviewed companies. Al- though companies responding by questionnaire and indicating research on a particular topic may not have made exactly the same type of study, the research can be presumed to be of this general nature. No evaluation of the full depth, or amount, of research 169 conducted on any one topic in a given company surveyed by the questionnaire can be made, for the criteria for research were only that during 1959 or 1960, ". . . an individual spent a minimum total of one dey's trme on a topic, egg, b. a written report was prepared." These criteria were used so that the respondents would be answering on a comparable basis, and to exclude study of a routine or casual nature. The responses from the 99 companies with staff and the 205 companies without staff were both adjusted to a basis of 100, in order that the responses from the two groups could be compared. Additionally, statements made about the topics researched, the evaluation of results of the research, and the involvement of personnel in the research, in all cases refer to an average for the companies in that group. Top1cs Researched Those compgnies with a purchase research staff researched 1.6 times as mgnyftopresgingrhe Purchased Materrelsprroducts, or Services category as thoseycompanies without sterr, On the average, companies with staff did research on 62% of the topics in this general category, while companies without staff researched only 38%,0f the topics in this general category (Table 7-1). VWithout exception, each of the 18 topics was researched by a greater percentage of companies with staff 170 .SHN .SON .SNN .SO ..SO. .SO. .SOO .SNO .SOO mo§m>< OO OO OO S. O ON SO OS SO 3.0320 05H; 0N SH OH O o S Nm Om on COHHOHHOQOCPHH ON 2 OH N O HO .3 mm oN CoHOOH5m0H HHOOHOCH 0C0 HHHHOH. .2 MN SH O. OH O mm NO OH» H0000H0m >Hmmdm ON NN ON NH OH OH mO OO Hm CQHHBHHO9HHM SN mN ON N H OH OH SO H S mm CoHHONHoHOOCOHm NN ON ON O OH H. OO OO OO 8080.008 OH O. S. S N. O OO OO OO H259...U Show 0 ON OH N H: m SN av Hum 03505.30 Ho 0HHHH0000HQ mCHoHHnH OH OH OH O NH S OO OS OO .3028 00:0 OO ON OO S. O. S. O OO OO OOHOOHOOH mH HH mH m O O mm Sm NO . HUCOOHQ 302 O OO ON H OH O S. O NN 00308558 .8 500303.. Ho .5802 N ON NN S OH H. OO OS OO S2. Ho 8.02 NH O. OH O O O HO SO OO S3 .8 303 O S. N. N O O NO O OO 38008 8.0800 NN ON ON OH OH OH OO SO OO 398000 00.8 30.860 eSON eOHO aONO eOOH eOOO SSH N .SOm ..SOO ..SOO S030 5958850 «HON—m Hmflm madam Hwflm Hmfim $03 OK? K3 H.308 0 \B \3 H309 £3 \3 H308 0.30M. 398 0090H00O0d mCHHHoQO 0308 9393 00309800 .390 00.309900 H94 mCH90H0000MH OUHOHOH. 90H0000MH 00309800 3300M 23315.33 «no: 98300905 «C00H0nH H0 HC00H0nH OHHCO0H 0HH93u9HH03 uOoCC mCEOoHpCH NC00H0OH .muHmou 0009500 .3 63:00.29 610.3305 000090.00.“ mCH90H0000H 003.2530 .HuS 0309 171 than without staff. The average occurrence factor1 for all 18 topics in the Purchased Materials, Products, or Services category was 1.6. The occurrence factor for the following seven individual topics was greater than this average: Tariff and Import Regulation has the highest occurrence factor (3.5), followed by Make or Buy (2.3), Supply Forecast (1.8), Pricing Procedure or Structure (1.8), Method of Pro- duction or Manufacture (1.8), Specification (1.7), and Transportation (1.7). The research topic with the smallest occurrence factor is Packaging, but even on this topic the percent of companies with staff which did research on this topic was 1.3 times as large as the percent of companies without staff which did research on this topic. From theoccurrence factors indicated above, both for the Purchased Materials, Products, or Services category in total and for each individual research t0pic, and from the percen- tage of companies researching each topic (Table 7-11 the fol— lowing conclusion is indicated: Companies with a purchase research staff are more likely to research topics in the Purchased Materials, Products, or Services category than companies without staff. 1 . . . The occurrence factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies without staff which researched a topic. 172 Table 7-1 shows that considerable difference existed in percent of companies with and without staff which did research on each of the individual topics. The Commodity Study topic had the highest percent of companies, both with and without staff, which did research (80% and 56%, respectively). Method of Production or Manufacture was the topic on which the smallest percent of companies with staff indicated research done (3T%), while Tariff and Import Regulation was the topic on which the smallest percent of those without staff indicated research done (11%). The relative rank of percentages of companies with staff, and those without staff, which researched each topic shows considerable similarity. Large differences occurred on only two topics. Make or Buy was ranked second in order of percen- tage with staff which did research, twelfth in rank for com- panies without staff; Packaging ranked eighth in those with staff, but second in percentage rank for companies without staff which researched the topic. As previously pointed out, however, a higher percent of those companies with staff re- searched each of the eighteen topics than those companies without staff. 173 Topics Produced Most Worth-while Results Theypercent of cempanies with staff which declared_researpp_ 0n Purchased Materials, Products, pr_Sery13es topics as havipg_ produced most wprrhOWhile resu1ts waeye1most twice as large as the percent of companies withput stafr_which dee1ered these topics as having producegmost werthdwhile results. The aver- age benefit factor,2 computed from Table 7-1, is 1.9. With one exception, Packaging, a higher percentage of those with staff indicated research on each topic produced most worth—while results than was indicated by companies without staff. In the following ten topics the benefit factor was higher than the average benefit factor of 1.9, and in a few of these topics, considerably higher (figure in brackets is the benefit factor, computed from Table 7-1): Method of Production or Manufacture (l4), Pricing Procedure or Structure (5), Demand Forecast (4.5), Supply Forecast (3.5), Price Forecast (3), Make or Buy (2.6), Tariff and Import Regulation (2.5), Value Analysis (2.4), Lease or Buy (2.3), and Commodity Study (2.2). From the benefit factors above, and the percentages of companies indicating each topic as having produced most worth- while results (Table 7-1),this conclusion follows: Companies 2 . . . . The benefit factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of com- panies without staff which indicated a topic produced most worthOWhile results. 174 uirh purchase reseerch staff are more like1y to find a larger number oferesearch topics in the Purchased Materials, Products, or Services cateqprygproduchg most worth-whi1e results than companies whrch upynot have staff. This is due partially to the fact that companies with staff do research on more topics. The average evaluation factor,3 computed from Table 7-1, shows that a larger percent of companies with staff regarded research done on these topics as having produced most worth- while results than was regarded by companies without staff. An average of 25%»of topics actually researched in companies with staff were declared as having produced most worthewhile results, compared to 21% of topics in companies without staff, producing an evaluation factor of 1.2. Not all individual topics had an evaluation factor greater than 1. Some of the more publicized topics, such as Packaging, Standardization, Substitution, and Transportation had an evaluation factor of less than 1. These evaluation factors are discussed later in this chapter, under the discussion of individual research topics, and are summarized in Table 7-22. H.._.,_ 3The evaluation factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies without staff which declared most worth-while results produced when a topic was actually researched. 175 Relatrpn Between Compapy Size and Research Done Company size appeared to influence the number of topics pn which reeearch was done in those companies which had a purghase research staff. Company size did not appear to af- regt the number of topics researched in those companies with- out staff. Fifty-nine percent of the topics were researched by those companies with staff in the smallest size category (under $100 million); this increased to 69% in companies with staff in the largest size category (over $1,000 million), although the increase did not follow a steady progression through all four size categories. Table 7-2 shows that the research topics of Price Forecast, Pricing Procedure or Structure, Specification, Substitution, Supply Forecast, and Tariff and Import Regulation showed the greatest increase in percent of companies with staff researching as company size increased. These increases also did not necessarily follow a steady progression. Relation Between IndustryyClassification ‘upggReeearph Done The tendency ferecompanies with appurchase research staff r0 rupearchfimpre tgpics than companies without staff held true in almost all industry groups. In all but two of the 17 indus- try groups,those companies with purchase research staff indi- cated research done on an average of 50% or more of the research 176 Rom $00 00 RSm ROM _Xmo XHO XOm Bzmummm m0¢ OO OS NO OO OO OO NO OS OHOHHOOO 0OHO> SN NS OO OO ON OO OO OO OoHumuuoOOOOCa OH HO OH OO O OO OH OH OoHHOHOO0m 0ComsH O OOHHOO SN OS OO HS OO OO SO OO 0m000uoa NHCOOO OO OS NO OO HO OO OO OO OoHOOOHHOHOO OO NS NO HS HO HS OO OS OoHOONHOCOOOOHO OO NS OO OO SO OO NO OO OoHHOOHOH00CO OO NS NO HS NO OO OO OO HOOoOOHo Omuom OO NS ON ON ON OO ON ON 0HOHOONOO Co 0H0©000Hm OCHUHHm OO OO NO HS SO OS SO OO Hm000HoO 00HHO OO OO SO OO OO HO NO OS OOHOOHOOO OO OO OO HS OO OO OO OO uosooua 302 SN NN OO HN OH OO SH OO .OOz Ho JOoHo Oo OoH00z OO OS SO HS ON OO SO OO mom no 0x02 OO HO OO SO SO OO OO OS Nam No 0000H OO OO OO HS HO SO OO OO 00000Hom OSOS00 OO HO OO OO OO OS OO OO OOHHOOOO C0000 uo0uaoo SO SO SSO NOO nOOO NO NO NO HOOHO SOHoossoo mUflnwOH. QUHMOmOm HH OH HN OH HNH OO NO O 00O0Ocomm0m Oo C0Hsoz OOOOO OOOHO OOOHO OOOHO OOOHO OOOHO OOOHO OOOHO 0\3 \3 0\3 \3 0\3 \3 O\3 \3 C050 0:0 OOO.H OOOnOOO OOOnOOH OOH 900:0 HOHOHHoo coHHHHz .00HOO OOOH. 0OHO Samasou 0NHm >C0m800 >9.00Hm00 m00H>H0m H0 .muusoOHm .mH0HH0908 000090H5m mCH90H00m0H m0HC0a800 .NIS 0H908 177 topics, while in only three industry groups did companies without staff indicate an average of 50% or more of the topics researched (Table 7-3). There were only two industry groups (Textile Mill Product and Apparel; and Ordnance; Leather; Professional, Scientific, and Optical Equipment; and Miscellaneous Manufacturing) in which the average percent of topics researched was larger in companies without staff than in those companies with staff. The average percent of Purchased Materials, Products, or Services topics researched was particularly large in those companies with staff in the following industries: Stone, Clay, and Glass Products (78%), Fabricated Metal Products (73%), Chemicals (73%), Food and Tobacco (67%), Electrical Machinery, Equipment, and Supplies (67%), and Machinery, except Electrical (62%). For those interested in a more detailed analysis by industry classification, Appendix 2 presents for each industry classification the following information: the percent of companies with and without staff which researched each topic, the percent which declared each topic produced most worth-while results, and the percent 'which declared most worthdwhile results produced when a topic was researched. In the following sections, each individual research topic is discussed. Where possible, an example is given of research 178 Table 7-3. Companies researching purchasedrnaterials, products, or services, by standard industrial classification Number of Percent Companies Researdhing w/ w/o w/ w/o Staff Staff Staff Staff Industry Group Food and Tobacco 9 37 67% 40% Transportation Equipment 17 20 58 26 Chemicals 13 20 73 39 Machinery, except Electrical 14 16 62 41 Primary Metals 10 18 58 56 Electrical Machinery, Equipment, Supplies 9 15 67 34 Paper 3 ‘ 13 56 20 Crude Petroleum 7 8 59 27 Fabricated Metal Products 5 10 73 49 Stone, Clay, Glass 4 8 78 41 Textile Mill Product & Apparel 1 9 33 61 Ordnance; Leather; Professional, Scientific, Optical; Misc. Mfg. 4 5 36 57 Mining 2 5 50 18 Petroleum Refining O 6 -- 42 Rubber and Plastics O 6 -- 13 Lumber and Wood 1 4 39 35 Printing and Publishing 0 5 -- 39 AVERAGE 62% 38% 179 conducted on each of the topics by one of the ten companies with purchase research staff which were interviewed. Addi- tionally, a table is presented to show, by industry classi- fication, the percent of companies with and without staff which did research on the topic, declared the topic as having produced most worthdwhile results, and declared the topic as having produced most worth-while results when actually re- searched. The occurrence factor, benefit factor, and evalua- tion factor are computed from each of the tables. Following the discussion of individual research topics the occurrence, benefit, and evaluation factors are summarized for all eighteen topics (Table 7-22). Commodity Study Research on this topic would be directed at an examination of all pertinent aspects surrounding the purchase of a com- modity (normally a basic, raw material), to the end that the individual actually buying that commodity would be in a better position to assess his current and future purchasing position. A Commodity Study would involve analysis of such things as the following: how the commodity is produced (different pro- duction methodsh vendors capable of producing the commodity and their capacities; possible substitutes; a vendor's strategic position relative to other vendors and consumers; 180 the foreign situation as it affects supply, demand and/or price of the commodity; pertinent government regulations and controls; competing demands for the commodity; forecasts of future usage of the commodity; basis on which prices of the commodity are established; price history and explanations of significant changes. All factors affecting the commodity would be examined, as a basis for making forecasts of future supply, demand, and price of the commodity. An example of Commodity Study research was furnished by one large chemical producer in which the Purchase Research Department made commodity studies on the major raw materials purchased in order to: provide the buyer information on which to make sound procurement decisions; provide purchasing management and top management a sound picture of supply- demand relationships in major raw materials; furnish infor- mation and projections useful in making expansion decisions (plant location often depended on the long-run purchased materials outlook); and provide a basis for training newly assigned buying individuals. Transportation was a major cost factor in the purchase price of many commodities used by this company; thus plant location was largely determined by the supply of purchased materials. Expansion plans were based on relative prices of different, substitutable raw materials, and once a plant 181 was constructed with the capability of consuming a particular purchased raw material, it could be adapted to other raw materials only at considerable cost. Purchasing needed to be able to provide long—term forecasts of raw material supply and price in order that intelligent expansion and production decisions could be made. One particular commodity study in this company took approximately one man-month to prepare, and the report of findings was in five sections: (1) The Supply70utlook which included figures on supply by differing processes; total U. S. supply potential; and import potential by countries; (2) The_D§manngutlook, including demand history and projected future requirements; (3) The Geographical Distribution of §gpply and Demand, giving data for different regions of the country; (4) The Price Outlook, including the historical pattern; future outlook; the transportation situation, showing costs of competing transport methods; domestic market prices; prices for use in this industry; prices for use in other industries: (5) The Summary Section, which stated recommen- dations for future action. The assumptions on which various parts of the report were based were explicitly stated; many sections presented the differing assumptions which might be used, and the differing conclusions which would result. Areas in which the data were inadequate were pointed out, with 182 action recommended to provide more reliable and useful data. Table 7-4 presents information on surveyed companies researching the Commodity Study topic, by industry classifi- cation. Computation from this table shows that, in total, the occurrence factor is 1.4. The benefit factor (companies in each group that indicated this research topic as producing mostmworth-while results) is 2.2. Thus, a much greater num- ber, relative to the totals in each group, of companies with staff found this research topic produced most worth-while results for their companies than was found in companies with- out staff. An evaluation of the usefulness of this research, made by only the companies researching this topic, indicates an evaluation factor 1.6. Thus the percentage of companies with staff doing research on this topic was 1.4 times as large as the per- centage without staff that researched this topic. Companies with staff indicated most worthOWhile results from this research 2.2 times as often as those without staff. When research was done on Commodity Study, by companies in both groups, those with staff evaluated the research as producing most worth-While results 1.6 times more frequently than those without staff. In all but one industry (Primary Metals) a higher per- centage of companies with staff researched this topic than 183 ON HO NO OH OO HN OO OO OO mo§m>< O -- O O -- O OO -- OO O O OEOOOHOHE Ham OEEEnH OOH O OOH ON O ON ON O ON O H 88m H60? 98 30.83 OO -- OO SH -- SH OO .. OO O O 333E 98 SOOSH O -- O O -- O OO -- OO O O OcHamom 8883mm O OO ON O OO OH OO OOH SO O N OEEE ON OS OO ON OS OO OO OOH OO O O .32 .022 uHOoEHo .oqficowom . .mounm “Huguqu ”OUGGGUHO OO O OO OO O OO SO OOH OS O H HOSOOO. 93 332m H22 2889 O OS SN O OS ON OO OOH SO O O mSOHO Ham SOHO 98% O OO ON O OO OH OO OO OO OH O .85 H834 OBOOHBOO O OO OO O OO ON OH OO SO O S 30 H232 muflm EUOHOHuOnH mUduU OO OOH OO ON OO HO OO SO OO OH O 39mm OH ON ON S NN OH OO OS OO OH O OOOHOOOO OE... .OBOOH Sumcflog Hmomuuomfim S OH OH O OH S OS OS OS OH OH 28on SHOEEnH OO SN OO ON HN ON OO OS OS OH OH HOOHEUOHOH ammoxo Snmcwaomz OO OO OO OO OO OO OS OOH NO ON OH 28826 ON OH SH OH O O OO OO OO ON SH .OBOM nosfluommcfie OONO .OOO .OOO .OOH OOOO .OON .OO .83 OS SO O 82309 OS... Ooom OOSO 83m OOSO 83m :96 HOBO 8% 3% m\3 \3 H.305 o\3 \3 H.308 o\3 \3 HNH—0H. o\3 \3 ommofi OER. ponoumommm mofiuommm oaofi Godumoflfimmflu £033 OUEOQEOU >30 Oomcmmgou HH< mcmsoumumom mnmuuommm >HOOH6GH O oMGOQEoU m owadmgou 3150M oHEBunuuog «no: wcmumompnm “:00qu mo udoouonm nonEdZ 356 3:35:30 6.. O 3368 184 companies without staff. In all industries but one (Lumber and‘Wood) at least 59% of companies with staff researched this topic. In several industries, 100% of those with staff researched this area. Correct-Ordermguantitv Studies in this research area involve attempts to estab- lish the size of each purchase order for a particular com- modity which will minimize the combined cost of placing the purchase orders and the cost of maintaining amounts of the item in inventory. To arrive at the correct order quantity for a particular item, or class of items, requires establish- ment of the approximate costs involved in placing orders, and the costs incurred in maintenance of inventory. An example of a Correct Order Quantity project was fur- nished by one of the interviewed companies which had been buying bagged salt used to thaw roads around the plant in bad weather. Frequent purchases were made of small quantities of this salt. The Purchase Analyst was investigating the possibilities of buying in carload quantities, in bulk, only a few times each winter, which would result in a better price, and less administrative cost in purchasing. However, in order to do this, closed storage facilities, which were at a premium, would be required to prevent the salt from collecting 185 moisture and freezing. These additional storage costs had to be balanced with concomitant savings, to arrive at an optimum purchase quantity decision. Computation from Table 7-5 shows that the occurrence factor for Correct Order Quantity research is 1.4. An average of 67% of companies with staff did research on this topic; in three industries 100% of those with staff re- searched this topic. The benefit factor is l.6, indicating a much larger percent of companies with staff found this topic one that produced most worth-While results. A com- parison of the evaluation of results (percent of those researdhing which indicated most worth-while results produced) shows an evaluation factor of 1.1. This indicates that when this topic was researched,it was evaluated slightly higher in terms of results produced in those companies with staff than in companies without staff. Demang;Fg£ecast This type of research consists of study to establish future demand for a particular item. The requirements might be internal company demands, based on varying production assumptions, and/or external demand from other companies and/ or industries. Information on demand would be useful in determining material availability, and price, and as a basis 186 NN ON ON OH OH OH OO SO OO mo§m>< OO -- OO ON .. ON OO -- OO O O OEOOOHOHE OOO OEEEnH O O O O O O OO O OO O H .OounH Ooos HBO SO83 O -- O O -- O SH -- SH O O 8:35 93 SOOBO O .. O O -- O SO -- SO O O OEEOBO 8385mm O OO ON O OO OH OO OOH SO O N OEEE O O O O O O OO ON OO O O .OOHz. .032 mHOosaHo .UEEOOOO . OPE mumsumod “mocmspuo OH OOH ON HH OOH ON OS OOH OO O H HOSOOO. 98 33on H32 35er ON SO OO OH OO ON OO OS OO O O mOOHo ES .38 .28 OO O ON OO O ON OS OOH OO OH O .OounH H382 OOOOOEOOO O OO OO O ON OH OH SO OO O S mmo HOOBOZ USN EdOHOHuOnH QUdHU O OOH OO O OO O OH OO OH OH O 89mm OO O OH OH O O OO SO OO OH O OBHOOOO 98 .OBOOH .. SHOOGOOHUOE HOUTSUBH SN OH NN NN OH OH OO OO NO OH OH 2834 SSEEnH ON O ON OH S OH OO OS OO OH OH HOOEOOHOH ammoxo Suofisomg NN OH OH OH O O OO OO OO ON OH OHOOOEOOU O OO NN O ON HH OO HS OO ON SH .OSOM 8:388:29 .OON .OOO .OOO .OOH .ONN ..OSH °OSO .OSO ..OOO SO O 8033. Hz; Ooom 88m 88m OOSO OOSO OOSO 35 SO .3 o\3 \3 H308 0\3 \3 H.308 o\3 H\3 Han—0H. WV? HWBm oEoB OER. pmaoamommm mowunommm oaoh somumuammma £033 mumsmmEoU 3:0 OoMGOQEoU H1O. msEoumoOmm wsflnommm ~335qu m o “Gaucho 0 O omsmmgo D 33.06% oHEBufiuoB $02. msfimofipfi Osmononm mo «Goouonm nonEdZ 33530 umpuO 30.300 .m..S 2an 187 for planning purchasing strategy. A demand forecast would probably be a part of any comprehensive commodity study. A Demand Forecast research project was done on steel in one of the interviewed companies. First, trend projections for steel demand were made, taking into account the his- torical growth pattern within the industry, modified by the influence of competing substitutes for steel. Second, cycli- cal fluctuations in the economy, as they affect steel demand, were roughly forecast. Finally, the relative importance, position, and use of consuming industries over the next twenty years were forecast. This steel demand forecast was a part of a larger commodity study on steel. Computation from Table 7-6 produces an occurrence factor of 1.6, showing that the average percent of companies with staff which did Demand Forecast research was 1.6 times greater than in those without staff. Fifty-one percent of those companies with staff did research.on this topic. In two industries, Paper and Stone, Clay, and Glass Products, 100% of the companies with staff researched this area. The benefit factor is 4.5, showing that the percentage of those companies with staff finding most worth-while results from this area was significantly greater than in those without staff. The evaluation factor is 2.1, showing that of those companies researching this topic, over twice as many with 188 O SH NH N O O NO HO OO mo§m>< O -- O O -- O ON -- ON O O OOEOOHOE HEO OcsaEnH O O O O O O O O O O H .OounH H603 HUSN SOEOA O -- O O -- O SH -- SH O O OusOOHnH OE... SOOBH O -- O O -- O OO -- OO O O OEOOOO EsOHotOnH O O O O O O ON O OH O N OEOOE O OOH OO O ON HH OO ON OO O O .32 .032 :8an dasfizum . OPE 39369..” ”mocmcpuo O O O O O O OO O OO O H H333. 93 382m 52 23er O ON SH O ON O ON OOH OO O O OOOHU Ham OOHo 98% O O O O O O OO OO SO OH O .OOOnH H322 OBSOBOO O ON OH O OH S ON HS SO O S 30 HSBOZ USN EOOHOHHQnH OUSHU O OO OO O OO O O OOH OH OH O Scam OO O SH S O O ON OO ON OH O OOOHOOOO OS .OSOO Suosmfiodg HOUMEOOHH OH ON OH O ON HH OO OS HO OH OH OHOOOE S.229an O O O O O O HO OO SO OH OH HOOESOHM ROSS SOOHOEUOOA NN OH SH OH O OH OO NO NO ON OH 28820 O OH O O O O ON OO OO ON SH .EOOOO 833885; .OO .OON eOHH ..OO O: .OO .OOO ..OOO .OOO SO O 89309 O5 Hooch OOSO OOSO OOSO OOSO OOSO OOOOO OOOOO OOSO o\3 k3 H.308 0\3 \3 HOD—0H. O\3 1N3 H.308 0\3 \3 oaofi OER. posoummmmm wan—nomad oEoH CowumommOOOHU £033 OOEOQEOU 3G0 OOMGOQEOU .34 msEoOOOOOm wsfluommm OOHOOEOGH O OMGOQEOU O 353800 OOHHHOOM OHEBufiuog OOOE wcfimowpfi unmoumm mo usooumnm HOOHESZ HMNUQHO'W QCMEUQ .o a h OHQOB 189 staff found results most worthdwhile as was found by companies without staff doing research on the topic. Compared to other areas, the percent which declared this topic produced most worth-while results was fairly low. Lease or Buy Frequently, in certain capital equipment items, the alter- native of leasing, or renting, an item from a supplier presents itself. Depending on the costs involved, a leasing arrangement may be more advantageous in the long run than an outright purchase. The decision is basically an economic one, but it involves the assignment of dollar values to certain benefits and inconveniences which are hard to evaluate. For instance, with a lease arrangement, the lessor bears the largest risk of technological advancement outmoding the equipment; the lessee is absolved of the risk of having obsolete equipment. The dollar evaluation of the benefits from transferring the risk of obsolescence is extremely difficult. This research involves analysis of advantages and disadvantages of leasing versus buying, assignment of values, and the balancing of costs against dollar benefits. Office machines and equipment frequently are the subject of lease or buy studies. An example of a project in this area in one Of the com- panies interviewed involved passenger car transportation requirements. The corporation in question had been leasing 190 all its passenger car requirements. A thorough study was conducted of costs under the present leasing system, and a proposed system in which all cars would be purchased by the central office and then leased internally to the various operating divisions. The proposed system of purchase with internal leasing to divisions was found to have the follow- ing advantages: (1) a central cost control point for all vehicle costs; (2) better vehicular control from a maintenance and safety standpoint; and (3) the purchase and sale of vehicles could be handled within the central office, allow- ing some specialization in the purchase of this equipment. Analysis by the Purchase Analyst of costs under the two sys- tems indicated an approximate saving of $10.50 per month per vehicle over the previously used standard leasing arrangement. Table 7-7 shows that an average of 57% of companies with staff did research on Lease or Buy, while only 41% of companies without staff researched this topic. The occurrence factor, computed from Table 7-7, is 1.4. In three industries, Textile Mill Product and Apparel, Primary Metals, and Crude Petroleum and Natural Gas, however, a larger percent of companies with- out staff indicated research on this topic than was indicated by companies with staff. The benefit factor is 2.3, showing that over twice as many companies with staff found this research topic produced most 191 NH A: .2 O o O HO Om 0O HU§M>< SO -- SO ON -- OO OO -- OO O O OOEOOHOPO ES OcsqinH o o o o o o mO ooH ow O H 60am @003 ppm .83854 0 u- o o u- 0 OH : OH 0 o OUMOOOHOH UGO umnpsm o ..- o o u. o om -.. om b o moasflmm Edmflofimnm O O O O O O O O O O N OEEE OO O SH ON O HH OO OS SO O O .OOOO .842 m:3an .oflfismwom ..monnm COLOOOA “mosmspuO OH O OH HH O O OS O OS O H H383. HEO Oosponnm :32 OZOxOB OOH OO OO ON ON ON ON OS NO O O mmOHo HBO. .36 6:96 OH ON 2 3 ON ma 00 9: MO 0H m .ponnw H.334 Umumownnmh ON o 2 Ma o O mo mO mm m O OOO HOHBOZ paw Edmaobmm OUSOU O OOH OO O SO OH HO SO OO OH O 39mm 0 ON OH o 3 O mm om NO ma 0 Omfimmsm UGO .EHHUH .Oumcmgomz HOUTSUOHM 0 ON O 0 OH O Ho om Om ma 0H £332 Oumcfiunfi A: mm ON O N OH mm Oo om H: OH Hmoiuomfim Omooxm .Oumcwaomz o o o o o o mN moo NO ON mH OHOUOEOQU O O O O O O ON HO OO ON SH .325. cosmtommqfie .OO .OO .OO .ON eOO .ON .OOO .OOO .OOO SO O 89305 ES Ooom Edam madam madam 3.3m mmmam 3.3m 33m EON—m 'o\3 \3 H.308 o\3 \3 H.308 ON? \3 .1308 o\3 \3 owmoH OER pogoummmmm wsfiuommm 0.308 GOSOUWOOOOHU so}? OOMGOQEOU OHOOO OOEOQEOU ZOO MCEUHOOOOM wsfiuommm OOOOHHpCH . O ONGOQEOU O OOGOQSOU OOHOHOOM OHMHOBuOHuuo? uOoOA wsflmoflofi Osmoumnm .«o unmoumm .OOQESZ Osm .3 OOOOOH .O..O OBOE 192 worth-while results. As noted earlier, part of this may be explained by the fact that those with staff< OOH .. OOH OO -- OO OO -- OO O O OOHOOOHOan Es OEEEnH OO OOH SO ON OOH OO OO OOH OO O H 68m Oooa OOO SOEOA O -- O O -- O OO -- OO O O 833E 28 SOOOO O -- O O -- O SH .. SH O O OEOOOO 8883mm O O O O O O O OO OH O N OEEE O SO ON O OO NN OO OS OS O O .32 .032 mHOOEHO .OEEOUO . .Ooum “HOHtOOOH “mosOGUHO ON O ON HH O OH OO O OO O H HOSOOO. 98 838m HHOH>H 23er OO OO OO OH ON SH ON OS NO O O mmOHo H28 520 68$ O ON O O ON S OO OOH OS OH O .OSnH HOSE OBSCOOO O O O O O O O OH S O S 30 H832 USN ESOHOHHOOH OUSHU O O O O O O OH OO OH OH O 39mm OO NN HO HN NN HN SO OOH SO OH O OBHOOOO OOO .OSOO .OOOOHEUOOA HOUMHOUOHH OH O O O O O OO OS HO OH OH 283.4 OhmOEOnH OO O SH OH S OH OO OO SS OH OH €3.30on ammoxm .OHOGMSUOE O ON SH O ON O ON OOH NO ON OH OHOOOEEO ON SO HO OH HO ON OO OO OO ON SH .OBOm 833801229 .OOH e.OO .OO ..ON «8 .ON «.2 eOSO e.OON SO O 08309 H28 Oooh OOSO OOSO OOSO OOSO EEO OOSO OOSO OOSO o\3 \3 H309. o\3 \3 H.308 o\3 BB HON—0H. o\3 \3 oaoh O83. pmnoummmmm wsfiuommm 0308 . GOEOUHOOOOHU £0.33 OOMGOQEOU OHGO OOOGOOHEOU ZOO MGEUOOOOOM msfluomom OHOOEOGH O OOGOQEOU O OMGOQEOU OOHSOOM OHEBuHfiuoB OOOOA wsflmowpfi unmoumnm mo admonmm MODESZ Sam .8 SHOE .O-S OHOOO. jam... JPNEOTuL-Jlam' 195 factor is only 1.1, indicating that when research was done on Make of Buy, only a slightly higher percent of companies with staff produced most worth-while results. Method of Production or Manufacture These studies might involve examination of a purchased commodity or part, for the purpose of suggesting changes in the vendor's manufacturing processes which would result in a savings in production cost, and thus a better ultimate purchase price for the commodity or part. Studies of this nature also might involve examination of production tech- niques or processes used in the buyer's company, to discover and suggest possible process or equipment changes which would increase efficiency and reduce production costs. In one of the interviewed companies in the Chemical Industry, studies were done on specific manufacturing pro- cesses used in the buyer's company, in an effort to evolve more efficient production processes. The particular processes studied were normally selected by two means: (1) competitor intelligence data which indicated the process used, or being lconsidered, by one of their competitors, or (2) a review of profit margins on products, to indicate products with an unsatisfactory profit margin. The analysis, done by the Purchase Analyst, involved developing a flow chart on the .u I an' 196 specific process, the materials used, and the yields obtained. Possible variations in process were investigated, normally with the assistance of personnel from the research labora- tories._ Such studies as these were time consuming and costly; however, the results in this company had in the past justified purchase research of this nature. Computation from Table 7-9 shows an occurrence factor of 1.8 for research on the Method of Production or Manufacture topic. The percent of companies with staff, and without staff, which did research on this topic was fairly small. In all but two industries, Machinery, except Electrical, and Textile Mill Product and Apparel, a higher percentage of companies with staff researched this area than those without staff. The benefit factor is 14, showing that 14 times as many companies with staff reported this area producing most worth- while results as did companies without staff. The evaluation factor is 7.5, showing that when research was done on Method of Production or Manufacture, that done by companies with staff was evaluated considerably higher. New Product Research in this area involves analysis of new materials, products, or equipment; evaluation of potential usefulness to the organization; and placement of this knowledge before the 197 O OO ON H OH O SH HO NN mo§m>< O -- O O -- O ON -- ON O O OOEOOHOOnH can OEEEO O O O O O O O O O O H .Ooum H62,» 23 BOSS O -- O O .. O O -- O O O 333E 98 OOOOOO O .. O O .. O O .. O O O Oficwom EsoHohonH O O O O O O O OO OH O N OEEE O SO OO O OO NN OO OS SO O O .OOHz .022 uH.830 .UOOOBUO . .OounH “HOHfiOOJ “Ousmcpuo O O O O O O NN O ON O H H895... 98 882m H22 0:385 O OOH OO O OO OH OH OO ON O O mOOHo OOO .36 .285 O O O O O O ON OO OO OH O OPE H302 OBSEOOO O O O O O O OH OO SN O S 30 HOBOOZ USN EUOHOHuQnH MUSHU O OO ON O OO O OH SO ON OH O 39$ ON OO OO S NN OH SN OO OO OH O OOOHOOOO OOO .OOOOH SHOCEUOE HOUOHOUOHH O OO OH O OH O NN OO ON OH OH OHSOE OSEEnH O ON OH O S O OO ON OO OH OH 3028on “mooxo .OHOHHEUOOA O ON NN O OH O OH OO SN ON OH OHOOOEOOO O NN SH O NH O OH OO NO ON SH .OOOOO 833885; .OON $2 $2 .OO O: .OO .OOH .OSO °OON SO O 08209 98 Ooom OOOO OOSO OOSO OOSO OOEO OOSO OOSO OOSO o\3 \3 H308 0\3 \3 130B. O\3 \3 H308 0\3 \3 0308 OER. pmsoumommm mswunommm owmofi GOMOOUMEOOOHU £033 OOMGOQEOU OHGO OOOGOQEOU :44. mcfioumvmmm msflnomom OHOOOGOHH OOOGOQEOU OOEOQEOU Ofidmmm O3£3u£uuo>> $02 wcflmowpfl unmoumnw mo «Gooumnm nongdz OHdOoOmsGOE no cofiospounm Ho @0592 .OIO OBOE 198 appropriate purdhasing, engineering and production personnel. Work in this area also might involve interesting suppliers in producing a new product, for which adequate supply sources are not presently available. In one company interviewed, a new chemical material was required in order to begin production of a new product. The Purchase Analyst made a literature search, and determined this chemical to be available only in small ("research") quantities. The Analyst then contacted all suppliers who had the experience necessary to produce this product, nar- rowed this list down to the most promising one, and negotiated with this producer for "pilot plant" quantities. Based on the experience of this vendor in producing the first run, a decision was made as to the economic feasibility of producing larger quantities of this chemical. Results of this research were then turned over to the production department, and to the appropriate buyer for future action. Computation from Table 7-10 indicates an occurrence factor of 1.6 for research on New Product. Only in two industries did a larger percent of companies without staff indicate re- search on this topic than companies with staff. The benefit factor is 1.2, indicating that a larger percent of those with staff have produced most worth-while results from this topic. The evaluation factor is only .7, showing that when research 199 OH HH ..OH O O O OO SO NO mo< OO -- OO ON -- ON OO -- OO O O OcHHHOHHOsm Ham OEEHKH O O O O O O OS O OO O H 68m O83 HUSO .HOOEOA O -- O O -- O SH -- SH O O OOHOOOHnH Ham SOOBH O -- O O -- O . SH -- SH O O Oficcmm EsOHohonH O O . O O O O O OO OH O N OEEE O OO SH O ON HH OO OO SO O O .OOE .022. uHOOHOHHO .OHOHEOHOO . .Ooum “.853me Hoocmcpuo O O O O O O OO OOH OO O H HERA? HEO 838m HHS/H 33er SO SO SO ON OO OO OO OS OO O O 3.20 ES SOHo .285 SH OO ON OH ON OH OO OO OO OH O 68m H822 OOOOOHBOM O O O O O O ON ON SN O S 93 HEBOZ can Edoaonumnm udeU O O O O O O ON OO ON OH O SOOnH O O O O O O ON OO OO OH O mOHHOOOO HBO .OSOm Sumcfiomg Hmowfioofim ON OH ON HH OH HH OO OO OO OH OH OHOOOE imfitm OH HH OH O S S OO OO OO OH OH HOlooon 3083 Spocfiumz ON O OH OH O O OO OO OO ON OH OHOOHEOHHU OO O O O O O OH SO OO ON SH ..HHOOOH cosmtoamafie A.OS e.OO GOO GOO GOO .ON .OHO .OSO ..OOO SO O 8238. HOCOO Hooch mfim aflm wfim mSm mam OOSO O 3m. m8 o\3 N3 W308 £3 x3 H808 o\3 \3 H.308 “\3 \3m canon. OER. pogondommm msfinommm 030m. coflmomwmmmao A033 chcmmfioo 3:0 momcwmfioo S< mchnmomom mafluommm >Em§©5 moflcmmEoU mmwcmmfioo 333m mdnséfio? $0.2 $3365 Emopmm mo 23.3% 33852 f 333m 302 .34. 282. 200 wmsdone on this topic, companies without staff regarded it as producing most worth-while results more frequently than did companies with staff which researched the area. Since this research topic is one in which the buyer should have great competence, this result should not be surprising. Packaging This area involves study of the packaging requirements of purchased products, and of finished products, with a view to effecting economies in the specification and purchase of these items. Such research involves a study of the function performed by this packaging, different methods which can be used to provide protection and facilitate handling of the product, plus the relative costs of the available packaging solutions. In one company the Purchase Analyst researched the area of corrugated containers used by the company, providing information useful to the buyer on how to determine minimum packaging needs in corrugated; how to calculate a "reason- able" cost of production of various types, weights, and designs of corrugated; how to standardize corrugated requirements; and how to determine suitable corrugated sources. Since several buyers, physically located in different plants,were involved in corrugated purchases, this information had been of wide value to the corporation. 201 Table 7-11 shows that a large percent both of companies with and without staff did research on Packaging (64% and 51% respectively). The occurrence factor is 1.3, indicating that the percentage of those without staff indicating research in this area was lower than the percent for those with staff. The benefit factor is .9, showing that a larger percent of those without staff found the research producing most worth- while results. The evaluation factor also is less than 1 (.7), showing that when research was done on Packaging, a higher percent of companies without staff found this research pro- ducing most worthOWhile results. This area is one in which much specialized help may be available, either from the vendor or from specialized company personnel. Q Price Forecast Research in this area, as in the areas of Demand Forecast and Supply Forecast, might be part of the total research in the area of Commodity Study. The purpose of this research would be to consider all possible elements affecting price, in order to arrive at an estimate of future price movement, which would be useful in planning future purchasing and pro- duction action. An example of a Price Forecast study on a primary metal was furnished by one of the interviewed companies. Data were 202 OO ON OO SH OH SH HO OO OO mo< O -- O O -- O OO -- OO O O OEOOHHOan HUgw Oqsfium OOH O OO OOH O. ON ON OOH OO O H .Ooum H603 HUGO .HOOHEQH O .. O O -- O SH -- SH O O OOHOOOHnH HEO spasm OO -- OO OO .. OO SO -- SO O O Ochumm 8HHOHBSOnH O OOH OOH O OO OH O OO OH O N OOHEE O OO OO O OO NN OO OOH SO O O .OOE 622 ”Hmosmo .oHOuHBHom . OPE Huofimmd “mocmGoSO ON O ON NN O ON OO O OO O H HOHOOOO. HBO 833m HHS/H 33me OO OO OO ON OO OO OS OOH OO O O OOOHU HEO OOHU 685 OO OO OO OO ON SN OO OO OO OH O 62m H334 HOBOUOBOSH OO ON OO OO OH SN OO HS SO O S 30 HOSOOZ pom. 5530.”qu mpduo O O O O O O OO O OH OH O .SnHmnH OH O O S O O SO OO OO OH O OOOHOHHOO HEO .OSOOH inmcfiomg Hmofluoofim OO O ON ON O OH OS OO OO OH OH OHS»: SSEEA OH OO HO O NN OH OO OO OO OH OH HOoHfiomHm amoxm Snofizomz OO OH OO ON O OH OO SS HO ON OH OHOuOEoHHo O HH S O O O ON OO OO ON SH .OHOOOH coratommqfie .OSO ...OOO .OOO .OSN .OOO .OOO .OOS ..OOOH .OOS SO O 0888. EB week :96 ufim uflm ufim umum mmum uflm HOBO o\3 \3 HNH—OH. o\3 \3 H.309... o\3 \3 H.308 o\3 \3 UEOB OER. pogoumommm wcwuuomom UEOH. comumommmmmao £033 moMGmmEoU 3G0 modammEoO Saw magnummmom mcfluommm >numop£ w omcdeoU m MacmmEoD 9:3va mink/usage? Smog wcflmofiufi unmouonm mo “2.50qu umnEdZ OEOOVHuOnH .H H -S «HOS. 203 gathered, analyzed, and presented on several elements of price for the commodity. One section of the report analyzed the price structure within the industry, considering such things as the basis upon which prices were set; the effects of labor, material, and overhead costs on price; and the influence of certain companies in the establishment of prices. A second section plotted the trend of prices over the past twenty years, indicating reasons for significant price changes. A third section analyzed the cost elements entering into the production of the commodity, giving projections of prices for raw materials and labor costs. Based on these data, a forecast of the price for this commodity for the next 20 years was made. Table 7-12 presents data on research done on the Price Forecast topic. A large percentage of companies in both groups indicated research on this topic (74% of companies with staff, 45% of companies without staff, on the average). All industries indicated this type research was performed. The occurrence factor (computed from.Table 7-12), is 1.7, showing that a much larger percent of those with staff re- searched this area. The benefit factor is 3, showing that the percent of companies with staff which declared this topic as producing most worth-while results was three times larger than that for those without staff. The evaluation factor 204 OH OH OH O NH S OO OS OO mu§m>< O .. O O -- O OO -- OO O O OEOOOHOOQH HBO OEOEE O O O O O O ON O ON O H .HUSnH H803 HEO 3254 O -- O O -- O OO .. OO O O mosOOHnH HUSN Snead O .. O O -- O OO .. OO O O Ofiaamm EOOHobmm O O O O O O ON OO ON O N OEEE O OO ON O OO ON OO OOH OS O O O32 .022 “Hmosmo .UEOSBO . .35 upofimod moosmcphO O O O O O O OS OOH OO O H H883. HEO 832m H22 2359 O ON OH O ON O OO OOH OO O O $20 23 >20 686 SH O OH OH O S OO OO SO OH O 6on HOSE HOBOOHBOM O OO ON O ON OH ON HS SO O S 30 H332 UGN ESQHOHuwnH 0U5HU O O O O O O OH OOH ON OH O hams OH O O S O O SO SO OO OH O OOOHOOOO OEm .OHOOOH Suocwfiumv/q adofiuuomfim O OH O O OH O HO OO HO OH OH 3822 OSOSOE O O O O O O OO HS OO OH OH 1823on . ammoxo Sumnwaomz OO OO OO ON HO ON OO NO OO ON OH mHHBSOSHHU O O O O O O ON OO HO ON SH .OHOOOH notmtommcfie ..OOH ..OOH ...OOH .OO .OHH .OO ..OOO .OOS .OOO SO O 08809 ES Ooom :SO OOOOO H30 .H. mfim uOOO HOS .H. OOSO mfim H80 .H. HOBO 33m Q3 \3 OK? \3 0\3 \3 0\3 \3 UEOH. OER. pogondomom mcfiuommm 0308 Goflmowwmmmfiu sows? mvwcmmEoU >30 mmwsmOHEoU H2 mngoumomom wcmuuomom >numdp£ m 03.23.50 m mmnmmeou magnum mHEBIHtuo? $02 mcfimowvfl acoouonm mo ”:80qu noQESZ ammoouoh 039nm .NHIN. 2an 205 is 1.6, showing that of those actually doing this research, a larger percentage of companies with staff found it producing most worth-while results. Pricinq Procedure and Structure This research would consist of study of the techniques used by particular vendors in establishing selling prices for particular commodities; the interrelationships between companies and industries which would affect the prices estab- 1ished; and the effect of outside forces in determining par- ticular prices. A study of this nature in one company interviewed resulted in the development of a celluloid "calculator" for a particular finished product. Through use of this calculator, plus data on certain aspects of a particular vendor's operation, a decision as to the vendor's approximate "reasonable" selling price could be determined. Computation from Table 7-13 on Pricing Procedure and Structure shows an occurrence factor of 1.8, with 49% of those companies with research staff indicating research done on this topic and only 27%.of those without staff. In only six indus- tries did over half those companies with staff research this topic. The benefit factor is 5, showing that those companies with staff indicated this research producing most worth-while 206 O ON OH N OH O SN OO OO mo§m>< O -- O O -- O O -- O O O @323an H28 OEEEnH O O O O O O OO O OO O H .OOSnH H803 HBO SEES O .. O O .. O O -- O O O OquOHnH Oam SOOSH O -- O O ..- O OO -- OO O O Oficuom EsmHotonH O O O O O O ON O OH O N OOHEE O OOH ON O ON HH OO ON OO O O .OOE .032 ”HOOEHO .OHOOEOUO . .OounH ”warmed ”oucmspuo ON O ON NH O OH OO O OO O H HOSOOOO. HOS... 852m HHOE 23er O OOH OO O ON O ON ON ON O O OOOHO HUSO :5 .285 O O O O O O OO OO OO OH O .OoSnH H834 83353 OOH ON OO OH OH OH OH SO OO O S 30 H3532 USN ESGHOHHQQ QUDHU OO O ON O O O OH SO ON OH O .593 O OH O . O HH O SN OS OO OH O mOHHOOOO HUGO .OBOm Sumsgomz $3.30on OH O O O O O OO OO OO OH OH OHOOOHz EOSHE OH O HH O O O OO HN OO OH OH HOOEOOHH Smooxo Sumawgumz O SH OH O O O ON OO OO ON OH OHOBEOHHU O OO SN O ON HH OH HS HO ON SH .OHsOm cosmfiommafie .OO OOOH .OS cOO cOHH .ON AOON .OSO .OOO SO O 08809 HOE... Ooom mfim HOBO ufim OOOOO ufim uflm EEO .HOOOO o\3 N3 1308 R3 \3 H.308 o\3 \3 H.308 o\3 \3 quH OER. tosoummmom mcfluomom 030 H. sowumowfimmmfio £033 moficmmEoU >30 mowcmmEoU 2< wHHEu..Hmommm mcfluomom >uumdvcH mumammEoo mmwcmmgoo mfidmmm USSR-nuuog Smog wafimuflufi unmoumnm mo ”:80qu nothsZ ougodnum can oufipoooum wswowunm .mHuN. QEOH 207 results five times as frequently as those companies without staff. The evaluation factor is 2.2, indicating that when researched, results were regarded higher by companies with staff. Scrap Disposal Involved under this topic would be all types of study directed at increasing efficiency in the handling of scrap and surplus, and investigation of possible means by which the return from scrap and/or surplus sales might be increased. Since the scrap disposal function often is a responsibility of the purchasing department, and since large potential returns are involved, this area of research often is very fruitful. One of the interviewed company's manufacturing operations involved making several shapes of continuous stampings out of long strips of steel. Since many of these stampings were of intricate design, the resultant scrap was of an elaborate design. This scrap formerly was sold to a scrap merchant in the community at the standard per pound price for that grade of scrap. As a result of study by the Purchase Analyst,this scrap is sold at a 3 l/2¢ higher price per pound to another manufacturer, who paints it, and modifies it slightly for use as ornamental dividers and for decorative purposes on the outside of buildings. 208 Table 7-14 shows that the percent of companies researching the Scrap Disposal topic was quite high; the average was 68% in companies with staff and 48% in those without staff. In four industries, 100% of companies with staff researched this area. The occurrence factor (computed from Table 7-14) is 1.4, showing that those with staff researched Scrap Disposal more frequently than those without. The benefit factor is 1.7, showing that companies with staff more frequently declared this area produced most worth-while results. The evaluation factor is only 1.1, showing that when Scrap Disposal was researched, a slightly higher percent of companies with staff rated it as producing most worth-while results. Specifigation (Research in this area involves examination and analysis of materials specifications in order to assure that such specifications are satisfactory to all departments concerned, and to assure that they are not unduly restrictive, either in terms of specifying qualities not actually necessary or in limiting the number of vendors able to comply with the specifications. In one company interviewed, Purchasing Research was respon- sible for preparation of all specifications for raw materials, and reviewed such specifications at frequent intervals to 209 OH OH SH S NH O OO OO OO mo§m>< OO -- OO ON -- ON OO -- OO O O OEOOSHORH HaO OOHEEnH O O O O O O ON OOH OO O H 60an H585 HEO S363 O -- O O -- O O -- O O O 8:35 HUHHO SOOBH O -- O O -- OH OO -- OO O O Oficumm EsoHobonH O OO ON O OO OH OO OOH HS O N OEEE O OOH OO O ON HH OO ON OO O O .32 .022 :8an . .OOSSUO . «3m Coaumod woodmapuo O OOH OH O OOH OH OS OOH OO O H HOSP? HBO 838m HHOE 23on O OO SH O ON O OO OO OO O O OOOHo HUSO OOHo 68% OO ON OO OO ON ON OS OO OS OH O 68m H322 HUBOOEOOM ON OO OO OH ON ON OO HS SO O S 30 H232 USN EUOHOHumnH QUDHU O OOH OO O SO OH HO SO OO OH O 39mm OO O OH OH O O OO OOH OO OH O OOOHOOOO 93 .339. SSOGEUOE HmuMnuomfim OH O O HH O S OS OO NO OH OH OHSOE SSEEnH ON O OH OH S OH OO OS OO OH OH 3quon ammoxo .Nnuonwfiodz OH O O O O O OO SS HO ON OH OHOOOEOOU NN NN NN OH NH HH OO OO OO ON SH .325 aormfiommafie .OOH OOO eOOH .OO .OO .OO eOOO .ONN SO SO O 8333. Has Ooom OOSO OOSO OOSO OOSO SOHO OOOOO ufim ufim o\3 KB 1308 o\3 \3 1308 o\3 \3 HON—0H. 0\3 \3 0308 OER. voauumomom mcfiuomom 0308 aoflmomwmmgu SUE? mowGOQEoO 3G0 mmwnmmEoU 2< mcwnoummmom mafiuomom >399ch wwwcmmEoU OBGOQSOU mfidmom 232/unto? “mow/H. wcfldowpfl acouuonm mo «Gounonm nongoz HOOOQOMQ awnom .vHuO 3an 210 assure they were current. In actuality, the specifications normally were written by the buyer, but Purchasing Research acted as liaison between the buyer, the operating department concerned, and the research and development department, to assure that the specifications, as written, were reasonable. Table 7-15 presents data on research on Specification, by industry classification. The percent of companies with staff doing research on this topic was quite large, 64%. The occurrence factor (computed from Table 7—15) of 1.7 shows that a larger percent of companies with staff researched this topic than those without staff. The benefit factor is 1.9, indicating that a much larger percent of those companies with staff found this topic producing most worth-while results. The evaluation factor is 1, showing that of those actually doing research on Specification, companies without staff indicated this research as producing most worth-while results as frequently as those with staff. Standardization Projects of this nature involve analysis of purchased materials and products for the purpose of determining whether a standard product might be utilized in place of a special order item; whether the specifications of a particular item could be slightly modified, thus permitting the elimination 211 NN ON ON O OH HH OO OO OO mo§m>< O -- O O -- O OO -- OO O O OCH£22an H025 Oasaan O O O O O O ON O ON O H 208m H0003 28 30.83 O -- O O -- O O .. O O O O02O2OHnH 28 00222 O -- O O .. O OO .. OO O O OcHaufiH 8:0H020m O O O O O O ON OO ON O N O222 OO O OO ON O HH OO ON OO O O .22 .022 mHO0HOOO 22222 . 20$ . unmgumod “ooGOGpHO OO O OO NN O ON OO O OO O H H325... HUSN 626.5 HH22 2359 ON ON ON OH ON SH OO OOH SO O O 320 H0OO $5 .085 O OO SH O ON S OO OO OO OH O .OounH H202 200302.2th O OO OO O ON OH OH SO OO O S OOo Hfiamz GEN SUOHOHHOnH 0.0.9th ON O SH O O O HO SO OO OH O SOOm ON NH SH S HH O SN OO OO OH O mm.HHnHOOO HUSN .23”... .OSOOHEUOE Hmomhuoofim OO OO OO SH OO HN OO OO OO OH OH OHOO02OSOE€nH O OO HN O HN OH HO OO SO OH OH 22:0on 3088 Sumfisomz OO O ON ON O NH OO OO OO ON OH 28280.5 O HH O O O O ON OO OO ON SH .OSOOH cosmtommafia eOON _OOO eOON .OHH eOOO .OOH .OOO ..OOO eOHO SO O 000809 HUSO Ooom mfim OOOOO mflm 28m. OOOOO mam mflm 22.0. o\3 \3 H.308 o\3 \3 H.308 o\3 \3 HON—0H. o\3 N3 0308 OER. cosoumommm moan—nomad oaoh coflmoflfimmflu H323 OOEOQEOo >10 OOchmEoo =< masohmommx mSEQQOx 33262 O o mammEoU O o «Sago U 333% 223-533 302 msuOumEH Ocooumm mo anoumm 39882 .f 1...)! 8282002 .OH-S OHOOO 212 of inventory of many different, but nearly identical items; or whether the procurement of a standard item in place of a special-order, more costly, item is possible. The advan— tages of successful research in this area are the more favor- able price at which some standardized items can be purchased, the larger number of vendors available for a standard pro- duct, the simplification of inventory control procedures, and the smaller dollar value of inventory required. An example of Standardization research was furnished by one of the companies interviewed in which the Technical Research Department within the company requisitioned clear slide glass discs for use in the laboratory. Upon review of this item by Purchase Research it was found that the relatively high price being paid for these items was due to the fact that they were a special order item, requiring special manufacturing procedures in the vendor's plant. Investigation indicated that a standard, catalog item, of only slightly different dimensions, could be purchased at a price of only $.02; compared with the $1.50 price of the special item. ‘ Analysis of Table 7-16 shows that the percent of companies both with and without staff doing research on Standardization was quite large: an average of 71% and 47%, respectively. In the majority of industries over 50% of companies both with and without staff indicated research done on this topic. The GD 1 SN ON ON NH OH OH SO HS OO mo< 2 O -- O O -- O OO .. OO O O OOEEHOanH 28 margin OO OOH SO ON OOH OO OO OOH OO O H 62.». O83 HBO SO83 O -- O O -- O O -- O O O 833E Hz:w spasm SO -- SO OO -- OO OO -- OO O O OOEHOBH EsmHofimm O O O O O O ON OO ON O. N O55: ON OO OO ON ON NN OS OO SO O O .OOHZ .032 mHOUOEO .oHOHEOHum £on mhmfiuqu mmUGdGGHO SH O SH HH O OH SO O OO O H HOSOOO. H6O 832m :3 2339 ON OO ON OH ON SH OO OS OO O O m.220 H28 >20 6:95 OO OO OO ON ON ON OO OO OO OH O 6on H802 3335mm OO OO OO OH OO SN OO HS OO O S Odo H2324 USN SSOHOHuvnH OVfiHU OO O ON O O O OH SO ON OH O $0.3m OO OH OO ON HH OH OO SO OO OH O OOHHOOOO H28 .mHsOm Suocgomz Hmownuovam ON OO OO ON OO ON OS OS OS OH OH 2.882 imfifim OH OH OH S OH OH OO OS OO OH OH HSEUOHM . amour Shocwflog OH OH HH O O O OO SS OO ON OH 283225 ON ON ON OH OH OH OO SS SO ON SH .OHsOm nonmtoamafie ..OON ..OOH AvOHN ...OOH cOHH eOOH eOSO ..OOS A.OHO SO O 8333. OS... Hooch warm mSm ufim 38 m... S S . S o\3 \3 H309. o\3 \Bm H.309 ”\M “Wk/m H308 ”\M HWBm 0308 mEH posoumommm mcfluomom 0308 cofimuflwmmflu 303.3 mmwdmmEoO 3G0 mowanEoU :4 wdwnoumomom mcmunommm >u~mdp£ mowcmmEoU mownmmEoU 316mm mHEBnHfi—uo; €0.02 mcflmowpfl unmouonm mo admononu $5852 :OOOONOUnmpGSm .3; 3an 214 occurrence factor (computed from Table 7-16) is 1.5, showing that companies with staff predominated in the research. The benefit factor also is 1.5, showing that companies with staff more frequently declared Standardization research as producing most worth-while results. The evaluation factor, however, is .9, indicating that when research was done on Standardiza- tion, a greater percentage of companies without staff found it producing most worth-while results. Substitution Research in this area is directed at finding other materials or items which could replace materials or items presently being used, with resultant lowered ultimate production costs. Fre- quently, a lowered quality grade may be substituted for the quality now used, with resultant savings. In one company interviewed a small motor used in one assembly was attached to the unit by a bolted, aluminum cast base. This base cost 78¢ per unit, but it was felt that light- weight material should be used where possible, due to trans- portation costs. Purchasing Research investigated the possi- bility of using a steel stamping or an iron casting for the base. They found their saving on a steel stamping (cost: 20¢ per unit) more than enough to compensate for any additional transportation costs. On an annual usage of 5,000 units there 215 was a savings of $3,000, minus a $2,000 first year tooling cost. There also was a labor saving, since the new base was welded onto the motor, rather than bolted. In addition, four bolts per unit no longer were needed. Table 7-17 shows the percent of companies which researched the Substitution topic. The percentage of both companies with and without staff which did research on Substitution was large: an average of 64% and 45%, respectively. The occur- rence factor (computed from Table 7-17) is 1.4, indicating that 1.4 times as many companies with staff did research as those companies without staff. The benefit factor is 1.1, showing there was little difference in percent of companies with, and those without, staff which indicated this research produced most worth-while results. When research was done on Substitution, companies without staff regarded it higher as producing most worth-while results than those companies with staff, as the evaluation factor of .8 shows. Supply Forecast This type of material research, as with the research topics of Demand Forecast and Price Forecast, frequently will be a part of an overall commodity study. The purpose of this research is to isolate the factors which determine the quantity of the particular material available to the market; determine 216 mm mm ON NH OH 2 OO Ob Hm M0§m>< OO -- OO ON -- ON OO -- OO O O OOEOHHOnnH OE... Ocrafim o o o o o 0 mm O on O H .poum p003 mam. $5894 o .. o o u- 0 mm I- mm b o moflmmfim paw nonbdm ON -- ON SH -- SH SO -- SO O O OOEHOBO EsmHobOm O O O O O O ON OO ON O N OEEE O SO OO O OO NN OO OS SO O O .32 .032 mHOUHEO .omflcmwom . gonna Humflumod HoocmcpnO OH O OH HH O OH OS O OS O H 33.5.6. 28 Oosponm H22 0:388 Oh om cm mm om NO me 02 mm m O mmmHO pom OED 6:05 o om m: 0 0O 3 on ow MS 3 m .ponnH H902 poumomnbmh ooH om mm 2 OH Ma MO 2. 0O m S ONO Hanan—OZ pom Edofiouuonm oUduU O O O O O O ON O OH OH O 39mm O OO OH O NN O OO OO OO OH O OOOHOOOO 28 .OBOm SquEomg adomfloofim O OH NH O OH S HO OO HO OH OH £8on 525E o 2 b o S m OO Ob mm H: OH 3330on ammoxo .ronfinomz mm 0 SN om o 2 mm mm no on 2 mHmomEmnu OH ON OH O NH O OO OO OO ON SH .OBOM coHOmtommcfiH AOOH cOOH eOOH eSO cOHH OOO .OHO aOSO .OOO SO O 82309 98 Hooch Edam Edam wwmum mag—m 3.3m 33m 3.3m madam o\3 \3 H.308 o\3 \3 H.308 o\3 \3 H.309... o\3 53 0308 OER. posonmomom mcfluomom 0308 cowumommmmmau £355 mmmcmmEoU 3G0 mmmcdeoU Saw magnumomom mdflnommm thuumdpfi m 3ch800 m owcmmgo 0 33am“ 233:5u03 Ono: wcflmowpfi unvouonm mo ”:80."on umnEdZ .\ 823:35 .SH..S ~32. 217 the sources of future supply of the material; and forecast the total, available supply of the material for some future time period. Frequently, investigation into the supply situa- tion will provide advance warning of a material shortage. The results of this research also will affect decisions on expan- sion and location of production facilities. An example of a Supply Forecast project in one of the inter— viewed companies was a study prepared by the Purchase Research Department on a major purchased commodity. The Analyst first analyzed the raw materials used in the production of the item, and the future availability of these raw materials. Next he investigated the current productive capacity of the several producers of this item, and related this to past growth of producers, and announced expansion and modernization plans of the various potential vendors. The uses of the current supply of the material by industry also were determined. The foreign production capacity for this item was established, and per- tinent data on amounts of foreign production available for export, import and export regulations, and the transportation situation for foreign purchases also were assembled. Based on these data, forecasts of supply for several years into the future were made. Table 7-18 presents data on companies researching the Supply Forecast topic. The average percentage of companies 218 OH ON SH O OH O OO NO OO mo§m>< OO -- OO ON -- ON OO -- OO O O OOHOOOHOan HUS... OcHEEm O O O O O O ON O ON O H 68m coo? H28 H383 O -- O O -- O O -- O O O 8:35 ES SOOsm O .. O O -- O OO -- OO O O Ofififim EsoHoflmm O O O O O O ON OO ON O N OEEE OO OO OO ON ON NN OO OO OO O O .32 .022 mH.830 .UHEEOHOO . .OoHnH muoflummd “mocmcpuo O O O O O O OS OOH OO O H H333. HUgw 838m H32 23me O ON ON O ON O OH OOH NO O O $20 Ham 38 .286 O O O O O O OO OO SO OH O 63m H834 OBSHEOO O ON SH O OH S ON SO OO O S 30 HSBOZ USN ESQHOHHOnH @UDHU OO OO OO O OO HH ON SO ON OH O Sada O O O O O O SN OO OO OH O OBHOOFO H28 .355. Shocfiomz Hmowuuomam O O O O O O OO OO OO OH OH 2902 imficm OH O S O O O OO OO OO OH OH 33.30on 3083 Suofisodz ON OO SO OH OO HN OO OO OO ON OH 284.2820 OO O OH O O O OH. HO SN ON SH .OSOM coHfitommnmue ...OHN eSON eSON .OO .ONN ..OHH A.OOO cOOO ...OOO SO O 8988. ES Ooom ufim mfim ufim OOSO OOSO 33m warm mfim o\3 \3 HNHOH Q3 \3 HmuoH ON? \3 H.308 o\3 \3 0308 mEH pogonmomom wan—nomad oaoH Con—moflwmmdfiu £033 wowcmmeoU >HGO mmmcmmEoU :4 wagonmomom wcfiuomom >Humdp5 mowcmmEoU mowqmmgou mfidmom QHEBuHfiuo? umoz mcflmowpfi “Goononm mo unmoumnm nonEsZ ammoouoh zmmdm .mauw 3an 219 with staff which researched this topic was 62%; without staff, 35%. The occurrence factor (computed from Table 7-18) is 1.8 showing that companies with staff did more research on the Supply Forecast topic. The benefit factor is 3.5, showing that a much larger percentage of companies with staff found the research produced most worth-while results. The evaluation factor is also large (1.7), showing that when the Supply Forecast topic was researched, the results produced were valued more highly, on the average, in companies with purchase research staff. Tariff and Import Regulation Since foreign purchases, or the possibility of such pur- chases, each year grow increasingly more important in the decisions of many purchasing executives, it is natural that increasing time would be spent in study of applicable tariff and import regulations. Knowledge of such laws and regula— tions often may make the difference between sound and unsound purchasing decisions. Purchase research personnel might investigate tariff and import regulations for particular purchase items, in order that advisability of foreign procure- ment might be more comprehensively evaluated. An example of research on this topic in one of the com- panies interviewed was a project done on the supply of a a .l. L LI 220 particular commodity from the Far East. The objectives of the study, of which the tariff portion was only a part, were to establish whether or not foreign competition enjoyed a more favorable raw material position in the production of the final product, and if so, what could be done about it. The questions to be answered were: Would it be possible for this company to buy the raw material abroad, or buy a semi- finished product? How would applicable tariff regulations affect possibilities for foreign purchases? Thus, in making this study, intensive examination of applicable tariff regu- lations was made, as they would apply to importing the raw material. Table 7-19 shows that the percent of companies researching Tariff and Import Regulation was small. Thirty-eight percent of those companies with staff researched this topic and only 11% of companies without staff. In a number of industries no research was done on this topic. Crude Petroleum; Electrical Machinery, Equipment and Supplies; and Fabricated Metal Products ‘were the industries most active on this research topic. The occurrence factor (computed from Table 7-19) of 3.5 shows that a much greater percentage of companies with staff researched Tariff and Import Regulation. The percent of companies which indicated this topic produced most worth-while results was small. The benefit factor is 2.5, showing that those companies 221 ON ma 2 N m O 2 mm om m0§m>< O -- O O -- O O -- O O O OaHOmOHnan H28 Oaufium o o o o o o o o o O H .pounm 0003 00m Rwandan o -.. o o -u o o -u o b o moflmmanm paw umnbdm O -- O O -- O SH -- SH O O Oficmom EonohOnH O O O O O O O O O O N OcHfiHz. O OO OO O ON H ON OO OO O O .OOE .022 mHOuano dmfidmfiom . .wounm 30:50.4 Hoocmcpuo O O O O O O HH O OH O H H2284 OS... uudponnm 3:2. 0:388 O O O O O O OH ON SH O O mmmHo HUSN SOHO .286 o o o o o 0 on Oh 0O 3 m .ponnm H302 pmumfiundh o o o o o 0 mm : SO _ m N. ONO #2ng tom anfiofionm 00500 O O O O O O O O O OH O Emma OO OH ON S HH O ON OS NO OH O OOHHOOOO 2:... .530. 6:05:ng Hmowuu0ofim O O O O O O NN ON HN OH OH 3sz basin 0 o o o o o 0 HM m H O: OH 30:00am 308.8 Suofigudz o o o o o o om OO om om mH mfimudbogu o o o o o c m 3O NN om : .9de coaumunommcdnh ..SO ..SO OOO .OO ..SO «.5 .OO .ONN .OS SO O 8938. H28 Ooom madam wwmum mmmum 33m madam mmmum mmmum mmum o\3 \3 0508 o\3 \3 030B 0\3 \3 0EOH 0\3 \3 0.30M. OER. 00£0um0mom mcfinomom 0305 cofimgfimmmfio 30%;? moficdeOU 3G0 mowcmmEoU :4 9030.30QO wcmunomom tauumdpqm m 0 Emacs U m 0 Mammals 0 3160M 03:3..5u03 $02 mow—M055 300.3% mo acouuonm $5552 coaudgwmd :09»: bad wwwudfi .9” IN. omnmh 222 with staff indicated this topic produced most worth-while results more frequently than those without staff. The evalua- tion factor is only .5, showing that of those few companies researching, the percent of companies without staff which researched this topic and declared it producing most worth- while results was higher than that for companies with staff which did this research. Transportation Since transportation cost often represents a very large part of total purchase cost, many companies conduct research projects directed at discovering changes in transportation methods which would minimize the transportation element of the total purchase bill. Such research would involve such things as collection of data on competing transport rates, freight classifications, and differing transportation ser- vices available. One of the companies interviewed investigated the possi- bility of operating a freight consolidation dock in a major city in which a number of company suppliers were located. This involved gathering data on transportation rates, and number and size of shipments. It was recommended by Purchase Research that the company employ a consolidator (thus taking advantage of special A & D [Assembly and Distribution] rates) 223 in that city to consolidate as many as possible of the LTL shipments originating in that area, and to ship, by common carrier, in truck-load lots to the company's major plant. Besides the more favorable rates, due both to the A & D rates and the truckload rates, they were able also to reduce the number of trucks coming into their receiving department by approximately 40 per day, and at the same time to get better service. The average saving since the inception of this con- solidation arrangement had been $3,000 per month. Table 7-20 shows the percent of companies which did research on Transportation. The occurrence factor (computed from Table 7-20) is 1.7, showing the predominance of these companies with staff in this research. In only two industries was the percent of companies without staff which researched this area higher than the percent of companies with staff. The benefit factor is 1.5, showing that the percent of com- panies with staff which declared this area as having produced most worthdwhile results was considerably larger than the per- cent in companies without staff. The evaluation factor is only .9, indicating that the percent of those companies without staff researching which indicated mostvwmfihHWhile results pro- duced was somewhat greater than in companies with staff. 224 om : S b m O mm Om mm H0§m>< o n- o o n- o 0O ..- 0O m o mcwnmfindm 0cm wcflcwpnm om 0 mm mm o om om ooH Ob O H .pounm 0003 93 H0323: o u. o c I- o o .. o b o mufimmfim 0:0 u0nbdm O -- O O -- O OO -- OO O O OchaOm 832833 O O O O O O ON OOH OO O N Ofifiz OO O OO ON O HH OO O OO O O .OOHz .032 uH830 .0mflc0wum . gonna ”H05001H “023530 SH O SH HH O OH SO O OO O H H333. OE. podpoum :32 0S308 OO OO OO OH ON SH ON OS NO O O 3.30 HUgw S20 6.8% 0 mm ma 0 om S. cm Ob mm 2 m 400an $302 ©0u003£0h o o o o o o mm mO 0O m S. v.00 3.5502 paw 8.903.503 0de0 O O O O O O OH SO ON OH O Human O OH O O HH O OO SO OO OH O $2.36 Hz; .330. $00ch02 H00O500Hm OO O ON HH O S NN OO ON OH OH £8.02 imfitm mm 2 S b S S 2 Ob 0O bH OH 33.3005.” 30003 .>.O0GE002 mm mm mm 0H 2 NH mm ob wO om : 300m50£0 OH OO ON O SH HH OO OO OO ON SH .330. cosmtommcmfl. Oman O.\Oo OOMN Obm go OOb ovum Okmm ...va 8m 0 003308 paw pooh .305 3.3m madam 33m $05 33w m 3m .3 Q3 \3 H.308 0\3 \3 H.308 o\3 \3 1308 MN? HWBm 0308 038 p0£0n00m0m wafluomgm 0308 :030030030 £0.33 00303800 3:0 00303800 24¢ ma30n00m0m mafluomgm >505ch . m 0 30350 D m 0 30350 D 3160M 0355.330? 302. wdfimgpfi 300003 mo 300.8% u0nEdZ doflfluommcmu8 .oN :S. 03m8 225 Value Analysis The term "Value Analysis" is variously defined, but generally has two differing meanings: First, many define Value Analysis as the study of a function, and the compari- son of the purchase price paid with the function performed by the item purchased, relative to other items that might be purchased which would satisfy the same function, but perhaps at a much lower cost. Under this definition, a number of research topics, for example, Substitution, Standardization, and Transportation, would be included in the work of Value Analysis. Second, many would define Value Analysis as a concentrated attack on any area with which purchasing is concerned, in an effort to improve purchasing efficiency. Thus, under this definition, almost any topic of purchasing research would be included, whether it be Commodity Study, Substitution, Analysis of Vendor Production Facilities, or Purchasing Procedures. Regardless of the definition used for Value Analysis, if a firm is doing Value Analysis it also would be researching one or more of the specific research topics listed above, and perhaps many of those discussed in the succeeding two chapters. Both the General Electric Corporation and the National Association of Purchasing Agents have been instrumental in promoting Value Analysis concepts. The very high percentage 226 of companies indicating Value Analysis as one of the areas in which research efforts were directed attests to the success achieved in promoting the Value Analysis idea. Table 7-21 presents data on the Value Analysis research topic. The percentage of companies both with and without staff indicating research on this topic was quite high (76% and 47%, respectively); the occurrence factor (computed from Table 7-21) is 1.6, showing that 1.6 times as many companies with staff researched this area as those without staff. The benefit factor is 2.4, showing the greater frequency with which companies with staff indicated this topic produced most worthdwhile results. The evaluation factor of 1.4 indicates that when research was done on Value Analysis, a higher per- cent of companies with staff regarded it as having produced most worth-While results than companies without staff. Comparison of Occurrence, Benefit, Evaluation Factors Table 7-22 presents the occurrence factor, the benefit factor, and the evaluation factor for each of the Purchased Materials, Products, or Services research topics. The occur- rence factors in this table indicate that in all research topics the average percentage of companies with staff was greater than the percent of companies without staff which researched each topic. The occurrence factor is highest in 227 OO OO OO SH HO ON SO OS SO mo§m>< OO -- OO ON -- ON OO -- OO O O OOEOHHOan HBO museum O O O O O O OO OOH OO O H .030 H083 HEO 08854 OOH I OOH SH .. SH SH .. SH O O 8002an HBO 800:0 OO -- OO SH -- SH OO .. OO O O OcHfiOom 8:20:00 O OOH OO O OO OH ON OO ON O N OEEE SO SO SO OO OO OO OO OS SO O O .32 .032 0.8000 600.830 . .080 “0030004 “000030.30 OO O OO OO O OO OO O OO O H H0303 HBO 8:020 :02 0:080. OO OS OO ON OS NO OS OOH OO O O OOOHO HEO rmH0 .2800 OO OO OO ON OO ON OO OOH OS OH O .080 H322 0882000 OOH OO HS ON OO OO ON HS SO O S OO0 H2802 UGm EdeOHHQnH QUSHU ON OO ON O OO OH OO SO OO OH O 8000 ON OO NO OH OO HN SO OO OO OH O 330030 H080 .0300 .>.~0GE00§ 0030001.." OO OO HO SN ON ON HO OO HO OH OH 2802 308:0 OO NO SO ON OO OO OO OO OS OH OH 33:0on um0ox0 $90Gm£002 OO OO OO OH OO ON OO SS HO ON OH 280825 ON OO NO OH NO OO OO NO SO ON SH .0060 50380053. .OHO .OON °OOO .OOH .OON .OOH OOOO .OOS #8 SO O 08300. HEO H080 080 030 080 030 080 030 030 030 0\3 \3 H0008 0\3 \3 H0008 RN? \3 H0008 0\3 \3 Samoa. 03H. 003000000m wcfihomgm uaofi 0030330030 :03? 003090000 >100 003090000 24w mcw£0u0000m mafluomgm 0300005 003090.80 00309800 00300m 0Z£3nnu003 000.2 $0300pr «000.3% m0 ..E0000nm 0038.92 0 O0>HOG< 0d~0> .HNIN 0:008 228 Tariff and Import Regulation where the percent of companies with staff was 3.5 times as great as the percent of companies without staff which did research. The benefit factor shows that, with the exception of Packaging, a higher percentage of those companies with staff declared all research topics as having produced most worth-while results. In six topics (New Product, Packaging, Standardization, Substitution, Tariff and Import Regulation, and Transportation) a higher percent of those companies without staff which did research declared that research as having produced most worth-while results (an evaluation factor of less than 1). lWith the exception of Tariff and Import Regulation research, which few were doing, these areas are all ones in which the buyer would be presumed very knowledgeable, or in which the services of other company departments would possibly have been obtained. Yet the average evaluation factor of 1.2 for the entire Purchased Materials, Products, or Services category shows that, in total, the results of topics researched in companies which had a purchase research staff were evaluated higher than that re- search done in companies which did not have a purchase research staff. 229 Table 7-22. Occurrence, benefit, and evaluation factors for the 18 purchased materials, products, or services research topics Occurrence Benefit Evaluation Research Topics Factora Factorb Factorc Commodity Study ' 1.4 2.2 1.6 Correct Order Quantity 1.4 1.6 1.1 Demand Forecast 1.6 4.5 2.1 Lease or Buy 1.4 2.3 1.3 Make or Buy 2.3 2.6 1.1 Method of Production 1.8 14 7.5 New Product 1.6 1.2 .7 Packaging 1.3 .9 .7 Price Forecast 1.7 3 1.6 Pricing Procedure 1.8 5 2.2 Scrap Disposal 1.4 1.7 1.1 Specification .7 1.9 l Standardization 1.5 1.5 .9 Substitution 1.4 1.1 .8 Supply Forecast 1.8 3.5 1.7 Tariff and Import Regulation 3.5 2.5 .5 Transportation 1.7 1.5 .9 Value Analysis 1.6 2.4 1.4 AVERAGE FACTOR 1.6 1.9 1.2 éRatio of percent of companies with staff to percent of companies without staff which researched each topic. Ratio of percent of companies with staff to percent of companies without staff which indicated a topic produced most worthdwhile results. CRatio of percent of companies with staff to percent of com- panies without staff which declared most worth-while results produced when a topic was actually researched. 230 Evaluation of Research Performed by the Purchase Research Staff That research done by the research staff was more likely to be regarded; as most worth-while than that done by other individuals within thegpurchasinq department. Thirty-six percent of the total topics researched solely by the purchase research staff were declaredito have produced most worth- while results (Table 7—23). This percent is 1.8 times as large as the percent of total topics researched solely by the buyer and found to have produced most worth—while results (20%), and 1.4 times as large as the percent for total topics researched solely by the administrator and designated as most worthdwhile (26%). In three topics, Correct Order Quantity, Pricing Pro- cedure or Structure, and Transportation, the percent of work done solely by the research staff and declared to have produced most worthdwhile results was over twice as large as the percent for both that research done solely by the buyer and for that done solely by the administrator. On only five topics, Lease or Buy, New Product, Scrap Disposal, Substitution, and Supply Forecast was the percent of work done solely by the buyer, and/or solely by the administrator, which was regarded as having produced most worth-while results,higher than the per- cent for work done solely by the research staff. 231 OON OON KOO 00000>0 OO ON OO O NH ON 00000000 00H0> HH SH OO OH NH OH 00000000000000 O O O NH S NH 000000 HO OO ON OH NH NH 00000000 0H0000 OO OH HO O ON OH 000000000000 OO OH NO OH OH OH 000000000000000 OH OH SN S ON OH 0000000000000 OO NH HH OH SH OH H0000000 00000 HH OH OO O S OH 000000000 0000000 O OO HO HN OH OH 00000000 00000 OH ON OO S ON OH O00O00000 NN OH O O SH OH 0000000 300 OO SN SO O OH OH 0000000000 00 00000: HO OH OO OH SH ON 000 00 0000 ON OH OH HN OH OH 000 00 00000 O O OH NH O HN 00000000 000000 ON O 00 SH NN OH 00000000 00000 0000000 KOO OOO .xNS 0 SH OH 00000 000000000 00000 00000 00oH< 00000 000H¢ 00000 .004 00000 00000 .000 00000 00000 00000000 muasmmm 0H003u00003 00oz O000000000 .000 NO 0000000 00000000000 00000000000 .000 00Q802 000QOB 00000000 00000000 0000000m 0003 000000800 00 .mm000 an 0000 0003 0000000 000£3I£0003 0006 00000000 00003 00000000 .mmIO 00905 .000H0 0000000000800 mm0um Ho .Hmmsn 232 Thus, results of work done by the research staff were more highly regarded, on the average, than similar work done by other purchasing personnel. This provides one measure of the effectiveness of a research staff. It can be concluded then, that if a company_wishes to gain maximum results from the purchasing7research that it does, it should utilize the services of staff research personnel. Personnel Involvement l. The Purchase Research Staff The_pp£chase research staff alone performed the research on one-fpprth of those topics researched by companies with ggggfp and was involved in half of those topics researched. Table 7-24 shows the percent of topics researched by companies with staff in which their research staff was in- volved. On one topic, Method of Production or Manufacture, in over half of the companies which researched this topic, the staff algp§_did the research. In 41% of the research on Demand Forecast and 32% of the research on Tariff and Import Regulation, the research was done by the staff algae. In the majority of topics, between 20% and 30% of the companies doing research performed this research solely with their 'purchase research staff. These findings show that when a company had a research staffppthe company relied upon this 233 Table 7-24. Involvement of purchase research staff in research on purchased materials, products, or services, by company size Percent of Those Cos. Percent Researching Each Topic in Which in Which Their Purchase Only PR Research Staff Was Staff Involveda Involved O H' 0 ... .. 0 a: a Company Size (Sales) (A 5 SI" g g g o 8 E H -:-l I w-i I w-l C) H m a)~< 0.0 c304 Org 0 0 0.0 (304 c>O+ -g u 0 E 0-0 00-0 0304 0 m o 0 0 0 0 <0 0 <0 2 <0 0 0 0 Number of Companies with Staff 8 59 14 18 99 99 Research Topics Commodity Study 57% 58%. 73% 73% 63% 23% Correct Order Quantity 40 34 14 64 37 15 Demand Forecast 33 29 80 6O 53 41 Lease or Buy 0 44 63 45 42 28 Make or Buy 29 50 7O 64 53 26 Mbthod of Production 0 81 33 100 74 52 New Product 67 49 4O 44 47 23 Packaging 50 33 86 47 44 23 Price Forecast 0 34 7O 63 43 18 Pricing Procedure 0 57 100 69 61 27 Scrap Disposal 29 42 4O 62 44 27 Specification 25 50 56 54 50 23 Standardization 67 6O 6O 54 59 27 Substitution 6O 44 50 43 45 20 Supply Forecast 0 32 7O 71 45 19 Tariff and Import Regulation 0 48 20 '55 45 32 Transportation 20 33 50 46 37 26 Value Analysis 33 72 56 71 67 26 Average involvement for the above topics 32 48 59 6O 50 25 aComputation of percent of total purchase research staff involvement made by (1) adding the number of topics researched by the purchase research staff alone and in combination with the buyer and/or the administrator, and (2) dividing this number by the number of companies which indicated the topic was researched. 234 staff to do the complete research on a substantialgpercen- tage of topics which were researched. The purchase research staff was involved in 50% of those topics researched by companies with staff. (Each respondent could answer that a topic-had been researched by the purchase research staff, the buyer, the administrator, or any combina- tion of these three positions. When a topic was indicated as having been researched by more than one group, the assumption can be made that there probably was some interaction between these groups, and transfer of information, in the process of performing the research, although there is no assurance that this was so. It is conceivable that each group could have worked algng_on specific projects within this topic.) Analysis of the total involvement of the purchase research staff in research done (Table 7-24) shows that the topic with largest total involvement (research done by the staff §12g§_and by the staff as well as other individuals) was Method of Produc— tion or Manufacture (74% total involvement), followed by Value Analysis (67%), Commodity Study (63%), Pricing Procedure or Structure (61%), Standardization (59%), Demand Forecast (53%), Make or Buy (53%), and Specification (50%). The lowest two topics of total involvement were Correct Order Quantity and Transportation, where the research staff was indicated as doing research in only 37% of the companies which researched these topics. 235 The average total involvement of the staff in the total 18 topics researched increased greatly as company size increased. The average total involvement of the staff in all topics researched by companies in the smallest size category was 32%» but it increased to 48% in the next size category, and to 59% and 60%, respectively, in the next to the largest and largest size categories (Table 7-24). Perhaps these differences in total involvement can be explained by the size of the research staff. The smaller companies had the smaller size staffs; the larger companies the larger size staffs, and the larger the research staff the more topics it could become engaged in. Although no general pattern existed between company size and total research staff involvement in the research done on each topic, the following ten topics showed a general trend of increased total staff involvement with increased company size: Commodity Study, Demand Fore- casts, Make or Buy, Method of Production or Manufacture, Price Forecast, Pricing Procedure or Structure, Scrap Disposal, Supply Forecast, Transportation, and Value Analysis. The purchase research staff alone did research on an average Of 2.8 topics, and was involved (indicated as doing the research alone, as well as with other individuals) in an average of 5.6 topics in those companies with a staff. This shows that while in companies with staff some topics are 236 researched only bygthe staff, the presence of staff does not preclude other individuals from also doing research on topics which the staff researches. 2. The Administrator The administrator was involved in a smaller percentage of togglitopics researched in companies which had a research eggs“. The administrator alone did the research on only 19% of the total topics researched in companies with staff, but on 33% of the total topics researched in companies without staff. On only one topic,frnansportation, did the administrator alone perform a greater percent of the research actually done in companies with staff than he performed in companies without staff (Table 7-25). Total administrator involvement (topics researched by the administrator alone, as well as topics researched by the administrator, plus other individuals) on all topics researched by companies with staff was 41%, but it was 51% in companies without staff (Table 7-25). From this it can be concluded that the total involvement of the administrator on topics actually researched is smaller in those companies which have a research staff. The average number of topics on which the adminis- trator alone was involved was approximately the same in 237 .mmmum DSOQDHB mmflcmmaoo mflu mo vaa paw mmmum LDH3 mwflcmmaou map mo cm %9 Umfloummmmu mm3 UHmou mpsum muflpoEEou w:u.mHmmew Mom .mmum Sumo ca SonmmeH map hmnu pmumoflpcfl £Ufl£3 mmflcmm IEOU QmOSH MO MCQUhmm m mH #H .mmflcmmEoo mom no mm 0:» mo ucwonmm m uoc mH unmouwmm Hm mm as ma ucmEm>Ho>ca mommm>¢ mm ma mg Ha mammamcfi woam> H6 mm ma mm coflumuHOchmue on km ma mm coflumasmmm uuomeH 6cm madame so as us Hm ummumuom mammsm mm Ha mm m coflusuflumnsm mg mm as «a coaumufipumpcmum as am mm Ha coaumoamaommm mv mm as mm ammommfla mmuom m6 m4 Hm ma wusowooum manuaum no om mm mm ummumuom moaum ma mm mm HH mcammxumm mv mm mm ma uosooum 3oz am am mm om coauospoum mo ponumz mm vs Hg 0H mom Ho mxmz- as mm am am mam no mmmmq mm Hm mm «m pmmoouom pcmfima mm mm ma mm annuamso Hmcuo uomuuou Raw Ram Row Rea mosum muacoasoo Hmmsm w mm..564 Hwhsm Ucm “mm w .EU¢ HoumnuchHEU« mcoad unmasm w .Ep< occaa moflmoe nuummmmm “Houmuumflcwspd HoumuuchHEU< “HoumuumflcfiE©< Houmuumflcfiapm mmmum usonufiz mwflcmmeoo mmmum £DH3 mmflcmmeoo mpm>ao>cw mmB HOHMHumflcHEpm SUfl£3 CH UHQOD Qumw UGHSUHmwmmH mmflcmmfiou mmosu mo uswoumm .muuspoum .mamwumpmfi Ummmsuusm co zuummmmu mmmnousm ca usme>Ho>cw HoumuumHCflfipm Canon 30mm unflaoummmmu mwflcmmeoo ca wmofi>Hmm no .mmih Dance 238 companies with and without a staff. He was involved alone in an average of 2.2 topics in companies with staff, and 2.3 topics in companies without staff (Table 7-26). The average number of topics in which the administrator alone, and alone and in combination with other individuals, was involved was greater in companies with staff. The administrator, in total, was involved in an average of 4.6 research topics in com- panies with staff, but only 3.5 topics in companies without staff. Thus the administrator was involved in l.3 times as many topics in companies with staff, but this increase was not as great as the increase in number of topics researched (com- panies with staff researched 1.6 times as many topics). From the above data it can be concluded that in companies with starrithe administrator is less likely to become involved in that research dgne, for specialized staff is available to pprrorm some of the research. However, in companies with staff, the administrator becomes involved in a larger total ppmber of tgprgs, because manyrmore topics are researched. The ipprease in the average number of topics in which the administrator is involved! however! is not as great as the increase in number of topics researched, due to the assistance ‘by the research staff. 9 3 2 .Ufimou 50mm pmnoumwmmu QUHQB wmoxu maco uoc pcm Qsoum Lomm CH mmflcmmeoo mo uwQEzc Hmvow wfip co UmumHDUHmo mm3 mmmucmoummm m . m m . N o . an N . N ZH QW>AO>ZH mUHmOB .Oz m0¢ ARom Roma nxvmm RNA BZmommm m0§m>< mm m mm m mammamcd mzam> ma 0 mm ma coaumuuommcmue m 6 6H NH coflumasmmm uuomsH a mmaume mm RH mm ma ummomuom Saddam ma m SH 0 coausuflpmnsm om Ha mm OH coaumuflpnmpcmum ma 0 am 0 coflumoHMHummm mm ma mm ma Ammommflm mmuom ma NH mm m wuscmooum mCHUHHm om mm mg Hm unmomuom moflum mm ma ma a mcammxomm ma 0 om m agapoum 3oz m m Ha @ cofluospoum mo ponuoz Hm ma mm ma mam no mxmz mm mm am am mam no mmmmq om ma ma NH unmomhom pcmEmQ ma ma mm ha muflucmso HGUHO uuwhuoo Xmm Xma Xmm Rm hpsum hquOEEOU Hmfidm % mm..EU< Hmhsm paw ocoafi “mm d .Epd mcoam Houmuumflcfifip< HoumuumflcwEUm “Hmmsm w .Epm uovmnumflcflEU¢ «HoumnuchHE©< “HoumuumflcaEp¢ moflmoe noummmmm mmmum ONE mmflcmoaoo mom (Mmmum\3 mmflcmaaoo mm mmmmmmmmm as 6m>Ho>cH was uoumnumacwama nofigz ca mmacmgsoo mo unmoumm mmuw>uwm Ho .muozpoum .mamwumumfi pmmmfiousm co Aoummmmu cw ucmEm>Ho>cH uoumuumacasu< .omun magma 240 3. The Buyer The buyer was involved in a higherrpercent of those topics actually researched in companies without staff than in com- panies with staff. The buyer arppg did the research on 49% of the topics actually researched by companies without staff, but on only 24% of the topics researched by companies with staff. Total buyer involvement (research done by the buyer alone, plus research topics on which the buyer as well as other indi— viduals worked):h1 topics researched showed the buyer involved in 67% of the topics in companies without staff, and only in 52%.of the topics in companies with staff (Table 7-27). Thus, on a given topic on which research was done, the buyer was less likely to be involved in companies which had a staff. One of the functions of the staff if; to assist line personnel and to relieve them of some of their duties in order that they may concentrate their efforts on areas in which they are best qualified. The research staff does relieve the buyer of part of the research work on topics actually researched. The buyer alone also was involved in research on more total topics in companies without research staff. He was involved in an average of 3.4 topics in companies without staff, and in only 2.7 topics in companies with staff. However, in com- panies with staff the buyer was involved in total (topics researched by the buyer alone and by the buyer and other 241 .mmmum DSO£DH3 mmflcmmeoo mmonu mo wad pom .mmmum nufl3 mmflcmmfiou map mo om Mn maoo mmB aboum hufipoaeou .oamfimxm Hom .moum Sumo Ga Suummmmn 0H0 Mona pmumoflpcfl gofi£3 mwficmm IEoo mmonu mo pcmonmm m ma UH .mmflcmmEoo mom Ho mm mnu mo unmonwm m no: ma ucmonwmm no mo mm gm mofimou m>onm mnp Mom usmEm>Ho>cfl mmmno>< mm so am 6H mammamcm oon> Nb mm mm mm coaumuhommcmua mo om am ma ooflumasmom uuomsH o «magma Hm om mm as ummoonom Saddam mm mm on mm coauouflumnsm Sh hm Hm om coaumuflcumpcmum on on am am coaumoamaoomm a0 mm 0v mm ammommflm mmuom mm mm mm as ouooooooo moaoaum om mm av «a ummowuom moflum on mm «6 Ha mafimmxomm mm mm mm om puscoum 3oz an am am mv coauospoum mo ©0£u02 om am as mm mom Ho oxmz mo mm mm ma mom no momma Hm mm mm ma ummomuom pcmfima ms «6 am mm moaoomoo noooo uoouuoo am 5 am m as o x: m bosom 330258 Houmupmacflfipd mcoafi .mm o .E©< .Hmmmm moodm pom Howsm ..Eo¢ w Homom .mm “whom moamoa noummmmm Hwhzm “Homom w Hwhsm “Hm%sm . mmmom ooonoaz moaoomsoo mumom spas moaoomsoo mpm>ao>cw mm3 woman £0H£3 CH owmou sumo mdflfiuumumou mwficmmfiou macaw mo usmoumm canon comm mcaguummmon mmflcmmaoo ca mmuw>uom no .muospoum .maMauwumE pommnousm so soummmmu mmmnouom ca ucmfim>ao>cw Howsm .nmuh manna 2 .uamou Sumo poSunmomon SUHSB omOSu M maco co Soc 6cm moonm Sumo ca moflcmmEou mo HoSESQ Smuou oSu co woumasuamu mmB ommucounomm o .w ¢.m m.m h .N ZH Qm>SO>ZH mUHmOB.OZ mommmxa Rom Ron Xmm me ezmummm mommm>< mm mm mm NH mammamGS osHm> mm on om mn connmnnodmomne m m mn a connmnomom nnomsn o.nnnnmn ma mn mm NH nmmoonom Saddam ow mm mo om connonnnmnom mm mm mm ma coaumufipnmpcmum mm mm mm om GoaumUHMHuomm om mm Sm SH mmnum ma 0 ma 5 onspouonm manuanm mm mn mm on nmmoonom ounnm mm mm Ha om monmmxomo mm om mm SH muusmonm 3oz NH m mm ma coauusmonm mo UOSuoz on mn mm an mom no onus on ma an on mom no ommoq ma NH 0H m nmmuonom mcmEoQ om om mm mm Sonnomso nomno noonnoo now now Row and mmsnm annmoasoo nonmnnmnanmm osoam mm m .Emm .no>sm occam mom n.sm¢ m nomsm umm Homsm “Homsm Homsm w Homsm “Hohsm Homsm muamoa Summomom mmmum 0\3 moflcmmEou mom mmmumx3 moflcmafiou mm Sunmooom ca po>ao>cH mmz nohmm SuaSz Aw moflcmqeoo Ho usounom mouw>nom no .muuzoonm .mamnnouma mommSunsm so Sunmomon cw ucoEo>Ho>cH Howsm .mmln oHSmB 243 individuals) in a greater average number of topics in com— panies with staff. In total, the buyer was involved in an average of 5.8 topics in companies with staff, but in only 4.6 topics in companies without staff (Table 7-28). This higher total involvement of the buyer in companies with staff occurred primarily because of the larger number of topics researched by companies with staff. From this it can be concluded that while the average numpgr of topics on which the buyer alone does research is smaller in companies with staff, and his involvement in a particular topic researched is likely to be less,_he actually pegomes involved in more research tppics, as part.of a groupJ in cpmpaniegrwith staffr_because research is done on more topics. Or to state it another way, the buyer's percent of the whole is less, but the whole is considerably larger. Chapter Summary Conclusions regarding purchasing research on Purchased Materials, Products, or Services were made by a comparison of the 99 companies with a purchase research staff and the 205 companies without staff which responded to the mail questionnaire. Companies with a purchase research staff researched, on the average, 1.6 times as many topics in the Purchased Materials, Products, or Services category as those companies 244 without staff. Each of the 18 topics in this category was researched by a larger percent of companies with staff than without staff. The percent of companies with staff which declared re- search topics produced most worth-while results was, on an average, 1.9 times as large as the percent for companies without staff. Of those topics actually researched, com- panies with staff evaluated the research as having produced most worth-while results 1.2 times as frequently as companies without staff. There appeared to be a positive relation between company size and percent of topics on which research was done in the companies with staff, but not in the companies which did not have staff. In all but two industry classifications, a larger number of topics were researched by companies with staff. The five industries in which the largest percent of companies with staff did research on the total topics in the research on Purchased Materials, Products, or Services category were: Stone, Clay, and Glass (78%); Fabricated Metal Products (73%); Chemicals (73%); Food and Tobacco (67%); and Electrical Machinery, Equipment, and Supplies (67%). 245 An analysis was made in this chapter of each of the 18 individual research topics in this category. These topics were: Commodity Study, Correct Order Quantity, Demand Fore- cast, Lease or Buy, Make or Buy, Method of Production or Manufacture, New Product, Packaging, Price Forecast, Pricing Procedure or Structure, Scrap Disposal, Specification, Stan- dardization, Substitution, Supply Forecast, Tariff and Import Regulation, Transportation, and Value Analysis. A description of each topic was given, and an example of this type research was presented, where possible, from one of the ten companies interviewed. Additionally, a table was presented for each topic to show, by industry classification, the percent of com- panies which researched the topic, and declared most worth— while results from the topic. Research done by the staff research personnel was regarded as producing most worthdwhile results more frequently than research done by others within the purchasing department. In those companies with staff, the percent of topics researched solely by the staff which were declared to have produced most ‘worthdwhile results was 1.8 times as large as the percentage for topics done solely by the buyer, and 1.4 times as large as the percentage for topics done solely by the administrator. 246 The purchase research staff was involved (either doing the research alone or in conjunction with the buyer or admin- istrator or both) in 50% of the topics researched in the companies with staff. The average involvement of the research staff in topics researched increased with company size. The purchase research staff alone did the research on an average of 25% of the topics researched in the companies with staff. The staff alone researched an average of 2.8 topics, and was involved in research on an average of 5.6 topics. The purchasing administrator was involved, both alppg.and with other individuals, in a smaller percent of the topics rgsearched in companies with staff than in those without staff. The percent of topics researched in which the administrator alone was involved was 1.7 times greater in companies without staff. Total administrator involvement was 1.2 times greater in those topics researched by companies without staff. The average number of total topics on which the administrator glppg did research was approximately the same in companies with and without staff(2.2 and 2.3). The average number of topics on ‘which the administrator, alone and with others, was involved was larger in those companies with staff (4.6 to 3.5), primarily because the number of topics researched was much larger in companies with staff. 247 In companies without staff, the buyer was involved in a larger percent of the tgpics actually researched. The involve- ment of the buyer alone in topics actually researched was twice as large in companies without staff; the involvement of the buyer alone and conjunction with other persons was 1.3 times greater in the companies without staff. The average number of total topics on which the buyer alone did research ’was larger in those companies without staff (3.4 to 2.7); however, the average number of total topics on which the buyer alone and with other members of the department became involved was 1.3 times greater in companies with staff than in those ‘without (5.8 to 4.6), because companies with staff researched a larger number of topics. The increase in average number of topics in which the administraton.and the buyer, were involved in companies with staff was not as great as the increase in total topics re- searched by companies which had staff. 248 CHAPTER VIII RESEARCH ON VENDORS Introduction The second major category of research topics, Research on Vendors, includes those topics primarily concerned with the sources from which particular materials, products, or services are purchased. As noted earlier, the assignment of particular topics to one of the three major categories-- Purchased Materials, Products, or Services; Vendors; or The Purchasing System-awas somewhat arbitrary, for research on a particular topic might necessitate investigation into the material itself, the sources from which it is purchased, and the method by which it is purchased. This chapter discusses research done, the evaluation of research results, and the involvement of the purchase re- search staff, the administrator, and the buyer in the Research on Vendors category- Each of the nine individual research topics in this category also is discussed, and the occurrence, benefit, and evaluation factors are computed for purposes of analysis. Since this chapter and the following chapter (Chapter IX: Research on The Purchasing System) present the same type of analysis of the topics in each.category as Chapter VII did for topics in the Purchased Materials, Products, or 249 Services category, the remarks in the Introduction to Chapter VII about the methods by which data were obtained, the limi- tations of these data,and the analysis of data apply here also. Topics Researched Those companies with a purchase research staff researched 1.8 times agpmany topics in the Research on Vendors category as those companies without staff. Those companies with staff indicated research done during 1959 or 1960 on an average of 57%»of the total topics in this category, while those without staff did research on only 31% of these topics (Table 8-l). Without exception, a higher percentage of companies with staff indicated research done on each of the nine topics than was indicated by companies without staff. The four topics which had a higher occurrence factor1 than the 1.8 average occurrence factor for the Research on Vendors category were (figure in brackets is the occurrence factor): Estimate of Distribution Costs (3.1), Estimate of Manufacturing Costs (3), Supplier Attitude Survey (2.3), and Vendor Sales Strategy (2). Trade Relations Data 'was the topic with the smallest occurrence factor, although even on this topic the percent of companies which did research was 1.4 times larger than the percent of 1The occurrence factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies without staff which researched a topic. 250 $3 $9. SHOES/.64 >wonmnum moSmm nopao> coSnmdSm>mS ounnmvcnoSnonS noSonno> mnmnS mdoSnmSoMS opmnh. >o>nsm 3633364 noSSnSnSdm mnmoU mGSndnummfideS So onmESumH mumoU doSndnSnnmSnS So oumnnnflmm oundom >SnSnSdm SmSSGononm mnSSonnSh moSSSSSumh :oSnudSoonnS So mSmnSSmnn< nfimummmu SmSudmcSh mo mSm>Sma< $3 a: s2 .3 a: e}. .Em m S «S m S S m N SS NN mS mS wS oS b S m Sw. S1. Nm mN 0N mN SS SS SS oSn pm me. 0S 0 m N N N mS mm NN b b b S m N S Sm SN 0 NS NS S m N o wN mS NS NS m S 2 3 0S om Sum mo SS w oS m S. b 5n om ob an .E an ..S .5 .4: SE. at. $2 a, w. a a. a a. :. uSmoH mSSH. SooSunmomom mGSunonSom uSnSoH SUSS? moSnnmmccoU >Snn0 moSnnmnSEoU SS< mnnSSunmomom moSnnmmcnoU mugmom oSSSBISun03 Smog maSumuSSuGS «Gounom mo unounonS m quB Sunmom om mnSdmon oSSSBuSSHOB Smog mnnflmuSpnnS announom “muSnSoS nopao> mnnSSunmomon moSnnmnSS—oo .Sum oSSmH. 251 companies without staff which researched this topic. From the above information on the occurrence factors for topics in this category, and a comparison of the percent of companies with and without staff which did research on each of the nine topics in this category (Table 8-l), the fol- lowing conclusion is indicated: Companies with a purchase research staff are more likely to research topics in the Vendor category than are companies without staff. There was considerable difference in the percent of companies, both with and without staff, which did research on the various topics within this category. The two topics researched by the highest percent of companies with staff, Finding Potential Supply Source and Analysis of Production Facilities, were both researched by 84% of those companies with staff. The topics within the lowest, and next to the lowest percent of companies with staff which did research were, respectively, Vendor Sales Strategy and Estimate of Distribution Costs, with 22% and 28% of the companies research- ing. The topic, Finding Potential Supply Source, also had the highest percent of companies without staff researching (56%), while Estimate of Distribution Costs was the topic on which the smallest percentage of companies without staff did research (9%). The relative rank of percentages of companies with staff, 252 and those without staff, which researched each topic was almost identical, although as previously pointed out, on all nine topics a higher percent of those companies with staff did research than those without staff. Topics Produced Most Worth-while Results Those companies with purchase research staff declared 1.8 times as many topics in the Research on Vendors category had produced most worth-while results as was declared by companies without staff. The percent of both companies with, and those without, purchase research staff which declared tOpics in this category had produced worth-while results was small. Seven percent of the topics were declared as having produced most worth—while results by companies with staff; only 4% by com- panies without staff (Table 8-l). On all nine topics in this category, the percent of companies with staff which declared most worth—while results were produced was as large, or larger than the percent of companies without staff. The percent for companies with staff was larger than that for companies with- out staff on the following five topics (figure in brackets is , 2 the benefit factor, computed from Table 8-1). Estimate of 2The benefit factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of com- panies without staff which indicated a topic produced most worth-while results. 253 Distribution Costs (5), Vendor Sales Strategy (3), Estimate of Manufacturing Costs (3), Vendor Performance Evaluation (2.2), and Analysis of Production Facilities (1.4). The percent was the same for both groups on four topics in this category. From the data presented in Table 8-1, the following conclusion is indicated: Although relatively few topics in the Research on Vendors category are found to produce most worth-while results, companies with staff are more likely to produce most worth-while results in this area than companies without staff. The average evaluation factorf3computed from Table 8-1 is .8, which shows that a larger percent of companies without staff dpm with staff regarded research actually done on these topics as having produced most worth-while results. An average of 14% of total topics actually researched by companies without staff were regarded as having produced most worth-while results, comparedtx> only 11% in companies with staff. The four individual topics with an evaluation factor greater than 1 are as follows: Estimate of Distribution Costs, Estimate of Manufacturing Costs, Vendor Per- formance Evaluation, and Vendor Sales Strategy. In several of the individual topics the number of companies which indflzated the most worth-while results was small, and thus the evaluation factors may not be too meaningful. These evaluation factors are discussed later in this chapter, and are summarized in Table 8-13. 3The evaluation factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies 'without staff which declared most worth-while results produced ‘when a topic was actually researched. 254 Relapron Between Company Size and Research Done Company size did not appear to affect the number of topics researched, in either the companies with staff or those without staff. Table 8-2 shows that the average percent of topics researched remained approximately the same, in both groups, as company size increased. On only two topics, Analysis of Production Facilities and Trade Relations Data, did the percent of companies with staff which did research increase with increased company size, although even on these two topics the differences in percent of companies researching in the four different size categories was not great. Relation Between Industry Classification and Research Done The tendengy for companies with a purchase research staff to do research on more topics held true in all but one of the 1? industry classifications. The only exception, as Table 8-3 shows, is Textile Mill Product and Apparel, where an average of 49%.of the total topics were researched by companies without staff, and only 44% of the total topics were researched by the one company with staff. In eight of the fourteen industry classifications in which companies had staff, an average of 50% or more of the topics were researched, but in none of the industry classifications did companies without staff research as many as 50% of the total topics. 255 SN So mm mm mm Sm Sm mm Bzmommm mo¢ m mm an on on om mn mm Smonmnnm monmm noooo> mm mm mm Sm ow mS om mS coaumoSm>o oucmfinomnom Hopco> mv So mm mm ow mm Sm om mpmp mGOHumSon opmna m mm on Sm on em SS mm So>nom ooonnnnm nonnooom mS Sm mm mm mS mm MS om mumou mcflnsuummscme mo oumEHumm 0 mm VS mm 0 SN 0S mN mumou coauSSfinumflp mo oumaflumm mm mm Sm mm Sm mm mm mm ounsom Sammsm Smflucouom mcfipcflm mm mm mg mm mm mm mm mS mowpflSHumm COHuUSpOHm mo mflmmSmcm Rom xno Ram x46 aSv Rom new amp Snnomomo Smflucmcfim mo mHmSSmcm muHQOB Summomom SS mn Sm on SNS mm mm m oncomooomom no nonsoz mmmum mmmum mmmum mmmum mmmum mmmum mmmum mmmum 0\3 \3 0\3 \3 0\3 \3 0\3 \3 Ho>0 pcm ooo.H mmmloom mmvlooa OOH HoUGD SmnmSSoo conSSnz .monmm mmmnv onnm mommeou oufim SommEou SS .mUSmou nupco> mcHSunmomoH moflcmmfioo .Nlm oSSMB 256 Table 8-3. Companies researching vendors, by standard indus- trial classification Number of Percent Industry Group Companies Researching W/ W/0 W/ w/o Staff Staff Staff Staff Food and Tobacco 9 37 57% 33% Transportation Equipment 17 20 59 45 Chemicals 13 20 69 36 Machinery, except Electrical 14 16 56 34 Primary Metals 10 18 44 38 Electrical Machinery, Equipment and Supplies 9 15 67 30 Paper 3 13 37 20 Crude Petroleum 7 8 59 14 Fabricated Metal Products 5 10 69 34 Stone, Clay, Glass 4 8 47 31 Textile Mill Product and Apparel 1 9 44 49 Ordnance; Leather; Professional, Scientific, Optical; Misc. Mfg. 4 5 58 38 Mining 2 5 44 18 Petroleum Refining O 6 -- 38 Rubber and Plastics O 6 -— 17 Lumber and Wood 1 4 33 31 Printing and Publishing 0 5 -- 31 AVERAGE 57% 3 1% 257 In the following industry classifications the percent of topics researched by companies with staff was particularly large (average percent of topics researched is in brackets): Chemicals (69%), Fabricated Metal Products (69%), Electrical Machinery, Equipment, and Supplies (67%), Transportation Equipment (59%), and Crude Petroleum and Natural Gas (59%). For those interested in a more detailed analysis by industry classification, Appendix 2 presents, by industry, the percent of companies with and without staff which researched each topic, the percent which declared each topic produced most worthdwhile results, and the percent which declared most worthdwhile results produced when a topic was researched. (In the following sections, each of the nine individual re- search topics is discussed. Where possible, for each topic an example is given of a project done by one of the ten companies interviewed. Additionally, a table is presented to show, by industry classification, the percent of companies with and without staff which researched each topic, declared each topic produced most worth-while results, and declared each topic produced most worth-while results when actually researched. The occurrence, benefit, and evaluation factors are computed for each table, and in addition are summarized for all nine topics in Table 8-13. 258 Anarysis of Financial Capacity Research on this topic would be directed at a thorough analysis and projection of vendor financial status, as it might affect vendor-vendee relationships. One key factor in evaluation of potential vendors is the vendor's financial status, and the likelihood that the vendor will be able to complete the purchase agreement. A successful vendor must possess sufficient financial resources to "carry" the manu- facturing, selling, and administrative costs of the merchandise until such time as delivery is made and he receives payment. If a particular purchase exceeds his financial capabilities, special arrangements must be negotiated. Frequently this financial analysis might be performed by the purchaser's finance or accounting department; however, in some companies this financial analysis may be made within the purchasing department, for the purchasing personnel may have a better "feeling" for the vendor's situation, and also they may be in a better pusition to obtain the financial data necessary to make this analysis. Table 8-4 presents information, by industry classification, on the percent of companies which researched this topic, and which declared results of the research on this topic as most worthdwhile. Computation from Table 8-4 indicates an average occurrence factor of 1.8, showing that 1.8 times as 259 m S N S S S E. E mm mu§m>< o -- o o -- o S .. S m o onmSSoonS Sons mononnm o o o o o o om o 2: S, S .SoonnS 683 Sons 30.83 o -- o o -- o o -- o S o 3:35 Soon nooosm o -- o o .. o S -- S S o monomom EooSonoonS o o o o o c on om on m N woSoSSz o o o o o o S 2: we m S. .32 .832 uSaosoo .oSSSoooSom . .SonnS SnoSumoaH SoquGpHO o o o o o o S SS 2. o S Sonmooa. Sam 338nm SSSS>S 2:59 o o o o o 6 mm om mm m S. 320 Sons 3S0 .286 o o o o o o om om S 2 m .35 S334 SooEoSnomh o o o o o 6 mm S. S w n 30 Sonoomz SoSnm EdoSonSonS oSodHU o o o o o o 3 S mm S m nooom o o o o o o 2. S S 2 a moSSooom Soom .oSoSom .SnoSnSSumSz SmuSnnuoSmS o S; a 6 2 S. SS. on em S: 2 288a 33:5 MS 6 m a o ... om E S SS 3 SmoSnoooSm nnSouxo .SnoSnSSumSZ MS om S m 2 o 3: E mm om mS mSmoSEoru o o o o o 6 me S S on S .oSoSom :oSoSnoomomnn. .Sm .So .SS. .Sm .So .3 SS .Sme .SS S o ooooooe mom Sooom Sodom Spam Snow Sodom Snow :86 Snow mono o\3 \3 SmSoB o\3 \3 Smuofi o\3 \3 SmuoB ON? KB 0308 mSSH. SooSSunmomoyS mcflnomom uSaSoH coSnmuSSSmmmSU SUSS? moScmnSSnnoU SSGO moSSnmnSEoU SS< anSSunmomom mSnSS—nomom SnnmdpcS moSSnmnSEoO moScmmnnnoU muSdmoyS oSSSBaSSno>> umoSZ wcSumuSSocS “Gounom mo SaounonS noSCndZ SnSummmO SmSuSnmSnSh .So mSmSSmG< .vsw oSSmH 260 many companies with staff engaged in research on this topic as those without staff. The average percent of companies with and without staff doing research on this topic was 77% and 44%» respectively. In all but one industry in which some Companies had staff, at least half the companies with staff researched this topic. In all industries but one, some of the companies without staff did research on this topic, but the percent of companies without staff which did research was smaller than the percent of companies with staff (the one exception was Lumber and Wood Products, where only one company had staff). Few industrial classifications regarded this topic as having produced most worth-while results. For those which did, the average benefit factor (computed from Table 8-4) is 1, showing that the percent of companies both with and 'without staff, which declared most worthevmdle results and pro- duced from this topic, was the same. Companies in only four industries--Food and Tobacco; Chemicals; Machinery, except Electrical; and Primary Metals-~dec1ared this topic as pro- ducing most worth-while results, showing that, on the whole, this topic was not regarded by many companies as having pro- duced most worth-while results. The evaluation factor is .3, indicating that of the few firms which researched apd_ declared this topic producing most worth-while results, 261 companies without staff regarded the results more highly than those with staff. Analysis of Production Facilities Research on this topic would involve gathering, analyzing, and evaluating data regarding the physical resources of vendor organizations. Frequently, this can only be done by visits to vendor locations to observe and measure the equipment and technology possessed by the vendor. Results of such research not only assist in decisions on the ability of a vendor to produce a needed material or part, but also are a key factor in determination of a price which would be fair to a vendor, and in investigation and suggestion of alternative production methods. Obviously, the amount of this type of research that would be considered advisable depends, in large part, upon the purchased material or part in question, its complexity, and its relative importance in the total purchasing pattern. Eighty-four percent of the total companies with purchase research staff indicated they did research on the Analysis of Production Facilities topic, while only 47% of those without staff researched this topic (Table 8-5), producing an oc- currence factor of 1.8. In all industry groups but one (Lumber and Wood Products) a higher percentage of those companies with staff indicated they had researched this topic than was indicated by companies without staff. In the 262 SS w 2 m S S SS. Sum co HO< mm -- mm om -- on SS .. S m o onmSSoom Soon Susanna o o o o o o mS o op S. S .SoonnS poo? Sogm noSESSwS o ..- o o u- 0 mm u- mm S o muSSmmSnS pom noppdm o -- o o -- o om -- om S o SoSoSSom SooSonSonS o o o o o 6 on om on m N SEES cm 6 mm om 6 SS 8. OS 3. S S. SSE .omSSz uSnosoo .uSSSncoSum ..SonnS “noSnmowS ”oucmcpno o o o o o o S 8S 2. S S 33%... SE. Summonm SSSS>S oSSuxoB o o o o o 6 SS 62 S S S. mmmSu SES .35 .286 ON o 0S 3 o S om ooS Sb 3 m .SoonnS SmnoSS SooSmuSnSmh o o o o o o o SN 3. m S 990 Smndnmz SoSnm EDoSonnonS 3:50 o o o o o S S S mm SS ... noomnS SS S S S NS m S. am no S o moSSnSnSdm Soam .nSSSSSomS .SnocSSumSz SmuSnnuoSm 2 o S S o S. SS 2 S SS 3 2322 .SnSSSnm NN w SS NS S 3 pm pm 0S SS SS SmuSnuuoSm Smouxo .SnoGSSumSS SS o S 3 o b oS ooS Nm oN mS mSmuSEoSU 3 S SS m NS w om S5 0S oN SS .nSSdSomS coSumSnommenB .S .SE .SS .Sm S: .SS. .SS. SSS .Smm S S 89869 Sam Soon Smmum wwmum Smmum 3.3m SSmSm 33m SSmSm Sumnm 0%? \3 S308 o\3 \3 S908 o\3 K3 SmuoH o\3 \3 0308 mSSH. poSunmomoyS mGSunomoM uSnSoB SnoSumuSSSmmmSU SUSS? moSnnmnSEoU SSSnO moSSnmmEoU SS4 mSnSSunmomoMS anSSnomoMS S3365 m oSnnmnScnoU m o Sammnnno U muSdmoSS oSSSBsSunOB SmoSS anSnmuSSonS uaounonS So ndounonS noSEdZ moSSSSSumh SnoSuudSoonnS So mSmSSmG< .muw oSSmH 263 following four industries all the companies with staff researched this topic: Chemicals; Fabricated Metal Products; Stone, Clay, and Glass Products; and Textile Mill and Ap— parel (only one company with staff). Seven percent of those companies with staff indicated they had produced most worth-while results from this topic. Five percent of companies without staff indicated most worth- while results produced. Comparison of the above two per- centages indicates a benefit factor of 1.4, showing that those with staff rated this topic higher as producing most worthewhile results. The evaluation factor, computed from Table 8-5 is .7, indicating that a larger percent of those companies without staff which researched this topic indicated it produced most worthwhile results than was indicated by companies with staff. Eleven percent of those companies without staff which actually researched this topic declared it as producing most worth-while results, while only 8% of companies with staff which researched this topic declared it producing most worth—while results. Finding Potential Supply Source Research in this area would be done for one of two reasons: (1) to secure new sources for an already existing item; and/or (2) to locate, encourage, and assist a vendor(s) in producing an item not presently available. Frequently, in attempting to 264 develop new sources for an existing item, an exhaustive search must be made, with a constant evaluation of newly-located, potential sources to eliminate those vendors who would be un- able to perform satisfactorily. Developing sources which could produce an item not presently available is a time-consuming and complex task, and often of vital importance. In one of the companies interviewed, this type of research consumed! a large part of the time of the Purchase Analyst. This company was in the chemical industry where, due to product advancement, chemicals which previously were needed and pro- duced only in research quantities suddenly might be required in production quantities. The Purchase Analyst worked with the various vendors to secure needed, larger quantities and frequently assisted vendors in beginning production on items they had not produced formerly. Normally, a different manu- facturing process was used for production quantities than was used for research quantities, and the Analyst assisted the vendor in working out production problems occasioned by the different manufacturing process. More companies with a purchase research staff did re- search on the Finding Potential Supply Source topic than companies without a research staff. Table 8-6 shows that 84% of companies with staff,on the average,researched this topic,and only 56%»of companies without staff researched this topic, or 265 SS S SS SS 2 S SS S SS mu§m>< o -- o o .. S SS -- S S o SoSSSmSSSom SoHHS SaSSoSnnS o o o o o S SS 2: S S. S .SoonnS S83 Sam noSESSS o -- o o -- S SS -- SS S o SoSSSSSnS Sam noSSBS o -- o o -- S SS .. SS S o SoSoSSom 633.33 o o o o o S SS. 63 SS S S SE52 SS SS SS SS SS SS S SS SS S S. SE .83 SSSoSSSo .oSSSSooSoS . .SonnS SnoSumowS SouSnmSnpnO o o o o o S SS 62 S S S $3.84 28 Sooeonm SSSSz oSSSxon. SS SS SS SS SS SS SS 62 SS S S. $30 SS... SSSu .ogoSS SS SS SS 2 SS SS 2. 2: SS 2 S .Soonm S834 SoomoSnSfiS o o o o o S SS SS SS S S 93 Songs/S Gram ESOHOHHQnH QGSHD SS 0 S.S S o S SS SS S.S. SS S noSmnS SS S SS SS 0 S SS SS SS SS S moSSSSoS Sow ..SSsSom .SnoSnSSumSS SmuSnSuoSH o o o o o S SS 3 SS SS 2 mSfioSz S.SSESnnS SS SS SS SS S.S SS SS SS SS SS S.S SmoSnSooSm Smouxo .SnoSnSSumz S S S SS 0 S SS S SS om SS SSSSESSU SS SS SS S SS S SS. SS SS SS SS .SSoSm ooSSBnoSSomnS. SS .SSN SSS .S SS .SS .SS .SSS .SSS SS S 8833. ES Soooh SSSS SSSS SSSS SSSS SSSS :36 Sum SSSS 0? \3 Soap Q3 S3 SE a? \3 SSS 0? \3 uSSSOH. SSSH. SuoSunmomoMS mSnSunomoMS uSSSOH. GoSumuSSSmmmSO SUSS? moSSnmSSSnnoO SSSSO moSSnmSSSnnoO SS4 anSSunmomoM anSunoSSom SnumdpGS m oSamSSSnnoD m oSSSmSSSnnoU muSdmoMS oSSSBISunoSF Smog. mGSumuSSoSnS uSnounonS So ScounonS noSdeZ oundom SSSSSSdm SmSSSnouonS mSnSSoSnSh .onm oSSmH. 266 an average occurrence factor of 1.5. In all industries, re— search was done on this topic by some or all of the companies both with and without staff, but the percent of companies with staff which did research was greater in all industries. Ten percent of the total companies in both groups, with and without staff, indicated this topic produced most worth- while results, or a benefit factor of l. The evaluation fact- or, computed from Table 8-6 is .7, which shows that companies without staff which researched this topic evaluated the results of the research more highly than the companies with staff. Seventeen percent of companies without staff which did research on Finding Potential Supply Source indicated that research produced most worth-while results; 12% of those with staff which researched the topic declared most worth-while results were produced. Estimpte of Distribution Costs In many purchased materials and products a large part of the total purchase price is made up of selling, administrative, delivery, and servicing costs; therefore, research on this topic may offer substantial potential for cost reduction. The vendor's price must include amounts to compensate for distribution and related costs, and purchase research on this topic would attempt to determine whether the amounts of compensation for these costs are reasonable, and competitive, 267 and whether or not such distribution costs actually are necessary. In one of the companies interviewed, a substantial part of the total expense of many vendors was allocated to pro- duct development and applied research, and to vendor tech- nical service. This technical service often took the form of extended visits by vendor technical personnel to assist in the solution of manufacturing problems and to keep re- search personnel in the purchasing company current on new and anticipated material developments. The Purchase Analyst made frequent studies directed at determining what part of the total purchase price paid to a vendor was allocated to areas such as vendor technical assistance, and whether or not the purchaser got "value received" from this expense. The evaluation of benefits received from this technical ser- vice provided by the vendor was an influential factor in determining future placement of business. The average occurrence factor for the Estimate of Dis- tribution Costs topic, computed from Table 8-7, is 3.1. The average percent of companies, both with and without staff, which indicated research on this topic was not large (28% and 9%, respectively). In only three industries did fifty percent or more of those companies with staff indicate they researched this topic: Textile Mill and Apparel (only one 268 S MS S S m N 0 SN mS MOSSJSSNS>< o u- o o -.. o ..- .... o m o mSSSSSSSndnS Socm anSSSSSnnS o o o o o o o o o S. S .SoonnS S6003 Sonnm nonESSwS o u- o o u. o .... u: o b o muSummSnS SoSnm noobdm o i o o .. o .. -- o S o ScSoSSom EooSonoonS o o o o o o S SS S.S S S 332 o o o o o S SS SS SN S S. SE .83 SSSoSSSo .uSSSSSSoSum . .SonnS SnoSumoA SouSanSonO o o o o o S SS 2: SS S S 33%... SS... SudponnS SSSSZ oSSnxoB o o o o o 0 SN o SS m S. mSmSU ppm SmSU 6:05 o o o o o 0 ON on mm 2 m .SoonnS SmSoS>S SooumuSnnmh o o o o o o mS SN 0N m S SmU Smnsan Socm EdoSonSonS oSodnU o o o o o o S o S SS S 39$ 0 o o o o o S SS SS SS S moSSSSoS S28 .SSoSom .SnoSnSSumSz SmuSnSuoSm o o o o o S SS 6 S SS 2 388.4 3255 o o o o o o 0 SN SS SS SVS SmuSnSuoSH Smouxo .SnoSnSSumz Q So om o Sm NS 3 SS. SN 0N mS mSmuScnoSU o mN ON 0 o m m S.N SqS 0N SS .SSSDSSMS coSumSnommSnmnH. .SSS .So .SSS .SS .So .SN .SSS .SSS .SSS SS S 8233. SE... Soooh Smmnm Swmnm SmSo .S. Smmnm Swmnm Smno .H. Smmnm 3.3m Smno .H. Smmum mmmnm o\3 \3 o\3 \3 SK? \3 <3 \3 3908 SSSH. SooSunmoSom wcSunomom uSnSOH. :oSnmuSSSmmmSU SUSS? moSSnmSSSnnoU SSSSO moSGmSSSnnoU SS< wGSSunmomoMS mSnSS—noSSoMS SnumfipGS r m o SGmSSSnnoU m oSSnmSSEoU mnSdmom oSSSBaSSnOB Smog mSnSumuSSocS udounonm mo announonm nomgdz / it i! mumoU Comudnmhummq m0 mumgwumm .N n% wwamfi 269 company with staff), (100%); Fabricated Metal Products (60%); and Mining (50%). The industry in which the largest percent- age of companies without staff indicated research on this topic was Stone, Clay and Glass Products, in which 25% of the companies did research. The average benefit factor, computed from Table 8-7, is 5, and the evaluation factor is 3. However, Table 8-7 shows that the percentage of companies which indicated this topic as having produced most worth-while results was so small, that these two factors probably are not meaningful. In total (both companies with and without staff), only six firms indicated this topic produced most worth-while results: one firm without staff in Food and Tobacco, one firm with staff in Transportation Equipment, and four firms with staff in Chemicals. Esrimate of Manufacturing Costs As a basis for determining a reasonable purchase price, the vendor's cost to manufacture an item in question might be investigated. A particular vendor's product might not warrant a price large enough to cover his manufacturing costs, particularly if he is using inefficient manufacturing methods or equipment. An analysis of manufacturing costs, either actual or ideal, is one of the basic purchasing techniques useful in evaluating the price paid, or asked, for purchased 270 items. Such an analysis also may be used to judge the rea— sonableness of a vendor's claims that price should be adjusted because of increased manufacturing costs, due to higher material or labor costs. In one company interviewed, the Purchase Analysis Depart- ment made estimates of manufacturing costs, for the use of _the buyer, on all major purchased items whenever any price increase was requested by a vendor. Through investigation and knowledge of the particular industry and reasonable pro— duction standards within that industry, the Purchase Analyst was able to "build up" an approximate "cost to manufacture" for major purchased items. For example, as a result of this research by the Purchase Analyst, the purchase price of cast- ings was determined by a formula, based on the cost of major raw materials consumed in producing these castings. A new price automatically was determined as raw material costs changed. Table 8-8 shows that those companies with a purchase research staff predominated in research done on the Estimate of Manufacturing Costs research tOpic. An average of 51% of those companies with staff researched this topic, compared to only 17%.of the companies without staff, or an occurrence factor of 3 on this topic. The Food and Tobacco industry had the largest percent of companies with staff which indicated 271 S S S S m N SS Sm SN HO§M>< o o o o -- o o -- o S o SaSSSmSSnonS SS. Sonata 0 o o o o o o o o S. S .SoonnS p003 Socm noSESSwS o u- o o u- 0 SS ..- SS b o muSSSmSnS SoSnm nonnom o -- o o -- S SS -- SS S o ScSoSSom EsoSonSom o o o o o o o o o S S S552 o o o o o S S SS S.S. S S. SE .33 mSSoSSSo .uSSSSSnoSum . .SonnS SnoSnmoA SoucmcpnO o o o o o o S.S. S 3. S S 33%.... SSW SouponnS SSSS>S 33on o o o o o o mN o SS m S. mmmSO ppm SmSU .285 o o o o o o ON 3. SN 3 m .SoonnS SmSoS)S ponmuSnSmh o o o o o o 0 SN S m S mmO SmndSmZ SoSnm EdoSonSonS oSodnU 2: o 63 S o S S o S SS S nomad SS 6 S S o S. SS SS SS. SS S 3:33 Sam SEES .SnocSSumSZ SmuSnSuoSM S SS SS 0 S S. SS SS SS SS 3 283.4 SnSESnnS o SS 3 o S m mN MS. mm SS SS SmuSnnuoSmS Smouxo .SnoGSSumSz o o o o o 0 S: SS om 0N .mS mSmuSEoSO o S S o S S SS SS. SS. om SS .SSSSSSS 5338.35; SS0 SS0 oSo SS0 SS0 SS0 SSNN oSwS oSmm Sm S 009308 pSnm pooh Emu—m SSmSm «Smnm Swmnm Smmuw SSmSm SSmSm wwmnm 0\3 K3 SmuoH. o\3 (\3 SmuoH o\3 K3 SmSOH. o\3 K3 uSSSoB SSSH. SooSunmomoMS anSunoSSoMS uSSSo H. SnoSnmuSSSmmmSU SUSS? moSSnmSSSnnoU SSSSO moSSnmSSGnoU SS4 mSnSSunmomoM mSSSSnoSSoM S3365 . m o SGmSSEo U S o SSnmSSSnno 0 mnSdmoM oSSSBuSSnoSS Smog mSnSumuSSocS ScounonS So ScounonS nonSnndZ mnmoU mSnSnBumwdamSZ So oSmSnnSnmmS .mum oSSmH. 272 research done (78%), followed by Chemicals (77%). In all industries of a metal working type, at least 30% of firms with staff researched this topic, and in many of the metal working industries the percent of those with staff which did research was much larger. In companies without staff in the metal working industries, the industry in which the largest percent of firms without staff did research on this topic (Electrical Machinery, Equipment, and Supplies) showed only 33% of firms doing research. The percent of the total firms which indicated research on this topic produced most worth-while results was small, in both the group with, and that without, staff. Three percent of the total firms with staff indicated this topic had produced most worth—while results, compared with only 1% of firms without staff, indicating a benefit factor of 3. In only three industries (Transportation Equipment; Machinery, except Electrical; and Primary Metals) did any of the firms with staff indicate most worth-while results produced, and only in two industries (Electrical Machinery, Equipment, and Supplies; and Paper) was this indicated by any of the companies without staff. The evaluation factor, computed from Table 8—8, is 1, showing that of those companies which actually researched this topic, the percent which declared most worth-while results produced was the same for the companies with and without staff. However, because of 273 the small number of firms in each category which indicated this topic produced most worth—while results, this factor may not be too meaningful. Supplier Attitude Survey, This research would consist of attempts to determine the satisfactoriness of vendor-purchaser relationships, from the standpoint of the various vendors with which the company did business. Since there might be considerable reluctance on the part of vendors to pinpoint some of the problem areas in their relationship with the purchaser, often it might be advisable to elicit such information by a questionnaire on which the vendors could express their problems and opinions anonymously. Constructive opinions volunteered might be invaluable in bringing to light areas of conflict, or potential conflict, not presently recognized. Such an approach was part of a supplier relations pro— gram initiated in one of the companies interviewed. This company employed a supplier attitude questionnaire which was administered by an outside opinion sampling firm, al- though the Purchase Analyst assisted in formulating the study. Results of the questionnaire attitude survey pointed up areas where sound vendor relationships needed improvement. In the report describing results of this survey the following statement was made: 274 In late 1956 we in Purchasing were encouraged to intensify our search for better ways to buy--to help meet increasing foreign and domestic competition. At that time we felt the production needs were being met at reasonable costs but there were other dis— quieting signs. Suppliers thought of us as a demanding and unappreciative customer. Suppliers were not thought of as a major source of new ideas. Competitor intelligence was weak. Soul-searching and hard-headed analysis developed the feeling that our initial prob— lems were more in the area of "how" we were doing business than in "what" business was being done. Companies with a purchase research staff did more research on the Supplier Attitude Survey topic than companies without staff, as the occurrence factor (computed from Table 8-9) of 2.3 shows. An average of 35% of companies with staff did research on this topic, compared to 15% of those companies without staff. In all but three of the fourteen industries in which companies had staff, the percent of companies with staff which researched this topic was larger than it was for companies without staff. The percent of both companies with, and those without, staff which declared this topic produced most worth-while re- sults was the same (2%), producing a benefit factor of 1. In only five industries did any of the companies, either with or without staff, indicate this topic as one which pro— duced most worth—while results. The evaluation factor, com— puted from Table 8-9, is .6, but due to the small number of firms involved, this factor may not be too meaningful. 275 3 b m N N N S mm NN HOSSJSNS>< o u- o o .. 0 0S. nu 0S. m o mSnSSSSSSndnS mam mSnSSSnSnnS o o o o o 0 SN 0 ON S. S .SoonnS poo? pom nonESSA o ..- o o -.. o o ..- o b o muSummSnS SoSnm nonndm o .. o o -- S SS -- SS S o SoSESom EooSonSonS o o o o o o S SS S.S S S SoSoSSz S SS om S SS SS 3. SS SS S S. SSE .oSSSz SSSoSSSSo .uSSSSSnoSum ..Sonnm SnoSumoA SouSanSunO SS 6 SS SS 0 S SS S 8 S S SonmnSnSS. Sons SusSoonnS SSSS>S 33on o o o o o S SS SS SS S S. 9....So can SB 6:96 o o o o o 0 0S 3. ON 3 m .SoonnS SmSoSz SooSmuSnnmnS o o o o o o 0 SN 2 m S mmO Smndnmz Socm EdoSonSonS oSodnU o o o o o o o o S SS S .893 SS SS SS S SS S SS S.S. SS SS S moSSSSSSsS SSS .SSSSSSS .SnocSSumSZ SmuSnSuoSmS o o o o o S SS om SS SS 3 SSSSoSz 33:5 0 ON S.S o S m S cm MN SS S.S SmuSnSuoSmS Smouxo .SnoSnSSumSz o o o o o o S SS. S.N ON mS SSmuSEoSU o o o o o S S SS. S.S om SS .SSoSm ooSSmSnonSmcSnS. S: .SS .SSS SSS .So .SS .SSS .SSS .SSS SS S ooomoon. SE... SoorS Swmnm Smmnm SSmSm Swmnm Swmum umnw Swmum «Smnm ON? \3 SmSOH. o\3 \3 SmSoH o\3 \3 SmSOH. 0\3 \3 quB SSSH. SooSunmomom anSnnoSSoMS uSSSoB SnoSumuSSSmmmSU SUSSSP moScmSSSnnoU SSSnO moSSnmSSFSoO SS< anSSuHmomoyS anSunoSSoyS SnnmSSpSnS m oSSSmSSEoU m oSSnmSSEoU SSSSSSoMS oSSSSBuSSno? SmoS>S mSSSnmuSSuSSS SnounonS So ScounonS noSEdZ >o>ndm opduSfiSS. noSSnSmsm .Suw oSSmH. 276 Trade Relations Data Research in this area might involve recording and analyzing the results of various reciprocal relations which have been developed between buyer and seller. Not only would such agreements have to be "policed" to assure that the initial agreements were being satisfactorily discharged, but the effect of such arrangements on purchasing efficiency should be evaluated, as a basis for decisions on future advisability of the same or similar such agreements. While reciprocity should not be summarily avoided, efficient company operation requires that cost-benefit evaluations be made at frequent intervals. Fifty-six percent of those companies with staff indicated they had done research on the Trade Relations Data topic during 1959 or 1960, while only 40% of those companies without staff indicated they had researched this tOpic (Table 8—10). Comparison of these percents indicates an oc- currence factor of 1.4. In only four industries did a larger percent of companies without staff than with staff research this tOpic. In both those companies with staff and those without staff the same percent of companies (11%) declared this topic as having produced most worth—while results. Comparison of these percentages indicates a benefit factor of l. The 277 SS S SS SS SS SS S. SS SS. mufiSm>< SSS -- SSS SS -- S SS -- SS S S SSSSSSSSSES SSS SoSESnnS SS S SS SS S SS SS SSS SS S. S .SoonnS SoooB S.S. noSEoS SS .. SS SS -- SS SS -- SS S S moSSSSSm S.S. nonoom SS -- SS SS -- SS SS .. SS S S SnSoSSom EooSonoonS SS SSS SS S. SS SS SS SS SS S S SEES SS S SS SS S SS SS. SS S.S. S S. SSE .oSSSz MSmoSSnSo .oSSSSooSoS . SonnS SnoSnmod SouSnmSnSonO S S S S S S S.S. S SS. S S S383. S.S. SooSoonnS 32 3339 S SS S.S S SS S SS SSS SS S S. SSSSU S.S:W .35 65$ SS SS SS SS S.S. S.S S. SS SS. S S .SoonnS S382 SoomoSnSmm SS SS SS SS SS. SS S.S. SS SS S S 9.0 SSnBSZ SoSnm EdoSonuonS opdnU S.S. SSS SS SS SS SS SS SS SS SS S noSmnS S S S S S S SS SS SS SS S SS.SSSSSSSSS S.S. .SSoSm .SHoSnSSumSZ. SmuSnSuoSH SS SS S.S NS SS SS SS SS SS SS SS SSfioSz SnSESnnS SS SS SS SS SS SS SS SS SS SS S.S SmoSnoooSm nmouxo .SnoSnSSumE SS. SS SS S S SS SS SS SS S SS mSmoSEoSSu S S S S S S SS S.S. S.S S SS ..SSSSSH qoSSSnonSmomnH .SS .SSS .SS ..SS «.2 .SS .SSS .SSS. .SSS SS S 8938. S.S:w Soon SSS SSSS Smoo S :95 SSS Smoo .S. SSS SSSS SSo .S. SSSSS SSSS o\3 \3 o\3 \3 o\3 \3 o\3 \3 0308 SSSH. SooSunmomoMS wGSunomoM uSmoH GoSumuSSSmmmSO SUSS? moSSnmSSSboU SSSnO moSamSSSnnoU SSS... mSnSSunmomom anSSnonSoMS SnumdpGS r m o SGmSSEo U m oSSnmSSSSo U mugmom oSSSBuSSuno? Smog mGSnmuSSoSnS unounonS So ScounonS noSSnndZ 7 Ll 33 SooSSSSoSS oSomnS. .SSS oSSSS. 278 evaluation factor is .7, showing that a larger percent of companies without staff which researched this topic declared it as having produced most worth-while results than was declared by companies with staff. Vendor Performance Evaluation Research on this topic would involve gathering and analyzing data as a basis for decisions on the degree to which vendors had satisfactorily performed their part of the purchase agreement. Such an evaluation might be highly quantitative, as in the evaluation of the quality levels maintained in items received from a vendor. In the evaluation of the per- formance of a vendor in making his technical personnel avail— able to assist in the solution of problem areas, or in wil— lingness to accept delivery data or specification changes, the techniques might be largely qualitative in nature. The occurrence factor on the Vendor Performance Evaluation topic, computed from Table 8-lL is 1.8, showing that companies with staff predominated in research on this topic. An average of 74%.of those companies with staff researched this topic, compared to 41% of those companies without staff. In all industry classifications but one (Textile Mill and Apparel, in which only one company had staff) the percent of companies with staff which researched this topic was greater than the percent of companies without staff. All of the 279 3 S: SS 0 2 w SSS vS mm HOém>< S -- S S -- S SS. -- S. S S ScSSmSSSsm SSW Squats o o o o o 0 mm 03 oSS SS S .pounm @003 can SmnEsA o u- o o u: o o u- o o o moflmmSnH paw .539st S -- S S -- S SS -- SS S S SEESBS EnoSobonS S SSS SS S SS SS SS SS SS S S SEEE S SS SS S SS SS SS. SS SS S S. SSE 6&2 mSSSSxSo .oflflcmSom . gonna Shogumod Smocmspho SS S SS SS S SS SS S SS S S S333. SES Sospounm :32 33me SS S SS SS S S SS SS SS. S S. 3.20 SSE... SSSo .285 SS 0 0 OS 0 S oo 03 MS 3 m .pounm S332 pmumoinmh 0 mm mm 0 mm MS ooS om mm m S mmO SSSBSZ paw EdoSoSSmnH @330 SS S SS S S S SS SSS SS SS S 89$ SS SS SS S SS SS SS. SSS SS SS S SSSSSSSSSS S:SS .nSSSSm .Snvcwgomg Hmowuuuofim S S S S S S. SS S. SS SS SS SSBSE SSSESSnS S 0S 2 b S S mm SS mm 3 SSS Smofiuuoofim Smooxw .Suoswfiomz 0.. cm 2 m S: m om SS 3 om MS mSmoSEmAU SS S . SS S SS S.S SS. SS SS SS SS diam 8:983:29 SS0 £6 SS0 SS0 SS0 SS0 oxen: SSSS SSom Sm o 003308 93 pooh 33m .Smmum wwwum Edam Edam Edam 39m 33m ON? \3 13.08 CNS \3 H.308 O\3 \3 6.308 0\3 \3 0308 SEE pmsunmommm wcfluomom each. coflmowfimmmfiv £333 mowsmmEoU SEC mofisdQEoU :4 wagohmommm waflhommm S3365” J m mwcmmgo U m o «smmgo U 3150M SSSEBLSSSOB S632 wsfimoflxfl “Gounom mo ”:80qu nongsz 1‘ GomumSSHSgH oonESOHSmm nopao> .Zuw 39mm“. 280 companies with staff researched this topic in the following four industries: Electrical Machinery, Equipment, and Supplies; Paper; Fabricated Metal Products; and Lumber and Wood Products. In only one industry, Crude Petroleum and Natural Gas, did all companies without staff indicate research on this topic. Thirteen percent of the total companies with staff in- dicated this topic had produced most worth—while results, compared to six percent of companies without staff. Com- parison of the percents indicates a benefit factor of 2.2. A higher percent of companies with staff which researched this topic declared that it had produced most worth—while results (18%) than was indicated by companies without staff (15%), producing an evaluation factor of 1.2. In the Transportation Equipment industry, 41% of those companies with staff which researched this topic indicated it had produced most worth- while results. Vendor Sales Strategy The ability of the buyer to negotiate the most satisfactory agreement, from his point of view, depends to a large extent on his ability to understand the reasons for actions that a vendor takes, and to anticipate actions by a vendor. Research on this topic would involve study of a vendor's position relative to other vendors and the total market; study of a vendor's long- 281 and short-run objectives in such aspects as price and market share; and formulation of conclusions on probable actions by a vendor, and the reasons for these actions. While the results of this research might be subject to a large error factor, the more information the buyer has on a vendor's position, objec— tives, and probable actions, the stronger is the buyer's negotiation position. Those companies with staff were twice as active in research on the Vendor Sales Strategy topic, as the occurrence factor, computed from Table 8-12, of 2 shows. Twenty—two percent of the total companies with staff researched this topic, compared to 11% of companies without staff. In three industries-— Fabricated Metal Products; Chemicals; and Machinery, except Electrical-—companies with staff were most active in research on this topic, where 40%, 38%, and 36%, respectively, of the firms researched this topic. Textile Mill Product and Apparel was the industry in which the largest percent of companies without staff did research (22%). Few companies indicated this topic as producing most worth-while results. In only four industries did any companies, either with or without staff, indicate most worth-while results from this topic. The benefit factor is 3, and the evaluation factor is 1.1, although due to the small number of firms indicating this topic as having produced most worth-while 282 mS S.S MS S m N S mm 2 m0< S -- S S -- S S -- S S S SESSSSSSSKS S.Sm SaSESSnS o o o o o o o o o S. S .pobm @003 can $58.94 0 n: o o ..- o o u- o b o mufimmSm cam Hoppsm S -- S S .. S S -- S S S SaScSSom EnoSoSSmnS S S S S S S S S S S S 9:52 S S S S S S SS S SS S S. SSE .022 mSSSSSSSO .oflflsowum . .wonnm Shonadod SooGSCUSO S S S S S S SS S SS S S 38%... SSEN Sodpounm :32 33me o o o o o o o o o m S. mmmSO paw SEC .985 o o o o o o om ow SN oS m .poSnm S332 pvumuSSpmh o om mm o 2 S mS mm on m S mmO SSSBSZ paw EdoSobonH 3350 S S S S S S S S S SS S ESSA S S S S S S SS SS SS SS S SSSSSSSS SESW .SSSSm .SuosEomz Smomuuomdm S S S S S S SS S SS SS SS SSSSSS SSSESSnS o o o o o o p cm om A: S.S Swamnuomflm Smooxo .Suocgomz om 0S. 3. m 3 0 0S mm SN om mS mSmoSEvSSU S S S S S S S SS S.S SS SS .nSSSSmS cosmtommcfis .SSS SSS ..SSS .SS .SS SSS. °SSS .SSS .SSS SS S 0833. SE... Soon 33m Edam wwmum Edam mmmum wmmum madam Edam . o\3 \3 H.308 o\3 N3 1308 0\3 \3 H.308 R3 \3 0308 3:8 ponoudommm mcwuuomom oEoH aofimowwmmgu SUE? mmwcmmEoU 3G0 mowsmmShoU 2< wcmnohmomom mcfiuoaom S.szpfi m QSGSQEO U m o Sammgo U mfidmmm oSEBufiuo? Smog wcfimugfi psooumnm mo Savouonm SonEdZ Swoumuum moSmm nopso> .Nm .. w 3nt 283 results, these factors may not be too meaningful. Comparison of Occurrence, Benefit, Evaluation Factors Table 8-13 presents the occurence factor, benefit factor, and evaluation factor for each of the nine vendor research topics. The occurrence factors in this table show that a larger percent of companies with staff researched each of the topics than was done by companies without staff. The occurrence factor was highest for the Estimate of Distribution Costs topic, where 3.1 times as many companies with staff did research. The benefit factors show also that the percent of com— panies with staff which declared each of the nine topics produced most worth—while results was as large or larger than that for companies without staff. On only four topics-~Vendor Performance Evaluation, Estimate of Manufacturing Costs, Estimate of Distribution Costs, and Vendor Sales Strategy--was the evaluation factor 1 or greater. Thus, on the majority of the topics, the percent of those companies researching a topic which declared it produced most worth-while results was larger in the companies without staff. The average evaluation factor was less than 1 (.8), which shows that for the entire Research on Vendors category, a higher percent of companies without staff, than 284 Table 8-13. Occurrence, benefit, and evaluation factors for the nine vendor research topics Occurrence Benefit Evaluation R T . esearch opics Factora Factorb FactorC Analysis of financial capacity 1.8 1d .3d Analysis of production facilities 1.8 1.4 .7 Finding potential supply source 1.5 l .7 . . . . d d Estimate of distribution costs 3.1 5 3 . . d d Estimate of manufacturing costs 3 3 l . . d d Supplier attitude survey 2.3 l .6 Trade relations data 1.4 l .7 Vendor performance evaluation 1.8 2.2 1.2 d d Vendor sales strategy 2 3 1.1 AVERAGE FACTOR 1.8 1.8 .8 a . . . Ratio of percent of companies With staff to percent of companies without staff which researched each topic. b . . . Ratio of percent of companies With staff to percent of companies without staff which indicated a topic produced most worth-while results. c . . . Ratio of percent of companies With staff to percent of companies without staff which declared most worth—while results produced when a topic was actually researched. d . Factor may not be too meaningful, due to the small number of companies which indicated this topic produced most worth- While results. 285 with staff, declared these topics produced most worth-while results when actually researched. As stated earlier, since only a small number of companies indicated most worth-while results produced from topics in this category, the evaluation factor may not be too meaningful. Evaluation of Research Performed by the Purchase Research Staff That research done by the purchase research staff on topics in the Research on Vendors category was more highly regarded than that done by other individuals within the purchasing_ department. Seventeen percent of the total topics in this category which were researched solely by the purchase research staff were declared to have produced most worth-while results (Table 8-14). This percent is 1.6 times as large as the per— cent of total topics researched solely by the buyer and found to have produced most worth—while results (11%), and 1.1 times greater than the percent of topics researched solely by the administrator and found to have produced most worth—while results (15%). The percent of topics researched solely by the purchase research staff and found to have produced most worth—while results was as large or larger than the percent for research done solely by the buyer and solely by the administrator in all but the following three topics: Estimate of Manufacturing 286 Table 8-14. Research which produced most worth-while results when done by staff, buyer, or administrator. alone, in companies with purchase research staff Number Percent of Cos. Companies Researching Researdhing Indicating Most Worth-while Re- sults Produced Research Topics H H o o m m u m m u c c m c c m o o H o o H H S4 +1 H H +1 ¢ fi 0) d 4 m ~r-I -r-{ tn H c m tn H c m ua w -H c In m -H a rd >1 50 rd >1 50 u s H .u 5 A CD m 43¢ m m < < Analysis of Financial Capacity 9 20 21 0% 0% 0% Analysis of Production Facilities 9 36 ll 33 6 0 Finding Potential Supply Source 4 34 5 50 15 20 Estimate of Distribution Costs 9 7 5 ll 0 0 Estimate of Manufacturing Costs 18 10 ll 6 20 9 Supplier Attitude Survey 9 7 13 22 0 8 Trade Relations Data 15 2 27 20 50 26 Vendor Performance Evaluation 6 26 12 17 19 ‘58 Vendor Sales Strategy 3 7 9 33 29 0 Average 17% 11%» 15% 287 Costs, Trade Relations Data, and Vendor Performance Evaluation. These data from Table 8-14 provide one indication of the effectiveness of research on Vendors done by a purchase re- search staff, and from this it can be concluded that, on the average, a company probably would produce more worth-while results from research on Vendors when it does this work with staff personnel. Personnel Involvement l. The Purchase Research Staff >In companies which had a purchase research staffyithat staff algne perfogged the research on 16% of the topics in the Vendors category, and was involved in research on 37% of the tppics, whigh were researched. Table 8-15 shows, by company size, the percent of topics researched by companies with staff in which the purchase research staff was involved. It also shows, only for the total 99 companies, the percent of topics researched in which this re- search was done solely by the research staff. The two topics which stand out as ones in which firms relied heavily on their research staff are Estimate of Manufacturing Costs and Estimate of Distribution Costs, in which 35% and 32%, respectively, of the firms which researched those topics did the research solely with their research staff. 288 Table 8-15. Involvement of purchase research staff in research on vendors, by company size Percent of Those Cos. Percent Researching Each Topic in Which in Which Their Purchase Only PR Research Staff Was Staff Involveda Involved S3 8 .. m H ow ox 2 H m m-C G\:: a Q m -H . .2323 was S :3 Company Size (Sales) ”F4 0'4 c>S+ o m m Ora CDri 01H .'0 44 S18 Gwi H-S uwwi H G 0 S10 :32: m-z «m-z (fi'm E4 4:0 Number of Companies with Staff 8 59 14 18 99 99 Research Topiqg Analysis of Financial Capacity 17% 37% 33% 36% 35% 12% Analysis of Prod. Facilities 17 34 42 25 32 11 Finding Potential Supply Source 14 39 54 33 38 5 Estimate of Distribution Costs 50 44 60 80 54 32 Estimate of Manufacturing Costs 25 55 83 67 59 35 Supplier Attitude Survey 0 41 O 43 34 26 Trade Relations Data 0 26 78 50 38 27 Vendor Performance Evaluation 0 31 50 27 3O 8 Vendor Sales Strategy 0 17 100 17 23 14 Average involvement for the above topics 13 36 54 39 37 16 aComputation of percent of total purchase research staff in- volvement made by (1) adding the number of topics researched by the purchase research staff alone and in combination with the buyer and/or the administrator, and (2) dividing this number by the number of companies which indicated the topic was researched. 289 The average total involvement of the staff in all nine topics, for the total 99 companies with staff, was 37%. On only two of the nine topics was the research staff involved in over 50% of that research done: Estimate of Manufacturing Costs, and Estimate of Distribution Costs, where the staff was involved in 59% and 54%, respectively, of the research done. On only one topic, Vendor Sales Strategy, was the staff involved in less than 30% of the research done (23% total involvement). The average total involvement of the research staff in all nine topics did not appear to be related to company size (measured by dollar sales), although there was a substantial difference between average total involvement in the smallest size category and that in the other three categories. In the smallest size category, the staff was involved in only 13% of the topics researched, but in the other three categories the staff was involved in a substantially greater percent of the topics researched (36% of topics researched by companies with sales of $100—499 million, 54% of topics in the $500-999 million category, and 39% of topics researched by companies in the over $1,000 million category). In those companies with staff, the staff alone researched an average of only .8 topics in the entire Research on Vendors category, and was involved (indicated as doing the research 290 alone, as well as with other individuals);u1 an average of two topics in this category. 2. The Administrator The administrator was involved in a smaller percentage of those total topics researched in companies which had a research staff. The administrator alone did the research on 22% of those total topics researched in companies with staff, compared to 32% of those total topics researched by companies without staff. On each of the nine topics in this category the administrator alone performed a greater percent of the research actually done in those companies without a research staff (Table 8-16). Total administrator involvement (topics researched by the administrator alone, as well as topics researched by the adminis- trator plus others within the department)jx1 the total topics actually researched also was greater in those companies with— out staff, for the administrator was involved in 49% of those topics researched in companies without staff, but in only 38% of the topics researched in companies with staff. However, on three topics-~Finding Potential Supply Source, Estimate of Distribution Costs, and Estimate of Manufacturing Costs—-the percent involvement of the administrator was higher in companies with staff than without staff. 291 Hmflocmcwm mo mammamsd .mamfimxw Mom IEOU mmOSu mo ucmuumm m ma UH .mmmum £uw3 mmflcmmfioo SS SQ Umnoummmmu mm3 Sufiommmu .mem Sumo GS nunmmmmu pap Swap cmumoflpcfl £0S£3 mwacmm .mmflcmmfioo mom Ho mm on“ NO unmonmm m uoc ma ucmoummm S. SS mm mm muflSou 968... a mflu How usme>Ho>cH mmmuw>< mo mv mm as mmmpmuum mmamm Hoocw> No am am 0H coaumsam>m wonmfinomumm Hoosm> wS So mm mv sump macaumamn momma mo mo wm Sm mm>H5m mpspflapm Hwflammsm mm mm mm Hm mumoo mafiusuummssme mo mumEHpmm Hm om om ma mumoo coausnfluumfip mo mumESumm om ma m¢ m monsom Mammsm Hafiucmuom msflpcflm mo mm mm ma mwflpflaflomm GOHHUSUOHQ mo mflmhamc¢ Sam XSm Xmm XSN muflummmo amaocmcflm mo mflmhamcd Hwhsm 0cm Hwhsm w mm..EU< HoumuumScAEpd occad “mm w .Epd mcoad . . Ho mu mace “Homo . H Ecumuumecasom u u . .soSS Shoummuwecfimwm noun. umSchoSS 83.09 Suummmwm mmmum usosufi3 mmflcmmeoo mmmum £ua3 mmflcmmsoo mpm>ao>sw mm? Houmuumflcflfipm £0S£3 CS owmou 30mm mmwmwmmwmwm.mmficmmfioo coax» mo usmonmm canon sumo dmmmmmmwmum mmflsmmsoo GS mucosm> so zunmmmwu mmmnousm 2S usmEm>Ho>sw Houmuumflcflapm .maum magma 292 The average number of topics in the Research on Vendors category in which the administrator alone, and in total, was involved, was larger in those companies with staff. The ad- ministrator alone did research on an average of 1.2 topics in companies with staff, compared to .9 topics in companies with- out staff (Table 8-17). The administrator was involved (did research alone, and with others in the department) in an aver- age of 2 topics in companies with staff, but only 1.4 topics in companies without staff. Thus, the administrator alone researched 1.3 times as many topics in companies with staff, and was involved in research on 1.4 times as many topics, as in companies without staff. However, since companies with staff researched 1.8 times as many topics in the Vendors cate- gory as companies without staff, the increase in the number of topics in which the administrator alone did the research, or was involved in the research, was not as great. From the above data it can be concluded that in companies with staff, the administrator is less likely to be involved in that research actually done on Vendors topicstor specialized staff is available to pgrform some of the research. The administrator in companies with staffpphowever, is involved in a larger num- ber of research topics, because companies with staff research §_lg;ger number of tppics. The increase in the average number of tppgps in which the administrator is involved! howeverl is not as great as the increase in total topics researchedl due .USmou Sumo Umnoummmmu £US£3 mmoau mu SHCO :0 won psm macho Sumo 2H mwflsmmeoo mo Hogans amuou may no Umumasuamo mmB mmmucwuummm 2 v.a m. m N.H mnemou mo Hmnfisc mmmum>¢ Sma SCH XNN Xma unmoumm mmmum>¢ S m m m Smmumuum mmamm Hoocm> ma m mm NH coaumsam>m mocmEHOMHmm Hoocm> mm SN Hm Sm mqu mcoSumHmm mpmue SS S SS SS So>uom mosuSuuS SmSSmmom o o 0m HA mumou mafinsuommscmz mo mumfiflumm m N ma m mumou coausnflupmflm mo mumESumm ma S mm m moudom SSmmom SmSucouom SaSSoSm mm NH SN HS mevHHHomm coapuspoum mo mammamsa Smm Spa SSN Sam Spfiommmo Hmflocmcflm mo mflmhamc< mm S ummsm..som Howsm pcm wcoH< “mm a .Ep< wcoad Houmuumficflapd Houmnumficfiapa “Hmmsm w .Ep< Houmuumflcflap< “HoumuumHCHEU< “Houmuumficflapm moflmoe sonmmmwm mmmum 0\3 mmflcmmaoo mom MMmum\3 mmflcmnaoo mm mnuummmmm CS Um>ao>sH mmz Houmuumflcwfipfl scant CH mmflsmmeoo mo usmoumm muonsm> so Aoummmmu aw ucmam>ao>sw Houmnumflcfiapfl .Salm magma 294 to the assistance of the research staff. 3. The Buyer The buyer was involved in a higher percentage of topics actually researched in companies without a research staff, compared to those with a research staff. The buyer alpmg did the research on 51% of the topics re— searched in companies without staff, but on only 29% of the topics researched by companies which had a research staff. Total buyer involvement (topics on which the buyer alppgj plus with other individuals in the purchasing department, did research) in topics researched showed the buyer involved in 68% of the research done in companies without staff, and only 59% of the topics researched in companies with staff (Table 8-18). On all nine topics, the buyer alpp§_was involved in a larger percent of the work done in companies without staff. Total buyer involvement in research done also was greater in companies without staff on all but two of the nine topics: Analysis of Financial Capacity and Analysis of Production Facilities. In these two topTCS, the percent of total buyer involvement in that research done was approximately the same for both companies with, and without, staff. Thus, it would appear that the ad— dition of a purchase research staff does reduce the involvement of the buyer in that research actually done. 295 .mmmum nuSB mmflcmmeoo SS SQ pmsuummmmu mmB Suflommmu HmSUGmCSm mo mammamcd .mamfimxm Mom .mmnm 30mm GS nonmmmmu can Sosa pmumofipsfl AUHQB mmflsmm IEoo mmonu mo unmoumm m ma pH .mmflcmmfioo mom Ho mm onu mo usmonwm m uoc ma #:monmmm SS SS SS SS moSmou o>onm mgu Mom ucme>Ho>sH mmmum>< SS SS Sv SS Smwumuum mmSmm Hooom> mS mm OS mm coaumsHm>m mosmEHomem Hopcm> mm HS ma o mumm mGOSumHmm momma SS SS SS SS Sm>usm woouSuuS HmaSmmom vS mm mm mm mumou cowusnfiuumflo mo wumESumm mS Sm Sm om mpmou . mcflusuommscmz mo wumESumm SS SS SS SS mouoom SSmmom SmSuoouom SoSooem «S #m mS mo mmwuaaflumm GOSMUSUOHA mo mHmSHmc< SSS SSS. SSS SSS S3396 Hmfiocmcwm mo mwmhamcm Houmuumwcw w .E .HOSD new sum chSm “mmom w WMSsm Sm” mcoS< Hmmsm Hmmsm “whom “Hmhsm w Hmhsm «Howsm mofimoe nonmmmmm mpm>ao>cH mmz HmSmm SUS£3 GS UHQOB somm csflnoummmmm mmflcmwfioo mmosfi mo unmonwm Damon somm.mmwmmmmmmmm mmflcmmfioo GS muopsm> so nuumwmmn mmmsousm cw usmfim>ao>sH Howsm .mHIm magma 296 On the other hand, the buyer in companies with a purchase research staff was involved in a larger average number of re- search topics than in companies without a research staff. The buyer alone was involved in an average of 1.5 topics in the Research on Vendors category in companies with staff, but only 1.4 topics in companies without a staff. The buyer in total (buyer alone, and with others) was involved in an average of 3 topics in this category in companies with staff, but only 1.9 topics in-companies which did not have a research staff (Table 8-19). Thus, although the buyer alone was involved in 1.1 times as many topics in companies with staff, and in total he was involved in 1.6 times as many topics in companies with staff, these increases were not as great as the 1.8 increase in topics researched. Also, these figures indicate that the introduction of a research staff appears greatly to increase the average number of topics researched by the buyer, together with the administrator and/or the research staff, although it does not appreciably change the average number of topics on which the buyer alone does research. From the above data, the following conclusion follows: While the buyer is involved in a smaller percent of the total research actually done on Research on Vendors topics in companies which have a research staff! because so many more topics are researched by companies with staffy the buyer actually gets 297 .Uflmou 30mm Umnoummmmu £US£3 mmonu Saco so uoc pcm macho Sumo GS mmflcmmEou MO qu552 Hmuou may :0 pwumasuamo mm3 mmmucmonmmm m.a ¢.H m m.a moflmou mo Hogans wmmmw>¢ SHN Spa Rom SSH usmunwm mmmhm>¢ o w m S Smwumuum mmamm Hoocm> vm ¢N Nm 0N coflumsam>m wocmfinomnmm Howcm> ma m 0H N mama mcoSumHmm mUmHB S S SS S Sm>usm moouSuum SmSSmmsm ea NH ma 0S mumou mcfiusuommscmz mo mumfiflumm o 0 ma S mumoo coausnfluumfln mo wumfiflumm mm Sm NS mm mUHDOm SSmmsm SmSquuom maeocSm mm mN mm mm mmfluflawomm coauospoum mo mwmhamcm Rm N SH N ASom So N Suflommmo Hmfiocmcflm mo mflmhamc< uoumuumflsflepfi a .E .Hm>s 0cm mcoad SmMpm a wwwsm “mm mcoH< Hmmsm Hwhsm Hmmsm «Hmhsm w Hmhsm Snmhsm mowmoa Soummmmm mmmum 0\3 mmficmmeou mmmum\3 mmficmmfiou mzoummmmm CH pm>ao>cH mmz Hm>sm SUSQS CH mmflcmmEou mo unwoumm mHOUGm> so nuumwmmu CS ucmEm>Ho>cS Homsm .malm mHQmB 298 involved in a larger number of research topics when a research staff is present. The increase in the number of tgpics in which the buyer is involved in companies with staff, however, is not as large as the increase in topics researched, for the research staff is available to assume a part of this additional research work. Chapter Summary Conclusions regarding purchasing research on Vendors were made by a comparison of the 99 companies with a purchase research staff and the 205 companies without staff which responded to the mail questionnaire. Companies with a purchase research staff researched, on an average, 1.8 times as many topics in the Vendors category as those companies without staff. Each of the nine topics in this category was researched by a higher percent of companies with staff. Companies with a research staff declared 1.8 times as many topics in the Vendors category produced most worth-while re- sults as were declared by companies without staff. Of those total topics actually researched, a higher percent of companies without staff declared most worth-while results produced, al— though this did not hold true for all nine individual topics. There did not appear to be any relation between the number of topics researched and company size in either of the two groups of companies. 299 Companies with staff researched more topics in all but one industry classification. The five industries with the largest percent of companies with staff which researched topics in this category were as follows: Chemicals (69%); Fabricated Metal Products (69%); Electrical Machinery, Equipment, and Supplies (67%); Transportation Equipment (59%); and Crude Petroleum and Natural Gas (59%). An analysis was made in this chapter of each of the following nine individual topics in this category: Analysis of Financial Capacity, Analysis of Production Facilities, Finding Potential Supply Source, Estimate of Distribution Costs, Estimate of Manu- facturing Costs, Supplier Attitude Survey, Trade Relations Data, Vendor Performance Evaluation, and Vendor Sales Strategy. Each topic was described, and, when possible an example was given of research done on each topic in one of the ten companies inter— viewed. Additionally, a table was presented for each topic to show, by industry classification, the percent of companies which researched the topic, and declared most worth-while results from the topic. Topics researched by the purchase research staff glgp§_were regarded as having produced most worth-while results 1.6 times as frequently as topics researched by the buyer alone, and 1.1 times as frequently as topics researched by the administrator alone. 300 The purchase research staff alone did the research on 16% of those topics researched in companies with staff, and was involved (either doing the research alone, or along with others in the department) in 37% of the topics researched. The average number of topics researched by the staff glppg was .8; the average number of topics in which the staff was involved was 2. The administrator alone, and in total, was involved in a smaller percent of that research actually done in companies with staff than in companies without staff. However, the administrator alone, and in total, was involved in a larger average number of topics in those companies with staff. The administrator alone researched 1.2 topics in companies with staff and .9 topics in companies without staff. In total, in companies with staff he was involved in research on an average of 2 topics, compared to 1.4 tOpics in companies without staff. The buyer alone, and in total, also was involved in a smaller percent of t0pics actually researched in companies with staff, compared to those companies without staff. However, the buyer alone, and in total, was involved in research on a larger average number of topics in those companies with a research staff. The buyer alone researched 1.5 topics in companies with staff but only 1.4 topics in companies without staff. In total the buyer in companies with staff was involved in an average of 3 topics, compared to 1.9 topics in companies without staff. 301 The increase in number of topics researched by both the administrator and the buyer, however, was not as large as the increase in number of topics researched in companies with staff. 302 CHAPTER IX RESEARCH ON THE PURCHASING SYSTEM Introduction The third, and last, major category of purchasing research studied includes all topics directed at analyzing the system used to facilitate performance of the purchasing function, and through this analysis to suggest means by which the overpall efficiency of the purchasing system might be improved. Much of the research in this category falls under the general heading of methods and procedures analysis. In some concernsj'the services of a separate systems and procedures department might be available for research of this type; however, in many companies this research might be a responsibility of the purchasing department. This chapter discusses research done, the evaluation of results of the research, and the involvement of the purchase research staff, the administrator, and the buyer in research on the Purchasing System category. Each of the eleven in- dividual research topics in this category also is discussed, and the occurrence, benefit, and evaluation factors are computed for each of these topics. This chapter presents the same type of analysis as did Chapter VIII, Research on Vendors, and Chapter VII, Research on Purchased Materials, Products, or 303 Services. Therefore, the remarks in the introduction of Chap— ter VII concerning the methods by which the data were obtained, and limitations of the data, are equally applicable to this chapter also. Tgpics Researched Those companies with a purchase research staff researched 1.9 times as many topics in the PurchasingiSystem category as those companies without staff. The companies with a research staff indicated they had done research, during 1959 or 1960, on an average of 67% of the topics in this category, while those companies without staff had researched only 36% of these topics (Table 9—1). On all eleven individual topics in this general category, the percent of companies with staff which indicated research had been done was greater than the percent for companies without staff. The seven topics which had a higher occurrence factor1 than the 1.9 average occurrence factor for the Research on the Purchasing System category were (figure in brackets is the occurrence factor): Learning Curve (3), Formulation of Price Index (2.7), Method for Evaluating Buyer Performance (2.3), Data Processing Equipment (2), Payment or Cash Discount (2), Method for Evaluating Purchasing Depart- 1 . . . . The occurrence factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies without staff which researched a topic. 304 s2 $2 $2 a: as: .3 an: .50 $8. mo§m>< a 2 a N a w 2. we 3 8.3682?” 32.53 S 2 m2 0 CH w mm me mm mocwguotom usmguummom wswmmaoudm S 2 2 m 2 o 2. ma 3 mocmfigotmm 33m ”maimgmkwm Mom @0452 S 2 2 a 2 a ow Z om $820 swam .8 29% 2 a 2 m a m on am 2. 8.685 :30 S 208st o S 2 o m N m em 2 3.80 32584 mm mm o... 2 2 S we we mm 3380 3852: m 2 o 2 o m S Q om 5?: 82m mo catfisauom 2 2 E w o m we ow am :3me 250m 2 mm 2 m S 0 mm on om “5.53am 3838.5 33 RE $3 $2 $8 $3 $3 $3 $2 case 3820 332mm WWW HNHm H.308 WWW. wwwm H.309 WWW wwwm H.308 fifimfifiw ...fimwma 3mm... mmficmmgou midmom 33275.33 $02 wqflmowpfi 280qu no £80qu mfidmmu waits/Isaac? «won» wdfimowpcw “Gouuom amuwmou Eoum>m mawmmsuvudm mcmnohmomou mmmnmmgou Ana 3an 305 ment.Performance (2), and Method for Evaluating Supplier Per- formance (2). The two topics with the smallest occurrence factor were Blanket Orders and Inventory Control, both of which had an occurrence factor of 1.4. From the above information on the occurrence factors for topics in this category, and a comparison of the percent of companies with and without staff which researched each of the eleven topics (Table 9-1), the following conclusion is indicated: Thpge companies with a purchase research staffpprobably would research approximately twice as many topics in the Purchasing_ System category as would be done py companies which do not have such a staff. There was a substantial difference in the percent of com- panies researching the individual topics, both in the group with staff and in the group without staff, as Table 9—1 shows. The topic researched by the largest percent of companies in both groups was Blanket Orders, which was researched by 83% of the companies with staff, and by 59% of the companies without staff. The Learning Curve topic was researched by the small- est percent of companies, both with and without staff, for only 24% of those with staff, and 8% of those without staff, did research on this topic. The relative rank of the percentages of companies with staff, and those without staff, which researched the eleven topics in this category, was essentially the same, except 306 for the Inventory Control topic. This topic ranked second in companies without staff, but only sixth in rank of companies with staff. Tgpics Produced Most Worth—while Results Thqgg companies with a purchase research staff declared 1.6 times as many topics in the Purchasing System category as havipg produced most worth-while results as did cgmpanies without a research staff. The average percent of topics declared as having produced most worth-while results was small in both groups of companies. Eleven percent of the tOpics were declared by companies with staff as having produced most worth—while results; seven percent by companies without staff (Table 9-1). On all but one of the eleven topics in this category, the percent of companies with staff which declared the topic pro- duced most worth-while results was larger than the percent for companies without staff. Only on the Payment or Cash Dis- count topic did a larger percent of companies without staff indicate most worth—while results produced than was indicated by companies with staff. The four topics with the highest benefit factor2 are Learning Curve (five percent of companies .with staff researched zero percent of companies without staff), Method for Evaluating Supplier Performance (3.5), Data Processing Equipment (3.4), and Method for Evaluating Buyer Performance (3.3). 2The benefit factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies without staff which indicated a topic produced most worth-while rnan 'I +a 307 From the above information on the benefit factors, and from the data presented in Table 9-1, the following conclusion is indicated: Companies with appurchase research staff are more likely to produce most worth-while results in research on tppics in the Purchasing Syptem categopy than companies which do not have a research staff. The average evaluation factor,3 computed from Table 9-1, is slightly less than 1, which shows that approximately the same percent of companies with, and without, staff indicated most worth-while results from topics actually researched. On the following six topics the evaluation factor was greater than 1: Data Processing Equipment, Formulation of Price Index, Learning Curve, Small or Rush Orders, Method for Evaluating Pur- chasing Department Performance, and Method for Evaluating Sup— plier Performance. The evaluation factors for each topic are discussed later in this chapter, and summarized in Table 9-15. Relation Between Company Size and Research Done Company size appeared to only slightly affect the number of topics researched in companies with staff, and_§9 have no effect on the number of topics researched in companies without staff. The evaluation factor, discussed in Chapter IV, is the ratio of the percent of companies with staff to the percent of companies without staff which declared most worth—while results produced when a topic was actually researched. 308 Table 9-2 shows that the average percent of topics researched by companies with staff increased from 61% in the smallest size category (measured by net sales) to 70% in the next larger size category, and was 68% in the two largest size categories. In the companies without staff there was a decrease in percent of topics researched between the smallest and largest size category. On the following five topics the percent of companies with staff which did research increased with increased company size, al- though the increase was not necessarily constant between all four size.categories: Data Processing Equipment, Formulation of Price Index, Learning Curve, Method for Evaluating Buyer Performance, and Method for Evaluating Supplier Performance. Relation Between Industry Classification and Research Done Cgmpanies with staff did research on more topics in the Purchasing System category than companies without staff, in all industry classifications. In all but two of the fourteen industry classifications in which some companies had a research staff, those companies with staff did research on an average of over 50% of the topics in this category. In only one in- dustry classification, Textile Mill Product and Apparel, did companies without staff research as many as 50% of the topics in this category (Table 9—3). In the following five industry classifications the average 309 amm awe amm awe amm ace Ram sac unmoumm mmmum>< am ma me mm mm as am om mucmsuomumm umaammsm m2 m ma om mm om am mm mucmauomumm ucmEuHmme mcflmmflousm ma we mm an am we mm mm mocmeHOMHmm ummsm "mGHuMSHm>m How penumz me we we om am we me me mumeuo swam no Hamsm me no em om om om mm mm ocsoomao ammo no ucmsmmm m mm ea am a mm 02 o m>uso acacumma mm mm mm om me me om om Houuaoo muouam>cH o 20 mm me m2 me ha mm xmecH moflum mo coHpm255nom so mm we om om we we ooa cmamma wagon am mm mm om mm ma mm mm ucmEmHsam mcammmooum mama amm awe amm $002 Ram amm amo am» mumnuo umxcmam mUHQOB SUHmmmwm Ha ma Hm va HNH mm mm m muampcommmm mo HOQEDZ mmmum mmmum mmmum mmmum mmmum mmmum mmmum mmmum 0\3 \3 0\3 \3 O\3 \3 O\3 \3 Hm>o pom ooo.H mmmloom mmvlooa 00H prcb imumaaon coaaaaz .mmamm mmmav muam sammsoo mNHm mommfioo an .mofimou Emummm mcflmmnousm msflnoummmmu mmwcmmeoo .mlm magma 310 Table 9-3. Companies researching the purchasing system by standard industrial classification Number of Percent Companies Researching w/ w/o w/ w/o Staff Staff Staff Staff Industry Group Food and Tobacco 9 37 69% 36% Transportation Equipment 17 20 64 27 Chemicals 13 2O 71 37 Machinery, except Electrical l4 16 65 40 Primary Metals 10 18 54 46 Electrical Machinery, Equipment and Supplies 9 15 78 33 Paper 3 13 39 24 Crude Petroleum and Natural Gas 7 8 71 30 Fabricated Metal Products 5 10 78 48 Stone, Clay, and Glass 4 8 68 36 Textile Mill Product and Apparel 1 9 64 55 Ordnance; Leather: Professional, Scientific, Optical; Misc. Mfg. 4 5 73 38 Mining 2 5 55 29 Petroleum Refining O 6 -- 33 Rubber and Plastics O 6 -- 11 Lumber and Wood 1 4 36 30 Printing and Publishing 0 5 -- 36 AVERAGE 67% 36% 311 percent of topics researched by companies with staff was part- icularly large (average percent of total topics researched is in brackets): Fabricated Metal Products (78%); Electrical Machinery, Equipment and Supplies (78%); Ordnance; Leather; Professional, Scientific, Optical Equipment; and Miscellaneous Manufacturing (73%): Chemicals (71%); and Crude Petroleum and Natural Gas (71%). .Appendix 2 presents, by industry, the per— cent of companies with, and without, staff which researched each topic, the percent which declared each topic produced most worth-while results, and the percent of those researching which declared that research produced most worth-while results. In the following sections, each of the eleven Purchasing System research topics is discussed. Where possible, an example is given of research conducted on each of the topics by one of the tenxcompanies which were interviewed. Following the dis- cussion, a table is presented for each topic to show, by industry classification, the percent of companies which research— ed the topic, declared the topic produced most worth—while re- sults, and declared the topic produced most worth-while results when researched. The occurrence, benefit, and evaluation factors are computed for each of the tables, and are summarized for all eleven topics in Table 9—15. Blanket Orders Research on this topic would be directed at determining the "312 feasibility of the issuance of purchase orders for particular commodities on a longer than immediate-need basis, with "pur- chase releases" issued as the need for specific quantities became apparent. Agreements would be negotiated with a part— icular vendor or vendors on a long—term (perhaps one year or longer) basis, and the "purchase release" would be primarily a clerical procedure used to schedule shipments. Such blanket orders might take the form of "National Contracts" negotiated from a central purchasing office. Various geographically decentralized plants could then "release" against these con- tracts as their requirements for specific quantities became known. Research on the Blanket Orders tOpic would attempt to determine which commodities would offer such procurement sav— ings, and the mechanics of the necessary paper flow. In one of the companies interviewed, a comprehensive study was made by the Purchase Analyst on the feasibility and usefulness of purchasing with blanket orders. The objective was todevelop a standard procedure indicating the type items for which this procedure could be used, how it would be used, and the paper flow required. The result of this study was the establishment of a blanket order procedure, which was included as part of the company's purchasing manual. Table 9-4 presents information, by industry classification, on the percent of companies with, and without, staff which did 313 wm mm Tm om 2N Hm mm mm no m0§m>< o -.. o o u- o ow .. ow m o wsfimfipfim pom wcflfium o o o o o o om o ow v 2 .pounm poo? poo 222554 02 : ooH : I- S S -u S p o mofimmanm pom Hopped o -- o o -- o S .. S o o woécom Eooaohom mm o om om o 2 oo 02 E m N 2:52 o 2: om o 2 3 8 2. S m a .22 .822 28280 .oflficowom . .wounm muofiudowa moocmopuO 2 o 2 2 o 2 mm 02 co m 2 2833. as oodpoum :32 33on 2. o om 2. o 2 2 2: mm m a 3.20 as >30 288 he om om vm om v on 002 ow 02 m .ponnH 233% poomofiupmh om om cm 2 3» pm me pm me. w m 980 2.2382 pom 5:30.2qu opSHU om o E m o 6 mm 2. mm 2 M 392 mm 2 mm om 2 S mm am 8 2 a mosooom Es .oaoam Shocmnomz Hmufiboofim 2. mm S mm om 2m 2. cm on 2 2 23oz inseam .3 mm om “EV 2N wm we we no A: 3 182.30on 2588 6:22:08; mv mm mm mm om em mm mm on on 2 3838220 o em 2 o «um : ov mm Np om : idiom cowomuuommgfih Av80m so 82 .2: .80 $2 $8 $8 $8 S a ooomooe pom pooh 33m 3.3m Edam madam Edam 3.3m team Edam o\3 \3 H.308 o\3 \3 Han—OH. o\3 \3 H.309 o\3 N3 0308 $38 posoumomom mcfiuomom oaoB :oflmnvflwmmflu £033 momcmmEoU EGO mowcmmEoU S< wcwnoumomom wafluommm >336“: "2.3289850 momcdmnhou mSSmom 333-3203 Smog madmowpfl 280qu m0 «coupon nongsz 33.5 3&an 4.8 292. 314 research on Blanket Orders and which declared the results of research on this topic as most worth—while. An average of 83% of those companies with a purchase research staff researched this topic; 59% of companies without staff researched this topic. Comparison of these percents indicates an occurrence factor of 1.4, showing that, on an average, 1.4 times as many companies with staff researched this topic as did companies without staff. In five industries, over 90% of companies with staff researched this tOpic, a higher percentage than for companies without staff in any of the seventeen industry classifications. The average benefit factor (computed from Table 9-4) is 1.1, which shows that a slightly higher percent of companies with staff found this topic produced most worth—while results. In two industry groups--Ordnance; Leather; Professional, Scientific, and Optical; Miscellaneous Manufacturing; and Crude Petroleum and Natural Gas--the percent of companies with staff which in— dicated most worth-while results from this topic was relatively high (75%.and 43%, respectively). Fabricated Metal Products was the industry in which the largest percent of companies with— out staff indicated this topic produced most worth—while results (54%) . The average evaluation factor is .7, showing that of those companies which actually researched this topic, a higher per— cent of companies without staff found it produced most worth—while 315 results than was found by companies with staff. Data Processing Equipment With the introduction of various types of electronic and automated office equipment for record keeping and data pro- cessing applications, research might be conducted on variouscfifice routines to determine how such mechanical equipment could best be adapted to purchasing data. Frequently, significant advan- tages in processing inventory data may be achieved through use of such equipment, and possibilities may also exist for automating all, or parts, of the paper work required within a purchasing operation. In some instances the purchase order itself, plus many accompanying documents, might be produced mechanically, based on data introduced into the data processing equipment through punched cards or punched tapes. Informed decisions on the feasibility of such data processing appli- cations to purchasing operations can be made only by considering the total data processing flow within a concern, for modifi— cations in procedures used within the purchasing department will probably affect data needs in other departments, such as receiving and accounting. In one of the companies interviewed, the purchase research personnel were engaged in a study directed at determining the most economical use of data processing equipment within the purchasing function. As a result of this study, certain of 316 the necessary purchasing and inventory data were collected and tabulated on the company's electronic computer, and required reports were mechanically prepared by the computer. The feeling of personnel in this company was that although some data processing applications were already being made, much work still was necessary before the full potential of this equipment could be exploited. The occurrence factor, computed from Table 9-5, on the Data Processing Equipment topic is 2. Seventy-six percent of those companies with staff did research on this topic, com- pared to 38% of companies without staff. In all 14 industries in which some companies had a purchase research staff, a larger percent of those companies which had staff researched this topic than was done by companies without staff. In the Electrical Machinery, Equipment and Supplies industry, all nine of the companies with staff researched this topic. The average benefit factor for this topic is 3.4, showing that companies with staff regarded this topic as having pro- duced most worth-while results more frequently than those without staff. The Crude Petroleum and Natural Gas industry had the highest percent of companies which considered this topic produced most worth-while results (43%); Mining had the highest percent for companies without staff (20%). 317 2 mm ma m S a mm be om m0§m>< o -- o o -- o om -- om m o moEmzoom 6cm morocm o o o o o o om 03 oo w H .pounH poo? one 922854 o .. o o u- o om .. om o o motmflnm pom noppsm o -- o o -- o o -- o S o moaocom EooHotom 02 o om S o 2 om om am m m $83 0 2 S o 2. 2 OS 2 S m a .32 622 288.20 .0mfic020m . .monm muofimod ”00:8550 o o o o o o 2 02 S a 2 83.3... on... oodpoum :22 33on o o o o o o mm 2. 2. w v 3.20 eon 3:0 .285 cm 0 .2 02 o n om ow op 02 m .pounH 2902 popmoibmh o om mm o mv om mm pm mm m N. moo amusumz USN SDGHOHamnH OUUHU o o o o o o 2 mm mm 2 m Soda om mm a a an 2 2. 02 mm 2 o 8:85 on... groom Shoafifimg Houwuuooflm 2 2 2 p S n pm 0b em 2 3 39oz .CNECQ gm om «N 2 3 3 we. 3 mm 3 v2 Hmowbooflm 300me Suofiaqmz cm 2 m: 2 2 NH om mm we om 2 38025220 2. 2. 3. S 2. mm 2 Se 9. om 2 Snow 8:388:32. so so so so so so $2. «a: $2. S a ooomooe com pooh $de Edam Edam mmmum 33m $86 mmmum Edam QB RB H.308 o\3 \3 H.308 ON? \3 Hmuoh 0\3 \3 0309 m3? pu£0HM0m0M mcfiuomom 0EoB Gowudoflmmmmdu 303.5 moacmmEoU 3:0 mowcmmEoO =< mnmauumomom mcfluomom >336“: mowcmmacou mogmmfiou 32.50% 333.520? “mo: wcflmuwpfl unmonom mo «noonon... umpgdz «cosmmfivm mammmououna Mama .m n m 03MB 318 When companies researched this topic, a larger percentage of those with staff considered this research produced most worth-while results, as the evaluation factor of 1.7 shows. Twenty two percent of companies with staff which researched this tOpic found it produced most worth-while results, compared to only 13%.of companies without staff. Forms Design This research would be directed at determining the forms which should be used for transmission of various purchasing and mater— ials data to those parties which need such information. In one company interviewed, the traveling requisition form was subjected to study, partly to ascertain the limitations to the use of this form and partly to determine whether the form was properly designed to furnish all the information required, and to minimize the time necessary to enter the required inform- ation on the form. Based on this study by the Purchase Analyst, the traVeling requisition form was modified, and the use of this document was extended into several other of the company's divisions. Table 9—6 shows that 80% of those companies with staff re- searched the Forms Design topic, compared to 48% of those companies without staff. The occurrence factor is 1.7 for this tepic. In all industry groups (with the exception of Mining) which had staff, a larger percent of companies with staff researched 319 2: 2 o: w a m. mp ow mm m0§m>¢ o a: o o u- o Op : co m o chmSndnH pap wsflchhnm om 0 mm mm 0 ON om 02 00 v H pounm poo? pap honsdd o n: o o u- o S u- S p o mofimphnm pap hoppdm o -.. o o u: o no -.. no 0 o mchchwom Edohobonm o o o o o o op om S m N 2:22 o 2. om o 2 S op 2 2 m p .22 3:2 28280 .0flflqoh0m . gonna ”hofiummd Mo0c2hph0 o 02 2 o 2: 2 S 02 on a a 2323. pg hodeHnm :32 33on cm 2. 2 2 2 2. om 2: S p 2. $30 poa .320 .2on o o o o o o om ooh no 2 m .pOhnH H.232 pmumohhpmh om : m3 2 ma .2 mp pm 2. m N. moo thgmz pap Sawhofionm opth om om 2 w 2 2 2 S pp 2 m Shah 2 2 2 a 2 w on 2 2. 2 a $3.33 pom .hhooh 332222032 aduhhu0ofim cm 0 2 2 o a pm on S 2 2 232a ipfiflh mm o 02 NH 0 m cm mm mm. 3 u: Hmohhuuohm 3088 29223022 ow OH mm om m ma om 2. Ho om ma 38025030 o 2 2 o 2 p op 2 S 2. 2 .ooah 8888232. .2: so .3 .2 so cam Sm eeS s2 2 o ooomooh. ppa pooh $pr Edam H308 3.3m “Guam H.308 madam Edam H30 H. 3.2m ammum o\3 53 o\3 \3 O\3 \3 o\3 \3 0308 mEB pmguhmmpmoim mafia—nomad UEOH. Gowumuflhmmdhu £033 mthMQEoU 3G0 mohdmmEoU Saw wcwn0hmOmom wcfihomom >329ch m 0 3.22200 m oMGMQEOU mfidmom 32375.33 “mo: mcfimohpfl 230th mo unoohonm “03552 Gmmmofl mahoh .96 3an 320 this topic than was done by companies without staff. In four industries, all companies with staff researched Forms Design. The average benefit factor is 1.1, showing that companies with staff regarded the results of this tOpic slightly higher than companies with staff. Nine percent of companies with staff declared it had produced most worth—while results; 8% of companies without staff said it had produced most worth— while results. The average evaluation factor is .7, which shows that when this topic was researched, a larger number of companies without staff found it had produced most worth-while results. Formulation of Price Index A weighted index of prices of purchased commodities often can be devised which will be useful as a measure of the direction and magnitude of price variation. In preparing such an index, decisions must be made on which prices should be included in the make-up of the index, what relative weight should be as— signed various prices, and the sources which may be used to obtain necessary prices. Not only must the index be initially formulated, but it should also be revised at frequent intervals, as sources of price data change, and as changes in the relative importance of commodities in the purchase pattern require re- vision of their weight in the index. 321 In one company interviewed, the Purchase Analyst had form- ulated an index of market prices, weighted according to the re- lative importance of various purchased materials which made up the total purchasing dollar spent. This index showed the direction and magnitude of changes in market prices for the principal items which the company purchased. Separate market price indices also were formulated for each of the company's product divisions. These indices were revised periodically, as the price weightings required adjustment. Additionally, Pur- chase Research had formulated an index of delivered cost of purchased materials. This cost index was compared with the appropriate market price index as a basis for judging in the aggregate: (1) how well the company was purchasing, and (2) the impact of the purchasing cost reduction program. Those companies with a purchase research staff did ap- proximately two and a half times as much research on the Form- ulation of Price Index topic as was done by those companies without staff. Table 9-7 shows that 45% of the companies with staff researched this topic, compared to 17% of those companies without staff, which indicates an occurrence factor of 2.6. The Chemicals industry had the highest percent of companies with staff which researched this topic (62%); Lumber and Wood Products was the industry in which the largest percent of companies without staff indicated research done on this topic (50%). 322 m 2 o H o N : mv om m0§m>< o -- o o -- o om -- om m o $333an was 3:55 o o o o o o om o ow v A team p003 cam umbEdA o .. o o ..- o o u- o o o mofimflm pcm umbndm o u- o o u- o S .. S o o wqmsflmm 8530on o o o o o o om o E m N 3:32 o om m... 0 mm H om om m... m v .32 62.2 “E330 .ouflsmwom . .monnm £93.84 “mocmspuo o o o o o o 3 o 2. a H 33mg. cam uodpounm H22 33on o o o o o o mm om mm m w. 3.20 cam >30 .msoum o o o o o o om ow NM 3 m .poum H332 woumowunmh o o o o o 0 mm mm ow m N. 990 Hmudumz pom. 85309qu opduu o o o o o o o o o 2 m .5me o om om o 2 a. o 3 S. 2 a $2.33. 28 $st Sumcmflomg Hmoiuuofim o o o o o 0 mm ow am 2 S 2302 imEEm o 3 3 o n m 2 om mm A: 3 Hmoffloofim ammoxo Suocwgumz 0 mm mm o em m cm No cm om mH mHmoficoAU o o o o o o m mm 2 om E 9st acumtoamafls $2 so a? ..S so .3 ..SH «.3 ..st S o 08309 ES cook Edam Edam Edam 3.3m 3.3m anew ammum 33w o\3 \3 H.308 ON? \3 #308 0\3 \3 H.308 0\3 \3 quH mEH honeymommm mcfiuomom UEOB Goflmomwmmmau £033 mowcdeoU 3G0 mmdfimmgoo 24¢ msmfloumomom mnmuuomom >53de momsmmEoU mvflnmmEoU mfiomom 33275.83 302 wsflmoapfi 280qu mo «coonmnm nongdz “865 003nm mo :oflmgauoh .Nao 034K. 323 Relatively few firms indicated this topic produced most worth-while results: 6% of firms with staff, and only 1% of firms without staff, producing a benefit factor of 6. The evaluation factor is 4.3. However, due to the small number of firms in each group which declared this topic produced most worth-while results, the benefit and evaluation factors may not be too meaningful. Inventory Control In many companies the purchasing executive may be respon— sible for inventory control of purchased products and materials. In such cases, research might be done on establishment of the system used in recording quantity and valuation of inventory, determining appropriate inventory levels and safety stocks, initiating purchase action to replenish inventories, and calculating appropriate lead times for items in inventory. Frequently, this research might result in the establishment of mathematical rules useful in arriving at inventory decisions. Table 9-8 shows that an average of 68% of those companies with staff researched the Inventory Control topic, compared to 48%lof those firms without a purchase research staff, or an occurrence factor of 1.4. In all industries but one, (Machinery, except Electrical), a larger percent of those compa- nies with staff researched this topic then companies without 324 mm mm on ma 3 2 3. we mm MO§H>< o -- o o -- o 2. -- ow m o 3323an ooo mosocm om 0 mm mm o om om 02 oo v H 60mm too? can Hanan—1n o nu o o E. o o .... o b o momummana was nonnsm om -.. om «um. .... vm so u: no b o wfisflom 8320."qu mm 2: me mm. 2: Q. S. 2: S m N woos: o o o o o o 8 om mm m I. .muz .832. 383.5 .oflflsowom . .mounm “Honumown ”oucmcvho o 2: 2 o 2: 2 we 2: ow o H 33%.... com Hospounm :32 33on o mm om. o SN m mm me T. w v 935 can >20 .oooom ow mm mm om om om cm 00 mm 3 m .pounm H.332 poumuznmh o ow mm o mm «4 mm 2. S. m h 990 3.332 pom 8:30.“qu opsHU om S 3. 2 S mm «m 2: S 2 M 89$ om E S om Z S ow we om m: o 33.35 on... 3st Suocwnomz 3.3.50on 3. 2 mm S 3 mm S om S m: 2 28oz ransom mm om ow 2 MN ON cm mw cm A: vH 33.50on “@083 Sumawsuflz mm 3 Hm 2 w NH mv 2. mm cm 2 manomEonu om om om S 2 2 mm S 3. om S Egon 538835; .52 as: 5.... $3. $2 $2 $3 $3 sS S o ooomoos ooo oooh madam 33m umum flan—m Edam mmdum madam .3 o\3 \3 H.308 o\3 \3 H.309 o\3 \3 #308 o\3 mwsvm each. mEH. ponoumomom mnfihomom uaoh comamuflwmmmmv com; momcmmEoU 3:0 modemmEoU :4 mamzoumomom mafihommm >uum5c5 «359800 mowngoU mfiomom 333-3303 30.2 mnflmowvfl acouuonm mo «~80qu nongz 3.380 33:35 .wao 39mg. 325 staff. In four industries, 100% of those companies with staff researched this topic. The benefit factor, computed from Table 9—8, is 1.3, showing that companies with staff found this topic produced most worth-while results more frequently than companies with— out staff. The evaluation factor is .9, showing that when this topic was researched, a slightly larger percent of compa- nies without staff than with staff found it produced nwst worth-While results. Learning Curve Research on the use of a "learning curve" or "time re- duction curve" would have as its objective providing the buyer with a technique useful in targeting a price as a basis for negotiating with vendors. While the use of this technique has, to date, largely been in government-connected procurements, some firms have found that it has equally useful applications in non-government—connected procurements. In one concern interviewed,Purchase Research spent con— siderable time in investigating the usefulness of this technique in procurement of various classes of manufactured parts in 'which price was dependent largely on the amounts of direct labor required to manufacture. The result of this research ‘was the development of a learning curve slide rule, which was furnished to the buyers, along with instructions for its use in 326 procurement of various classes of purchased items. The buyer could use this calculator to assist in establishing an estimated purchase price. The company realized that this target pur- chase price was only an estimate, although they felt the use of this technique placed the buyer in a better position to begin negotiation. Analysis of Table 9-9 shows that three times as many firms with a research staff indicated they had done research on this topic as was indicated by companies without staff. Twenty-four percent of the companies with staff researched this topic, compared to only 8% of those companies without staff, producing an occurrence factor of 3. The three indistries in which the largest percent of companies with staff did research on this topic were: Electrical Machinery, Equipment, and Supplies (67%); Transportation Equipment (41%); and Fabricated Metal Products (40%). Five percent of the companies with staff found this topic produced most worth-while results; none of the companies with- out staff indicated most worth-while results from this topic. The benefit factor will be shown as 5, although it actually cannot be computed for this topic. The evaluation factor also cannot be computed for this topic, for none of the companies without staff indicated most worth—while results produced; however, since 21%»of those firms with staff, which researched this topic, declared it produced most worth—while results, the evaluation factor is shown as 21. 327 0 H m N H 0 m N 0 0m 2 m0§m>< o -- o o -- o o -- o m o $323an Ba @3235 0 0 0 0 0 0 0 0 0 v H .ponnm too? bad .8395” 0 I- 0 0 ..- 0 0 ..- 0 o 0 moflmmfim cam umbnsm, o -- o o -- o o -- o s o washroom Esosobom o o o o o o o o o m N 9:52 o 2: om o mm H ow mm mm m w .32 .022 m3,an .oflfisowum . .wounm ”Rosewod Hoocmcpho o o o o o o o o o a H 33%.? can “ostonnm :34 33on o o o o o o 2 o w w w 3.20 ES >30 6.8% 0 0 0 0 0 0 0m 00 mm 00 m .pounm ago: powwowunmh o o o o o o 0 mm 2 w e 990 3332 tam Edoaofiom opsHU o o o o o o o o o 2 M 39mm o S 2 o 2 v om $ mm 2 a $2.35 28 3.6m Snoggomz adozuoofim o o o o o o S o 2 m: 2 2802 infirm 0 mm 5 0 N. m S Hm 0m 3 0H Hmufluuooflm umooxo Suocfiomz 0 0m 0m 0 w m 0 ma 0 0m 2 mfimofiboau o E 2 o o m 2 z. «m om S $st Statesman; $0 $0 $0 $0 $0 $0 $m $2 $0 pm .0 ooomnoh can pooh mmmum madam 003m 3.3m madam Edam 3.3m Edam m\3 \3 1308 Q3 \3 H.308 R3 \3 H.308 o\3 \3 0308 mEH. bosonmomom msfiuomom 0.308 soflmomflmmmfiu £033 mowcmmEoU 3:0 mownmmvcoo H2. wagonmomom wcflnomom rah—maps m manager—o U m omnmmao U mugmom oHEBufiuog 302 939.835 «cooumm mo “Goononm nonadz Ergo mcficnmod 6-0 3an 328 Payment or Cash Discount Research in this area would be directed toward arriving at decisionson method of payment for items purchased, timing of payment, and systems for assuring that advantageous cash discounts are taken. In one of the companies interviewed, the Purchase Analyst made a study to determine under what conditions cash discounts should be taken, and to simplify the paper work necessary to assure that advantageous discounts were taken. Determination was made as to whether discounts should be taken and payment made before the material was checked as satisfactory, and under what conditions this should be done. The result of this pro- ject was a written policy and procedural statement on this subject. Analysis of Table 9-10 shows that the percent of companies with staff which researched this topic was almost twice as large as that for companies without staff. Fifty—nine percent of companies with staff researched this topic, while only 30% of those without staff did research, producing an occurrence factor of 2. -In all industry groups but one, (Lumber and Wood Products), the percent of companies with staff which researched this topic was higher than the percent of companies without staff. 329 A: n N: m 0 m on mm 00 HO§H>< om -- om om -- om ow -- 3 m 0 $5235.”: 28 margin: 0 0 0 0 0 0 mm 0 0m 0 H .oounm too? can .33854 0 u- 0 0 u- 0 0 ..- 0 0 0 moflmmfim paw umbndm o -- o o .. o mm -- mm o o 2:53: 88:03.5 o o o o o o om 2: 3 m m 2:52 o o o o o o om om mm m .2. .mg .832 68:30 .oaflcofiom . .wounw. whoa—mo...” moonGpHO mm 2: om Z 2: om mm 2: 2. o : 3.8.54 25 podoounm H32 33on o o o o o o mm ms 2. m s $20 28 >30 65% 0 0 0 0 0 0 00 0w no 0: m .ponnH H33): powwowubmh 0 0 0 0 0 0 0m 2. 00 m w 920 3.332 tam Edofioflonm updno mm o om w o o :m 2.. :m 2 M 39$ om S om E 2 m: S. 3 ms 2 a 322:6 28 .332 Shocwnomz Hmomhuoofim 0 0 0 0 0 0 0m 0w 0m 0: 0: 3302 >um83nm 0 3 w 0 h m mm 00 m0 3 w: Hmowuuuoflm amouxo Suofigomz mm 2 on m w 0 0m 0:. 0m 0m 2 mamowfionu 0 0 0 0 0 0 0m 3. 0m 0m 2 .3de sousgnommcmuh ..Em so .53 s: so ...? .23 «9% $3 3 a 8938. 28 nook 003m madam 33m $25 3.3m Edam . madam “new o\3 \3 amuoH 0%? \3 H.305 o\3 \3 Hmuoh o\3 KB 0308 mash. vosoumomom msfiuuomom 030.0 soflmoflmmmmau £053 momcmmEOU 3G0 mmdemEOU S< wagonmomom wnfluomom >uum5©5 m o MGMQEOU m 028980 0 3160M 333-5.33 $02 msflmoflufi :80qu mo :30qu uoflEfiZ «550me ammO Ho acogtwmnm .070 3nt 330 The benefit factor, computed from Table 9-10, is .8, showing that more companies without staff found this topic produced most worth-while results than was found by companies with staff. The evaluation factor is .4 showing that when researched, the results were valued more highly by companies without staff. Small or Rush Orders Research on this topic would be directed at analysis of the problem of handling those purchase orders on which the total dollars involved are small, and those purchase orders which must be processed in a less than normal lead time. If successful, this research would result in recommendation of methods by which problems arising from these purchases could be avoided, and such purchases could be processed most economically. Table 9-ll shows that 71% of companies with staff did research on the Small or Rush Orders topic, compared to 40% of those companies without staff. The occurrence factor, computed from these percentages is 1.8. In all fourteen industries in which some companies had staff, the percent of companies with staff which researched this topic was as large or larger than the percent for companies without staff. The benefit factor, computed from Table 9—11, is 1.9, showing that a much larger percent of companies with staff found this topic produced most worth-while results. However, of those companies which actually 331 S M: m: a 2 a 2. E om mo§m>< S -- S o. -- 2. 3 -- 3 m o 3323an can magnum o o o o o o o o c v H 62m coo? 28 .383 o -- o o .. o o -- o S o 3:35 ES 3.33“ o -- o o -- o mm -- mm S o masccmm 8835mm o o o c o o 2. om 2. m N mass: o m» om o 3. am 2. 2: S m a. .muz .umsz m183.5 .328me . scum “Hofiumod ”00526th S 2: mm mm 2: om we 2: ow a H 3.3.5... 23 833m 52 23me mm o E 2 o w mm 03 mm m i. 3&0 28 .35 .285 mm mm mm om on on 3 3 3 S m 63m 1302 sosmufipmh om S mm 2 2 2 mm Sm mm m s $0 1232 UGN ESOHOHuvnH QUUHU o o o o o 0 mm mm mm 2 m 89$ 0 S o o 2 a. mm S 3. m: o 82%;... ES .9st Shocwflomz Hmowuuomfim 2 o N. S o s. E. ow S m: S 2834 >38th mm 2 m: 2 s S E. 2. S 2 3 33:02....” umooxm Shocmfiomg mm m: 3. S m: .2 2. mm mm om 2 232:25 o mm 2 o mm m 8. 2 am om 2 33m cosmfioamcmue .S so .3 .sm so «am AS. «a... $3 S o 8028. 25 yeah :3 :86 madam umsm swam swam add may...” o\3 \3 H.308 o\3 N3 H.308 o\3 \3 H.308 o\3 \3 oEOH. mEH. pogoumomom mcfiuomom 0309 cofimuflwmmflu £02.25 momcmmEoU 530 mmwsmmccoo :44. wcwnuudomom wcwunomom >numdan m 03.25.50 m omeQEOU mfidmom 0333:5203 302 9.330wa «Gouuonm mo «Goohonm Hongdz 22:0 fax .8 29% .2-» 033. 332 researched this topic, the percent which found this research produced most worth-while results was almost identical, as indicated by the evaluation factor of 1. Method for Evaluating Buyer Performance The development of a satisfactory procedure or system for measuring the effectiveness with which buying personnel dis- charge their responsibilities has never beenani easy matter. Inherent in development of such a system might be determination of standards for performance, so that a comparison of individual buyer performance with the established standard would enable useful judgments. In one of the companies interviewed, a system was developed in 1960 by the Purchase Analyst by which each buyer would be rated twice yearly, by both his immediate supervisor and also the General Purchasing Agent. The system required rating the buyer on two major categories. The first was on quantity of work performed, for which the applicable statistics were ob— tained from already existent departmental records. The second major rating category consisted of 36 individual characteristics, each described in detail. These 36 specific characteristics were subdivided jmnx> three categories: (1) Personal traits, aptitude, and abilities; (2) Basic purchasing knowledge and skills, and (3) Relationships with people. On each of the 36 333 items, the buyer was rated on a four-place scale. The 36 items had various numerical values (all were not of equal weight). A summation of the ratings on each item gave a numer- ical rating for the buyer. This rating, combined with the rating on the first category, gave the summary rating for the buyer. Table 9-12 shows that a much larger percent of companies with a purchase research staff did research on this topic than was done by companies without staff. Seventy—five percent of companies with staff researched this topic, compared to 33% of companies without staff, giving an occurrence factor of 2.3. In all but one of the 14 industry classifications in which some companies had staff, the percent of companies with staff which did research was as large or larger than it was for companies without staff. The benefit factor, computed from Table 9-12, is 3.3, al- though the percent of companies indicating this topic produced most wortdehile results was relatively small (10% of companies with staff, 3% of companies without staff). The evaluation factor of 1.3 shows that when this topic was researched, a higher percent of companies with staff declared it produced most worthdwhile results than was indicated by companies without staff. Method for Evalyatinq Purchasing Department Performance A frequent problem, both for the purchasing manager and for 334 0H .2 NH m 2 0 mm mm 3. m0§m>< o -- o o -- o oS .. S S o 3333an and engine 0 o o o o o o o o a. fl .pounm too? can $5854 0 u- o o u- o o nu o b o moflmmfim paw 923.9% o -- o o -- o mm -- mm S o Sufismm Sanctum o o o o o o om om mm m N SEEE om SN mm om mm mm S. 2: S S S $2 .032 smoteo .omflcowum . .wonnm ”Hoaumod moocmcpho o o o o a o SS o om a s 3393. 28 Sodpounm :32 33me o o o o o o om om om m S. .0630 was >30 .285 o ow mm o ow 2 ow 03 co oH m .ponfl $32 pmumufipmh o om S o «l n 2 :l ow m N. mmO 3.332 new Edmflobonm 36an o o o o o o mm mm mm 2 S 39$ 0 E S o S I. 2. Se SS 2 a 3.336 98 95am Suofigumz Hmowuuoofim mm o om. : o : om 0S vm we 2 3.3on thumgwum o m S o w m To. pm pm 3 ml Hmowflomflm Smooxm Snocfiomz mm S cm 2 3 Na ow. mm 3 om MA mamowEoAU o S 2 o .2 S SN 2 SS om S .3st aosmtoemqfie as: ea ..S SS so SS gem sow aim S o 08809 98 68m 3.3m madam H.308 Edam Edam H30 .H madam 33m H.308 33m anew o\3 \3 o\3 \3 o\3 \3 o\3 \3 ommofi mus. voaoumomom wcfluommm each Gomumommmmmmau £033 modfimmEoU 3G0 mownmmfiou 24c. mcfioumommm wcfluomod >365ch m ownmmEoU m oMGMQSO U mfidmom 333:5.33 Smog massages acmouonm mo unmononm HonEdZ mocmfiuguom uo>5m wstmgmkm no“ @0502 .mfluo 3an 335 the top management of a company, is to answer the question, "How effectively is the purchasing function being performed?" To date, no completely satisfactory method has been advanced for answering this question. Research on this subject would involve setting up reasonable performance standards, and then developing a system for collection of data to indicate the degree to which the standard was achieved. In one company interviewed, a research study directed at developing a system for measuring departmental performance had been under way for a two-year period. The criteria for developing this measurement technique were: (1) the measure should be simple to calculate; (2) the measure should be specific, rather than general; (3) it should not require col- lection of a new mass of data; and (4) it should be relatable to other business functions. Some 130 different Specific 'measures of performance were studied; those appearing to offer little promise were discarded, and the final group con- sisted of 32 statistical measures, producing 16 ratios of performance. These 16 ratios were in four groups: related to time, price, quantity, and quality. Through a mathematical system, the combination of these 16 ratios produced one over- all measure of purchasing department performance. While this company did not feel this system was the final answer to the evaluation problem, they felt it a step forward, offering some 336 interesting possibilities. Table 9-13 shows that approximately twice as many of the companies with staff indicated research on the Method for Evaluating Purchasing Department Performance topic as was indicated by companies without staff. Seventy-five percent of companies with staff researched this topic, compared to 38% of those companies without staff. The occurrence factor is 2. In all industry classifications, a larger percent of companies with staff researched this topic than was done by companies with- out staff. Ten percent of those companies with staff indicated this research produced most worth—while results, as compared to only 6% of companies without staff, giving an average benefit factor of 1.7. However, a larger percent of companies without staff which researched this topic declared it produced most worth-while results, as the evaluation factor of .8 shows. Method for Evaluating Supplier Performance Research in this area would be directed at developing better methods for judging how well a given vendor performed on business done. An evaluation of vendor performance should include not only performance on price and quality, but also performance in the somewhat intangible area of service. A usable system for evaluating vendor performance would require definition of desirable 337 S 2 2 S 2 S mm Sb NS mo§m>< o -- o o i o om -- om m o mfifisfii 28 95.25 o o o o o 0 mm 2: ow v A SEQ S83 28 8.3.3 o -- o o -- o S -- S S o 852m 28 $2.3m o -- o o -- 0 mm -- mm S o 93.5% Esmaobmm o o o o o o om om mm m N @352 mm mm mm om mm 8 OS 2: we m a .maz .022 u$330 .3333an . .35 £93qu moonGpHO S o 2 2 o 3 S 2: on a H 3.3.5... Sam 83on 32 33.89 mm o S 2 o a SS Sp om w v 3.30 S5 .50 .285 o 2. mm o 3. 2 3. 2: OS 2 S 68m 3sz 3523mm 0 om E o 3 a SN 2 S S a $0 $.3sz paw 8.930on opduu o o o o o o 2 mm mm 2 S 89$ mm mm mm 3 am 3 S ow S 2 a 82.35 SE. Edam Shoswsomg Hmowflomam S 3 2 S S h S... E S m: 2 238.4 3.23.5 mm 2 om 2 ms 2 om SS S SH .2 QUEUSE umooxo ...».Hmcwgodz om 2 ms 3 w a om E S om 2 2388.6 om o S m o m Sm Sp 9. om 2 95am cosmtoamcmue .qsmm so so a? so so $3. $2: $3 S a 8830.5 28 cook and :Sm :38. anew ufim H.309 ufim 33m H33. uSm umpm ON? K3 o\>> \3 £3 \3 0\3 \3 ohm—oh mEH pmsuummmom wcfluomom mach. cofimomwmmmfiu £033 mmwcmmEoU :8 mmMGmmEoU Z< deoumomom mcflnomom .3332: m oEmmEo D m owcmmEoU magnum 33575.33 “mo: mam—mugfi uaounonu mo ”:50.“an Hungaz ooamEuotmnH udoeuudmofl mammmgondnm mnflmfidkm new @0502 .mHuw 2an 338 standards and means by which measurement of degree of attainment could be arrived at. One of the companies interviewed had done research on this subject over a period of years, in which they attempted to define what was considered desirable supplier performance, and then devised means by which specific performance could be measured. The end result of this evaluation process produced a single number rating for a particular vendor. Based on this research, all buying divisions received information on this rating system, and it was implemented on a company-wide basis. Table 9-14 shows that 64% of the companies with staff re- searched the Method for Evaluating Supplier Performance topic, compared to 33% of companies without staff. Computation from these percentages indicates an average occurrence factor of 1.9. The benefit factor, computed from Table 9—14, is 3.5. A relatively small percent of both companies with and without staff indicated this topic produced most worth—while results: 7%.of the companies with staff and only 2% of companies without staff. In only seven industries did any companies, either with or without staff, indicate this topic produced most worth-while results. The evaluation factor is 1.6, showing that when re- searched, a larger percent of companies with staff found it produced most worth-while results'than was found by companies without staff. 339 n S m N n 0 mm 00 m0 m0§m>< o .. o o -- o 2. .. 2. S o $223.5 S.S $25.5 0 0 0 0 0 0 mm 0 0m 0 H .ponnm too? bad “@9554 0 u- 0 0 u- 0 : ..- S o 0 mofimmfinm 08m umpbdd o .. o o -- o S -- S S o weaned 883.3?” o o o o o o om om mm m N mean: 0 mm 5 0 mm .2 00 00a no m v .32 .032 m3330 .oflflcoaom . gonna 308—mod moonmcpuo o o o o o o mm o om a H 33%... SE... Hodpounu 232 0:388 0 0 0 0 0 0 mm mm mm m w mmmHO 0cm >30 .osBm 0 0m 0 0 0M > 00 00a mu 3 m .pounm 033.4 pmumownnmh 0 0N : 0 «L 0H mH an 00 m N. mmU 3.332 paw 8530me opdno o o o o o o m: S mm 2 M 39mm mm o 3 I o m S we 3. m: a 8:36 23 Adam Shocsomg Hmotuomfim o o o o o o mm on Sn 2 S 2302 imfiflm o S a o a m 8 S S Ss _ E 18283”... , umooxm Shoshana: mm mm mm ma ma ma 0v .00 mm 0N m4 mdmuficgflu o o S o S m om S SS om S Edam corduuoamcfie $0 $0 $0 $0 $0 $0 $0M $05 $0m pm. 0 ouomnoB tam pooh madam 3.3m amum madam 3.3m madam $de $35 o\3 \3 H.308 o\3 K3 HNH—OH. o\3 K3 H.308 O\3 \3 ommoh mEB poifidmmom wcfluommm 0300.. netwommmmmfiu £333 moficdmcuou 3G0 mOMGNQEoU :4 wagoumommm mcflnomom S3365 mmwGMQEoU moMdeEoO magmmm oHEBufiuog $32 wcflmumpfi ”:50an mo unmouvnm Hanan—Z llllll muqmfiuowumm ummmmsm mfiuflzflzm .80 00502 676 3an 340 Comparison of Occurrence, Benefit, Evaluation Factors Table 9—15 presents the occurrence factor, benefit factor, and evaluation factor for each of the 11 Purchasing System topics. While the occurrence factor is greater than 1 for all topics, it is highest on the Learning Curve tOpic, which has an occurrence factor of 3. The lowest occurrence factor for topics in this category is 1.4 (Blanket Orders, and Inventory Control). .The benefit factors in Table 9—15 show that only on the Payment or Cash Discount topic did a larger percent of companies without staff find most worth—while results produced than was found by companies with staff. On five of the topics the benefit factor is over 3. The average evaluation factor for the 11 Purchasing System topics is 1, showing that, for this category, the same percent of firms both with and without staff produced most worthhwhile results on topics actually researched. On the Learning Curve topic, none of the firms without staff declared this topic pro- duced most worth-while results, while 21% of those with staff which researched this topic found it produced most worth-while results. The Formulation of Price Index tOpic also has a high evaluation factor (4.3). Evaluation of Research Performed by the Purchase Research Staff That research done by the purchase research staff on topics 341 Table 9-15. Occurrence, benefit, and evaluation factors for the eleven purchasing system research topics Occurrence Benefit Evaluation Research TOPICS Factora Factorb Factorc Blanket Orders 1.4 1.1 .7 Data Processing Equipment 2 3.4 1.7 Forms Design 1.7 1.1 .7 Formulation of Price Index 2.6 6d 4.3d Inventory Control 1.4 1.3 .9 Learning Curve 3 5e 21e Payment or Cash Discount 2 .8 .4 Small or Rush Orders 1.8 1.9 1 Method for Evaluating: Buyer Performance 2.3 3.3 1.3 Purchasing Dept. Performance 2 1.7 .8 Supplier Performance 1.9 3.5 1.6 AVERAGE FACTOR 1.9 1.6 l aRatio of percent of companies with staff to percent of companies without staff which researched each topic. bRatio of percent of companies with staff to percent of companies without staff which indicated a topic produced most worth—while results. cRatio of percent of companies with staff to percent of companies without staff which declared most worthawhile results produced when a topic was actually researched. Due to the small number of firms which declared this topic produced most worthdwhile results, this factor may not be too meaningful. eNo companies without staff indicated this topic produced most worthdwhile results. 342 in the Research on the Purchasing System category was more highly_ regarded than that done by others within the purchasing department. Twenty-four percent of the total topics in this category, which were researched solely by the purchase research staff, were declared to have produced most worth-while results (Table 9-16). This percent is 1.6 times as large as the percent of total topics researdhed solely by the buyer and found to have produced most worth-while results, and 1.4 times as large as the percent of total tOpics researched solely by the administrator and found to have produced most worth-while results. On four topics in this category the percent researched solely by the purchase research staff which was found to have produced most worth-while results was larger than the similar percent for either the buyer or the administrator. These four topics were: Formulation of Price Index, Inventory Control, Small or Rush Orders, and Method for Evaluating Supplier Performance. The percent for topics researched solely by the staff was greater than for that done solely by the buyer on six topics, and greater than for that done aglely by the administrator on seven topics. This data provides one indication of the over-all effective- ness of the research done by the purchase research staff on topics in this category. From this it can be concluded that a compagy probably will prodpge more worth-while results from topics in the Research on the Purchasing System category if this research is done by staff purchasing research personnel. 343 Table 9-16. Research which produced most worth-while results when done by staff, buyer, or administrator alone in companies with purchase research staff Number Percent of Cos. Companies Researching Researching Indicating Most Worth-while Re- sults Produced Research Topics u H o o m 0 4J w o .u c c m c c m o o H o o H F4 a: u r4 r+ # d < .3 d: d .2 m H c m In H c m m m -a c In m -a c m :n 5 o m :a 5 o u 5 F: u s .4 m m m m m m m ¢ Blanket Orders 13% 13% 24% 38% 46% 33% Data Processing Equipment 26 4 22 31 50 9 Forms Design 29 13 24 10 15 13 Formulation of Price Index 16 7 l4 l9 0 14 Inventory Control 10 7 25 50 14 32 Learning Curve 7 l 9 29 O 33 Payment or Cash Discount 12 l9 l7 8 S 12 Small or Rush Orders 12 22 18 42 5 33 Method for Evaluating: Buyer Performance 16 4 36 19 25 11 Purchasing Department Performance 20 2 4O 20 50 3 Supplier Performance 10 17 16 20 6 13 AVERAGE 24% 15% 17% 344 Personnel Involvement l. The Purchase Research Staff In companies which had a purchase research staff, that staff alone performed the research on 24% of the topics, and was involved in 42%»of the topics, which were researched in the Puchasing System category. Table 9-17 shows, by company size, the percent of topics re- searched by companies with staff in which their purchase research was involved. It also shows the percent of topics in which the research was done solely by the purchase research staff. Three topics stand out as ones in which, when researched, the staff alone was heavily relied on to do the research. On Forms Design, Formulation of Price Index, and Data Processing Equipment, 36%, 36%» and 34%, respectively, of the companies which did research relied solgly on their staff for this work. For all 11 topics, an average of 24% of those topics researched were done solely by the research staff. The ayerage total involvement of the staff in all eleven topics researched was 42%. On only one topic, Data Processing Equipment, was the staff involved in over 50% of the companies which researched this topic (total involvementz 0}: a}: ‘m-m 64 < 0 Number of Companies with Staff 8 59 l4 18 99 99 Research Topics Blanket Orders 33% 35% 50% 63% 40% 16% Data Processing Equipment 20 57 82 75 62 34 Forms Design 13 46 64 6O 48 36 Formulation of Price Index 0 40 67 73 49 36 Inventory Control 25 33 55 7O 41 15 Learning Curve 0 4O 33 67 46 29 Payment or Cash Discount 20 26 43 33 29 20 Small or Rush Orders 17 3O 36 43 33 17 Method for Evaluating: Buyer Performance 0 30 8O 79 44 21 Purchasing Dept. Performance 30 64 67 39 25 Supplier Performance 0 29 50 50 34 16 Average involvement for the above topics 13 36 58 61 42 24 3Computation of percent of total purchase research staff involve- ment made by (1) adding the number of topics researched by the pur- chase research staff alone and in combination with the buyer and/or the administrator, and (2) dividing this number by the number of companies which indicated the topic was researched. 346 Company size did appear to affect the average total in- volvement of the research staff in topics researched in this category. Average total involvement in the smallest size category was only 13%, but it was 36%, 58%, 61%, respectively, in the larger size categories. In those companies with staff, the staff alone researched an average of 1.7 topics in the Purchasing System category, and was involved (indicated as doing the research alone, as well as with other individuals) in an average of 3.2 topics in this category. 2. The Administrator The administrator was involved in a smaller percentage of thoge total topics researched in the Purchasing System categopy in companies which had appurchase research staff. The administrator alone did research on 34% of the total topics in this category in companies with staff, compared to 47%.of those topics researched by companies without staff. On each of the eleven topics in this category, the administrator alone, in companies with staff, was involved in a smaller per- cent of those topics researched than the administrator in companies *without staff. (Table 9-18) Total administrator involvement (topics researched by the administrator alone, as well as with others within the department) 347 .mmmum £ua3 mmflsmmEoo mm %9 UmQUHmmmmu mm3 mumpuo umemHm .mamamxm Mom .mmnm Sumo ca Soumwmou UHU mmgu poumofipcfl £0fi£3 mmflcmm IEoo omonu mo usmonmm m ma DH.2.mchmmEoo now no mm map mo ucmunwm m no: ma unmoummm go mg mg gm moflmou m>onm may Mom ucme>Ho>cH mmmuw>¢ mm mm mm mm mucmEHomumm Hmfiammom mm ch 00 cm OUGMEHOMHmm .ummm msflmmnunsm Hm gm cc 0% mocmfiuomumm Homsm umCHDMDHm>m How ponumz mm mm mm mm mumpuo nmsm Ho HHmEm 0m mm mm mm ussoomfln nmmo Ho usmEhmm as an S4 mm m>uso mascumma an gm av hm HOHHGOU MHODGO>GH mo av av Hm xmch ooaum mo coaumasfiuom HS as we cm cmfimmo Samoa mo Hm mm mm ucmfimflsvm mcwwmmooum mung $00 $mm $0v $mm mumpHO umxcmam “masm S mm..soa Hwhdm paw ocoa< “mm o .EU¢ mcoafi Houmuumficflepd Houmuumficflaod “Hmhsm a .Epd nonwhumwsaeom “Houmuummcwfiflw. “Houmuumficwemmi, moflmoa noncommm mmmum 0\3 mOflcmmEoo . . mmmum\3 mmflcmgfiou mpm>ao>cH mmz Houmuumflcaao< Quasz Ga UHQOB 30mm mafigoummmmm mowsmmaou mmosa mo unmoumm Uflmou 30mm mcflnunmmmmu mmwcmmeoo ca Emummm mcflmmnousm ms» so Soumomou wmmnunsm cw uGQEm>Ho>cH Houmnumwcafiod .malm magma 348 in the total topics actually researched also was greater in those companies without staff, for the administrator was in- volved in 64%»of topics researched in companies without staff, but in only 43% of topics researched by companies with staff. The higher administrator involvement in companies without staff held true for all eleven topics. The average number of topics in which the administrator was involved was larger in those companies with staff. The administrator alone did research on an average of 2.5 topics in companies with staff, compared to 1.8 topics in companies without staff (Table 9-19). The administrator was involved (did research alone, and with others in the department) in an average of 3.2 topics in companies with staff, but only 2.5 topics in companies without staff. Thus, in companies with staff, the administrator alone did research on 1.4 times as many topics, and was involved in 1.3 times as many topics, as he was in companies without staff. However, those companies with staff researched 1.9 times as many topics as were researched by companies without staff. This shows that although the administra- tor in companies with staff did do research on more topics, this increase was not as great as the increase in topics researched by companies with staff over those without staff. From the above data it can be concluded that the administrator is likely to be involved in a smaller percentage of that research 349 .UHmou sumo monoummmmu SUHS3 wmonu haso so no: ocm .msoum Sumo Ga mmacmmEou mo Hogans Hmuou oQu so omumaooamo mm? wmmucmoummm m.m m.H N.m m.N mowmoe mo HOQESZ mwmnm>¢ $mm $na $mm $Nm unmoumm ommum>4 0m Ha gm 0H wocmfiuomnmm Hmflammdm Hm mm mm 0v mosmEHomnmm .umma mcfimmsonom mm «m mm mm oucmfiuomuom Homom "msflumsam>m How penumz 0H Ha mm ma muwpno swam Ho Hamfim SH S as pH unsoomag ammo Ho ucmsmmm 0 0 HA 0 w>HDO mcflsnmoq mm mm mm mm aouusou huouaw>cH Ha m mm ca xmch moanm mo GOHDMHDEHom 0m mm mm gm amflmmn mEHom mm ma mm mm ucmfimasgm msflmmwooum mumn Xmm Xma $mm $¢N mumpno umxcmam HONDm .w mml 06¢ Hmmsm paw msoa< “mm S .EU4 muoH< .HoumuuchH864 uoumuumHGHEU< “Hwhsm w .E©< Houmnumwcwfip< “HoumuumficHEpd “Houmuumflcprm mofimoe fiohmwmmm mmmum usonua3 mmacmgfiou mom wmmum nufl3 mmwcmmfioumm maoummmom cw ©0>Ho>cH mm3 Houmuumficflsp< nuwng ca .mou mo unmonwm Emummm mcammnousm 93 co noumomou 5 usmEo>Ho>fi Houmuumflfiacm .maum magma 350 on the Purchasinq78ystem done by companies with staff, for specialized staff is available to perform some of the research. However. since companies with staff research a larger number of topics, the administrator in the companies will be involved in research on a larger number of topics. The increase in average number of topics in which the administrator will be involved, however, will not be as great as the increase in total topics ressarched in companies with staff over companies with- outpstaff, due to the assistance provided by the purchase re- search staff. 3. The Buyer The buyer in companies without a research staff was involved in a higher percent of the tppics actually researched, compared to the buyer in companies with staff. The buyer slpps did the research on 36% of the topics re- searched in companies without staff, but only 15% of the topics actually researched by companies with staff. Total buyer involvement (topics on which the buyer slpsz plus with other individuals within the department, was involved) on topics actually researched showed the buyer involved in 53% of the tOpics in companies without staff, but only 32% of the topics in com- panies with staff (Table 9—20). Buyer slpps_involvement on topics actually researched was greater on all eleven topics in the Purchasing System category 351 .mmmum fiuaz moflsmmfioo mm %3 pmsoumwmmu mw3 mnwpuo umxsmam .onmem mom .mmum 30mm ca noumommu pap Mona pmumoapcfl soasz mmflcmm IEoo mmosu mo ucwoumm m ma DH .mmasmmaoo mom no mo map mo unmoumm m uos ma ucmonmmm mm mm mm ma moflmou w>onm on“ How ucofim>ao>ca mmmum>< hm mm mm mm mocmfinomnmm Hwfiammsm 0N ma Ha m OUGMEHOMHmm .umma madmmnuusm mm ma ma m wocmeuomumm Howsm umcflumsam>m How ponumz mm H0 mm Hm mhwpuo nmsm Ho HHmEm mo 0m av mm unsoomflm Sumo Ho ucmfihmm mm mm mm c w>HDU msflcummq 0% mm mm 0H HOHDCOO huoucm>cH. mm mm mm 0H xmch moaum mo soaumasfinom mm mm vm 0H cmflmmn mEHom as am 0H m ucwfimflsgm mcflmmooonm mumn $n0 $0¢ $N¢ $0H mumpuo umxcmam Hm>5m 0cm HO>Dm w mmq.EU€ HoumnumAGHEpfi ocead “Mm a Hmhsm “Hmmsm OcOHC “Hmhsm Howsm w .Ep< «Hwhsm Hmmsm mmmum 0V3 mmflsmafioo Mmmum\m.mmflsmmfioo moaQOB gonmmmmm mpo>ao>cH mmz Hmmsm nowfiz ca mwué gown mcflnoummmmm mmacmmeoo muons mo unwonwm canon comm mcwnoumommu mmflcmmEoo ca Emummm mcammsuusm map so noncommu mmmaousm CH usme>Ho>CH Hohpm .omlm manna 352 in those companies without staff. On the following three topics in this category, the percent of buyer alone involvement in topics researched by companies without staff was at least six times greater than in companies with staff: Learning CurVe (7.3 times greater), Data Processing Equipment (6.2 times greater), and Method for Evaluating Purchasing Department Performance (6 times greater). Total buyer involvement in topics researched was greater in companies without staff in all but one of the eleven tOpics in this category. Only on the Learning Curve tOpic was the buyer involved in a larger percent of companies with staff which re- searched this topic. Even though the buyer in companies with staff was involved in a smaller percent of topics actually researched, compared to companies without staff, he was involved in a larger average number of research topics. The buyer alone, in companies without staff, researched an average of 1.4 topics, and only 1.1 topics in companies with staff. But in total, the buyer in companies with staff did research on an average of 2.4 topics, and only 2.1 topics in companies without staff (Table 9—21). Thus, al— though the buyer alone did research on fewer topics in companies with staff, the buyer along with others in the purchasing depart- ment actually researched 1.1 times as many tOpics in companies with staff, compared to companies without staff. This increase 353 .uamou Sumo uoSunmomoH SUHSB omOSu haso so you psm .msoum Sumo CH moflcmmeou mo HoSESC Hmuou oSu so poumauuamu mmB ommucounomm H.N ¢.H ¢.N S.S moamoe mo HoSEuZ ommno>¢ SSH ama Ram aoa unmoumm mmmnm>< NN NH mm SH oucmEnowHom Hoflammum 0a a m N oucmEuowHom .umom mcflmmSunsm m 0 ca u ousmEHomuom Homum "mafiumuam>m How UOSuoz Hm vN hm NN muopuo Smsm no HHmEm ma SH mm _ ma ucsoomuo ammo Ho ucmssmm N N m H o>uso mcflcnmoq mm 4H SN 5 . Houucoo muoucm>ca m m NH h xoch ouaum mo coaumaufiuom Sm ma ma ma cmammo msuom ma NH NH u ucoemflswm mcwmmouonm mqu $mm fimN Xmm $ma muopuo uoxcmam mm m w s. u no om ppm _Mmmflm Homom EUS mm wc0d4 HoumuumflcflEpfi w Hohum “Homsm . Hmhflm Hwhsm .Homum w .EU< «Howsm . muamoe Sunmomom $86 3933 mmacmmsoo mom mmmpm a»? mwacmdsoo mm . mSunmomom ca po>ao>GH mm3 Hohsm SuwSz cw mowcmmfiou mo usounom Eoumhm mcfimmSunsm oSu so Suumomou a“ ucoEo>Ho>CH Hohsm .HNIm oHSmB 354 in number of topics researched was much less than the increase (1.9 times) in topics researched in companies with staff over those without staff. These figures indicate that while the introduction of a research staff decreases the number of topics researched solely by the buyer, it increases the number of topics on which the buyer, along with others in the department, does research. From the above data, this conclusion follows: While the buyersprobably will be involved in a smaller percent of the topics in the Purchasing System category actually researched by companies which have a research staff, the buyer in companies with staff probably will be involved in a larger number of research topics than the buyer in companies without staff. The increase in number of tppics in which the buyer is involved in companies with staff over those without staff, however,_will not be as great as the increase in total topics researched by companies with staff, for theppurchase research staff is available to assume a part of this additional research work. Chapter Summapy As in the previous two chapters, a comparison was made between the 99 companies with a purchase research staff and the 205 companies 'without staff in order to draw conclusions regarding purchasing research on the Purchasing System. 355 Companies with staff researched an average of 1.9 times as many topics in the Purchasing System category as those companies with- out staff. A higher percent of companies with staff, than with- out staff, researched each of the eleven topics in this category. Those companies with staff declared 1.6 times as many topics in this category produced most worth-while results as were declared by companies without staff. Considering only topics actually researched, the percent of companies with staff which declared most worth-while results produced was the same as the percent for companies without staff. Company size appeared to only slightly affect the number of topics researched by companies with staff, and to have no effect on number of topics researched by companies without staff. Companies with staff researched more topics in all industry classifications. The average percent of topics researched was particularly large in the following five industry classifica- tions: Fabricated Metal Products (78%); Electrical Machinery, Equipment and Supplies (78%): Ordnance; Leather; Professional, Scientific, Optical Equipment; Miscellaneous Manufacturing (73%); Chemicals (71%); and Crude Petroleum and Natural Gas (71%). An analysis was made in this chapter of each of the eleven individual research topics. These topics were: Blanket Orders, Data Processing Equipment, Forms Design, Formulation of Price Index, Inventory Control, Learning Curve, Payment or Cash Discount, 356 Small or Rush Orders, Method for Evaluating Buyer Performance, Method for Evaluating Purchasing Department Performance, and Method for Evaluating Supplier Performance. A description of each topic was given, and an example of this type research was presented, where possible, from one of the ten companies interviewed. Additionally, a table was presented for each topic to show, by industry classification, the percentcfi'com- panies which researched the topic, and declared most worth—while Vresults from the topic. Topics researched by the purchase research staff slpps ' were regarded more highly than topics researched by either the buyer alpps or the administrator slpps, The percent of topics researched by the staff slpps which were regarded as having produced most worth—while results was 1.6 times as large as that for topics researched by the buyer slpps, and 1.4 times as large as that for topics researched by the administrator slpps. The purchase research staff slpps_did the research on 24% of the topics researched in companies with staff, and was involved (either doing the research alone, or along with others in the department) in 42% of the topics researched. The average number of topics in the Purchasing System category researched by the staff alone was 1.7; the average number of topics in which the staff was involved was 3.2. 357 The administrator was involved in a smaller percentage of the total topics researched in companies which had a staff. However, the administrator alone, and in total, was involved in a larger number of research topics in companies with staff (alone: 2.5 to 1.8; in total, 3.2 to 2.5). The increase in number of topics in which the administrator was involved in companies with staff over those without staff was not as large as the increase in topics researched by companies with staff. The buyer in companies without staff was involved in a higher percent of those topics actually researched, compared to the buyer in companies with staff. The average number of topics on which the buyer alone did research was larger in companies without staff (1.4 to 1.1), but the average number of topics in which the buyer was involved (did research alone, and alone and with others in the department) was larger in companies with staff (2.4 to 2.1). However, the increase in number of topics on which the buyer in total was involved in companies with staff was not as great as the increase in topics researched in companies with staff. 358 CHAPTER X RELATED ACTIVITIES AND DATA SOURCES Inpppduction This chapter presents an analysis of related activities which were performed by the purchase research staff, and the data sources which were used in purchasing research. Two of the hypotheses of this study were that (1) staff purchasing research personnel often become involved in work not strictly of a research nature, and (2) those companies with a staff purchasing research function employ a larger number of data sources in their purchasing research than are used by com- panies without staff. The majority of the data in this chap- ter on related activities performed by staff research per— sonnel and the data sources used in purchasing research were obtained from the mail survey, although some information on the ten Companies interviewed also is presented. The number of related activities in which a purchase research staff could become involved is practically limitless. However, 12 such related activities were selected, and the questionnaire asked companies to indicate which of these activities were performed either by staff research personnel or by buying personnel in their company during 1959 or 1960, and to indicate which activities were of greatest importance (Question 8). 359 Since this question did not attempt to determine which of the twelve related activities were performed by administrators within the purchasing department, the reader should keep in mind that statements made about related activities performed in the two groups of companies refer to such activities as were performed by only staff purchasing research personnel and/or by buying personnel. To obtain information on the data sources used for purchasing research work, 22 general types of data sources were listed on the questionnaire (Question 7). Companies were asked to indi- cate which of these 22 information sources were used in their purchasing research, and also to indicate the ones they con- sidered most useful. As in the previous three chapters, the responses from the 99 companies with staff and the 205 companies without staff were both adjusted to a basis of 100, in order that the two groups could be compared. Additionally, statements made about related activities performed and considered of grestest impor- tance, and data sources used and considered most useful, in all cases refer to an average for companies in that group. Related Activities Performed Companies with a purchase research staffpperformed 1.6 times as many related activities as were performed in companies 360 pithout staff. Those companies with a research staff performed an average of 57% of the twelve listed related activities, com- pared to only 35% in companies without staff (Table lO—l). All 12 related activities were performed by a larger per— cent of those companies with staff than by those without staff. In the following four related activities, the percent of com— panies with staff which performed that related activity was two or more times greater than the percent for companies with- out staff: Conduct Management Audit of Purchasing Operation (3.2 times greater), Assemble Competitor Intelligence Infor- mation (2.1 times greater), and Prepare Forecast of Business Trends, and Administer or Conduct Purchasing Training Program (both were two times greater). There was a substantial difference, both in companies with staff and those without, in the percent of companies which performed the 12 listed, related activities. Table 10-1 shows that the Prepare Data for Vendor Negotiation activity was performed by the largest percentage of companies with staff (84%), while the Assemble Competitor Intelligence Information activity was performed by the smallest percent of companies with staff (32%). However, all but three of the related activities were performed by at least 50% of those companies with staff. In companies without staff, on the other hand, only two activities were performed by as many as 50% of the 361 Table 10—1. Companies performing related activities; percent indicating related activities of greatest importance Percent Percent Cos. . . Companies Declaring A . Related Cthlty Performing of Greatest Importance Co. w/ Co. w/o Cb;w/ Co. w/o Staff Staff Staff Staff Supply current market infor— mation to others 77% 61% 18% 11% Prepare data for vendor negotiation 84 50 13 10 Maintain price index 59 39 6 4 Prepare or maintain purchasing manual 65 4O 18 5 Maintain purchasing library 43 33 2 1 Prepare purchasing budget 60 4O 3 2 Conduct management audit of purchasing operation 57 18 ll 2 Prepare forecast of business trends 43 21 7 2 Inform another department on current business trends 57 44 7 4 Prepare purchasing personnel requirements forecast 50 28 5 l Administer or conduct purchasing training program 55 28 6 3 Assemble competitor intelligence information 32 15 4 1 AVERAGE PERCENT 57% 3 5% 9% 4% .1 T1103 [1m 01 notin- ; my: um IZIAA’EEM '13:! "km “.13 1o oxoqlf‘ ,- 1197199611“ m ~gq3 pnzliflUll‘ ism. . prLufiDTUq‘!!.q'x§ P. 1539103; 0) a: v salafld' pHIHB :5. d.r’T ‘ J _ TI; Lvr‘ --v 7 ubnop tfifj. ’v 3" . - Ll." "m1ai IOJI3;f é 362 companies. The Supply Current Market Information to Others activity was performed by the largest percent of companies without staff (61%), while Assemble Competitor Intelligence Information was performed by the smallest percent of the companies (15%). Activities Considered of Greatest Importance Compapigs with a purchase research staff indicated 2.3 times as many activities were of greatest importance as were indicated in companies without staff. An average of nine percent of companies with staff considered these 12 related activities of greatest importance, compared to only 4% of companies without staff (Table lO-l). On each of the 12 related activities, a higher percent of companies with staff considered the activity of greatest importance than companies without staff. The Conduct Management Audit of Purchasing Operation activity showed the greatest difference between percent of companies with, and those without, staff which considered it of greatest importance, for the percent of companies with staff which declared this activity of greatest importance was 5.5 times larger than the percent of companies without staff. On the Prepare Purchasing Personnel Requirements Forecasts activity, the percent of companies with staff which declared this of a 1 f,‘ 335’s I 5w not”! 1 .o 1, aolfllflloo ~;m03 io-flhghi;g it 0 “138.338. 1 u; 5w fuoddiw asijivkm hum JDM ’3 I. in u. .1 ... {u . J \ .eunoJ ‘l - -’ .'~ I ”V' ' .. 95 .1“, A '54::sq 5d: [ 363 greatest importance was five times greater than in companies without staff. The Prepare Data for Vendor Negotiation activity showed the least difference between companies with, and without, staff which declared this of greatest importance, but even on this activity the percent in companies with staff was 1.3 times greater than in companies without staff. Relationebetween Company Size and Releted Activities_Performed The number p;_related activities performed increased with increased company size in companies with staff. Companygsize gid not affect the number of related activities_performed in companies without staff. Companies with staff performed an average of 38% of the 12 related activities in the smallest size category. This percent increased to 56%, 60%, and 69% in the largest size category. In companies without staff, 37% of the activities were performed in companies in the smallest size catebory, 33% in the next size category, 37% in the third category, and 42% in the largest size category (Table 10-2). Relation between Industry Classification _gnd Related Activities Performed Companies with speff performed a larger number of related agpiyities than companies without staff in all but four of the 14 industrial classifications_in which some companies had staff. ’ 1' ., ’09 bme-"m 0' . rte .JuodIIIH-il . $3 no MM .4 {.9mi3 ‘0‘ w 49W 11W ‘10 3:882 30 less-v: mm .1309". “is 12: ”can; a” m “1135‘ w ““5 ‘ '. #551 H - :hjso on}. W .".- TéfJT. ...-r. "399339 ”we. ”’12 LI‘ 0 _j;g;_ :91 as 31 at: .2... 364 oSSS cSSS S.S SSS oSSS oSSS SSS .SSS Hzmommm mo§m>< SS SS S SS S S SH SH cosSESSS SUSSEBS 853800 0383mm SS S SS S S SS SS SS ESSOE S5529 83:80 .8 8.2583. SS SS SS SS SS SS SS SS Sacmfimhflaom 38.88am 3.25.5 “vb pm mm mm “ES Sb 3.. mm mpSoSB mmocwmdm Go “Goeunmmofl HoSuoc< EHOMGH SS S SS SS 2 SS 2 SN 35.8. 32:25 So 383$ 233m S SS S SS S. SS SS SS SESSSUSA So 33... ESE 33:80 SS S SS S SS SS SS SS Smmvsm SESSSUSS 323E SS S SS SS SS S SS SS >335 £05m 5853s SS SS SS SS SS SS S SS 35:34 385 58522 8 «.2235 SS SS SS S S SS SS SS 5:3 82m 58:32 SS SS SS 3 SS SS SS SS 8:28sz 83.5 8S .83 03%an .SSS oSSS S.S .SSS oSSS SSS °SSS °SSS cosSESSS S332 282:0 3&3 $338.... 833m 2 SS S SH SE S S S ”mucuccoammm So 8852 SSS SSS SSS SSS SSS SSS SSS SSS Q3 \3 o\3 \3 Q3 k3 0\3 \3 35 S5. 82 SSSSSS SSSSS SS .825 Samson 8:32 .330. So: our... @3800 out... Sommfiou SS .moflgtum poumSou mfiEuoSuom wowcmmEoU .NuoS 3an. 365 Only in Stone, Clay, and Glass; Mining; and Lumber and WOod was the percent of related activities performed by companies without staff greater than the percent for companies with staff. In Ordnance; Leather; Professional, Scientific, Optical; Miscellaneous Manufacturing, the percent of related activities performed was the same for both companies with, and without, staff. The percent of related activities per- formed by companies with staff was particularly large in the following five industries: Crude Petroleum (70%); Electrical Machinery, Equipment, and Supplies (69%): Chemicals (63%); Machinery, except Electrical (62%); and Food and Tobacco (61%) (Table 10-3). Table 10-4 presents, by standard industrial classification, the percent of companies with and without staff which performed each of the 12 related activities. These data are presented for those personnel in companies in specific industries who might wish a more detailed analysis of related activities per- formed by companies in their industry. Examples ovaelated Activities Eggfggmeg by Staff The number and type of related activities in which a pur- chase research staff might become involved are almost innumer- able. The 12 related activities included on the questionnaire were not necessarily those in which a research staff would be Table 10-3. Companies performing related activities, by standard industrial classification 366 Industry Number of Food and Tobacco Transportation Equipment Chemicals Machinery, except Electrical Primary Metals Electrical Machinery, Equip. and Supplies Paper Crude Petroleum and Natural Gas Fabricated Metal Products Stone, Clay, Glass Textile Mill Product and Apparel Ordnance; Leather; Professional, Scientific, Optical; Misc. Mfg. Mining Petroleum Refining Rubber and Plastics Lumber and Wood Printing and Publishing AVERAGE Companies Peiigiigfig Responding W/ W/0 W/ w/o Staff Staff Staff Staff 9 37 61% 37% 17 20 57 27 13 20 63 37 14 16 62 32 10 18 46 43 9 15 69 36 3 13 53 31 7 8 7O 31 5 10 50 43 4 8 44 48 l 9 50 43 4 5 52 52 2 5 21 25 O 6 -— 29 O 6 —— 25 1 4 25 33 O 5 —- 32 57% 35% r3 1"uf101q “I“; " ‘Aan v, 101‘ has $0" 11an . elnolllm <-- .rxsnldb‘ imam qwfl‘ bu. (591M 1'11an m .1.“ 19" 1. 21339101,“ w 'l' ‘ I?“ I :6; ‘HSED \ 367 .SSS °SSS .SSS .SSS °SSS aSSS .SSS .SSS .SSS .SSS SSS .SSS Szmommm mo§m>< SS .. SS -- SS -- SS -- SS -- SS -- S S SaESSEsm Sam Seneca SS S SS SSS SS S SS S SS SSS SS SSS S S 69E S83 S.S Snead SS -- S -- SS -- SS -- SS -- SS -- S S 852m 28 Sang SS -- SS -- SS -- SS .. SS -- SS -- S S Sfiamom Eamflohom SS S SS SS SS S SS SS SS SS SS SS S S S552 ow om om mm ow om ow mm 0b mp ow mu m v .mva .032 AdoSmO .owfiucowum . .mounm muofimod ”mocmcpno SS SS SS S SS SS SS S SS SSS SS SSS S H 33%... ES 3.62m 32 33.89 SS SS SS SS SS SS SS SS SS SS SS SS S S 320 $30 SSS SS SS SS SS SS SS SS SS SS SS SS SS 3 S 62m 322 SBSESPS SS S SS SS SS SS SS SS SS SS SS SS S S 30 3.832 mud“ ESOHOHHQAH OUSHU SS SS SS SS SS SS S SS SS SSS SS SS S S . 39$ SS SS SS SS SS SSS SS SS SS SSS SS SS S S $2.33 .ESESBSH S.S:Eomg adomnuuoam SS SS SS SS SS SS SS SS SS SS SS SS SS 2 S382 395.5 SS SS SS SS SS SS SS SS SS SS SS SS SH SH SE. 38.8 .SSESSSS SS SS SS SS SS SS SS SS SS SS SS SS SS SH 285.26 SS S SS S SS S SS SS SS SS SS S. SS SH ESSSSSH cocmtommcfih SSS °SSS .SHS .SSS .SSS .SSS .SSS .SSS .SSS $3 $3 eSSS SS S 80209 Sam. Soon SSS SSS SSS SSS SSS SSS SSS SSS SSS SSS SSS SSS SSS SSS o\3 \3 0\3 \3 0\3 \3 0\3 \3 o\3 \3 o\3 \3 o\3 \3 H9532 . umfioum 0 Z . 0S5 pompdm SSHSHQSA doudnm S365 nopco> uoxumz mowcmnfibou >336“: .sousm .noufinm CHESS: .So 003nm HOS damn— ucmuudU Hongfiz oudmounm cmducmg ohdmonnm :33":va mummounm S3996 cofimflflmmflo 3233:: .3 .333”; pouflmu some mEEHomuom momcmmEoU S12 3an 368 oSSS ..SSS SSSS .SSS oSSS GSSS .SSS oSSS oSSS .SSS .SHS SSSS .SSH .SSS Szmommm mo< SS -- SS .. SS -- SS -- SS -- SS .. SS .. Safimznsm SSS SEESE SS SS SS S S S S S SS S SS S S S Scum S83 Sam 30.83 SS -- SS -- SS -- SS -- SS -- SS .. S .. 8335 SS SEES SS -- SS -- S -- S -- SS -- SS -- S .. Scfiumm Esflobmm SS S S S SS S SS S SS SS S S SS S S552. SS SS SS S SS SS SS SS SS SS SS SS SS SS SE .022 “HmoflmO .oflficowom . .wounw mumaummd moocmGUSO SS SS 2 S SS S SS S SS SSS SS SSS SS S 33%... 2:. 8.63m :32 23.89. SS SS SS SS SS SS SS SS SS SS SS SS SS SS 330 $20 JESS SS SS SS SS SS SS SS SS SS SS S SS SS SS 68m 38.... SESSBSS S SS SS SS S SS SS SS SS S SS SS SS SS 30 33sz Ufid ESOHOHHODH @USHU S SS S SS SS SS SS SS SS SS S SS S SS .893 SS SS SS SS SS SS SS SS SS SS SS SS S SS SSSSSSSS .ESESBSM Shocwgomg Hmomhuovdm SS SS SS SS SS SS SS SS SS SS SS SS S SS 3832 SSSSEA SS SS SS SS S SS S SS SS S SS SS S SS SSE Ewes .SSESSSSS SS SS SS SS SS SS SS SS SS SS SS SS S SS £8885 SS SS SS SS SS S SS S SS SS S SS SS HS .SBSH cocmtommqmue .SSS oSSS .SSS .SSS oSSS oSSS cSSS oSSS .SSS oSSS .SSS .SSS .SSS SS 80.309 SS... Soom SSS SSS SSSS SSS SSS mflm SSS mfim SSSS SSSS SSS SSS SSS SSS O\3 \3 OK? \3 o\3 \3 \o\3 \3 o\3 \3 0\3 \3 O\3 \3 SUCoHH «~qu Emuwounm ammomnoh .mdm .HDD mononh. coflwnomO >599ch mocmmflfioufl mfifimnh .qmm :0 Smog .35 mo .xoudna Samoumnw nopflomEoU SEES. .8 3582mm H250 ammomuoh mo 3.934. ommuo>< meEomm/w 3.3330 oummonm EH03 «Madonna 33:80 82.980 S-S S33. 369 most likely to become involved. They were, hoWever, chosen to be representative of the types of related activities which might be performed by a research staff. The following are 16 examples of related activities engaged in by the purchase research staff in the 10 companies inter- viewed. These examples are presented to illustrate the types of related activities engaged in by a purchase research staff. 1. Interchangeability Lists In the past, one company found that replacement parts for much of the company's materials handling equipment could be purchased from replacement parts manufacturers at substantial savings compared to the price from the original equipment manufacturer. Since this materials handling equipment was used in many divisions of the company, Purchase Research gathered data from each of the divisions on parts inter- changeability, combined these data, and published interchange- ability lists for the use of all divisional purchasing offices. 2. Dissemination of Commodity Data One Purchase Research Department published a weekly com- modity news information bulletin, sent to all plant purchasing personnel. This bulletin provided current news on general business activity, and changes in commodity supply, demand, and price. This information was largely a synthesis of 370 pertinent information contained in several of the trade papers and magazines. At the time of the interview, the Purchasing Research Department was considering the publication of a "Purchasing Newsletter," which would present timely informa- tion on significant changes made in the various plant purchasing departments, the work being done by Purchase Research, and cur- rent purchasing problems. 3. Price Break Manual This loose-leaf manual was first published by Purchase Research in 1959, and was later revised as discount schedules or shipping tariffs changed. The purpose of this manual was to give plant personnel, requisitioning items, information on price breaks, or discounts available. For example, the initial statement from the page on grinding wheels was as follows: "Grinding wheels, various sizes, the minimum amount necessary to obtain various quantity discount brackets are as follows.... 4. Major Overhaul and Reconditioning Service Book Based on information furnished by buying personnel, Purchase Research published a book listing all commodities or equipment on which overhaul and reconditioning services were available.. Information was given on what this service costs, where it could be obtained, and how satisfactory were the results. Plant personnel could use this book to help determine whether to order 371 a new item, or to have an existing item overhauled or recon- ditioned. One quote from the book was as follows: "Used (contaminated) mercury can be cleaned to triple distilled quality. The cost depends upon the quantity returned to be cleaned, but generally approximates 15 percent of the original cost." 5. Speech Preparation Since a number of the administrators within the purchasing function frequently were called upon to give speeches before various groups, Purchase Research assisted in preparation of a number of these speeches. 6. Commodity Price Book Starting in 1958, key purchasing personnel were furnished a price history on significant purchased commodities. Quoted market prices were given for each month since 1960. These prices also were shown graphically. At the end of each month a letter, giving price quotations for that month, was prepared and sent to each holder of a commodity book, so that he might up-date his book. 7. Computation of Price Index Purchase Research originally formulated for each major division a market price index of major purchased commodities. 372 At the end of each month Purchase Research computed for each division their market price index, and also their index of purchase prices paid. These indices were furnished to the appropriate purchasing administrators in each division and to purchasing management in the headquarters office. 8. Commodity Books Loose-leaf books were made up periodically for use by requisitioners within the plants. All commodities purchased by the central purchasing department were listed alphabeti- cally, together with an identity code signifying the name of the responsible buyer. 9. Preparation of Purchasing Manual The Purchase Research Department spent approximately three man-months during 1960 in developing a "Purchasing Practices Guide,“ which was supplied to each buying office within the company. Before this manual was written, a survey was made of the procedures and practices of individual plant purchasing departments. Based on this survey, the manual was written to present the suggested best practices and procedures for pur- chasing operations. Due to individual plant differences, it 'was not mandatory that these practices and procedures be accepted by each purchasing department, provided they had cause for deviation. Review and revision of this manual in 373 1961 was anticipated. 10. Briefing Reports Quarterly, the Chairman of the Board was briefed on pur- chasing activities by the Vice-President-Purchases. Purchase Research gathered data for this briefing on such things as capital expenditures, price levels, barter agreements, and inventory levels. 11. Periodic Reports Based on the weekly activity reports of the individual buyers, each week Purchase Research prepared a summary report, highlighting significant commodity developments, which was furnished all buyers. Purchase Research also prepared a sum- mary of the monthly reports of the individual chief purchasing executives, which was furnished to top management. Also, an annual report to "put in focus" the activities of the Pur- chasing Department was prepared for top management, to high- light accomplishments and to indicate the next year's plans and objectives. 12. Purchasing Annual Dollar Report Purchase Research prepared annually an overall report of purchasing operations. Data for this report were obtained ‘ from the accounting departments in the appropriate plants, and 374 from the General Accounting Office. This report consisted largely of information on the dollars spent for various com- modities, by various plants, and with various vendors. This report also gave a quick picture of the total materials situa- tion and price trends. 13. Purchase Audit At infrequent intervals, Purchase Research conducted a complete review of purchasing operations in one of the com— pany's branch plants. Such audits required from one to three weeks within the plant, depending on the complexity of the purchasing operation. These reviews involved investigation of: (1) the organization of the purchasing function; (2) extent to which established procedures were followed, and the adequacy of locally established procedures; (3) selection of vendors and prices; (4) relations with other departments; and (5) efficiency of the physical layout and housekeeping procedures. After completion of such a review, the formal report was discussed with, and turned over to, the Director of Purchases at the headquarters office. 14. Administration of Purchasing Training Program The Purchase Research Department had the responsibility for assessing the training needs of the corporation's pur- chasing personnel, and arranging for presentation of necessary 375 training courses. Frequently the Analyst who did this work contracted with educators or consultants for particular training courses, although some courses were taught by per- sonnel within the various divisional purchasing departments. For courses taught by company personnel, the Analyst was responsible for developing the necessary instructional material. 15. Lead Time Lists Purchase Research gathered data from buyers on lead times for specific commodities, compiled these data, and at six- week intervals published lead time lists which were furnished all requisitioners. l6. Inter-divisional Charges Frequently the buying office of one company division was assigned purchasing responsibility for a commodity used throughout the company. Purchase Research was responsible for auditing these purchases to assure that all operating departments consuming this material had an equal opportunity to receive commodities bought at particularly favorable prices. In addition, Purchase Research acted as arbitrator for the pricing of inter-divisional transfers of materials. Inter— divisional transfers of materials were billed at commercial ‘prices, but in the case of an item not commercially available, 376 the transferring division determined a "fair price" for the material. Purchase Research was responsible for review of this price in the event of dispute between divisions, and appropriate recommendations. Importance of Related Activities Performed by the Research Staff Those related activitiegyperformed solely by the purchase research staff were rankeduglightly higher in importance than the related activities performed solely by buying personnel. Fourteen percent of the total related activities performed solely by the research staff were declared of greatest impor- tance, compared to 13% of the related activities performed solely by buying personnel (Table lO-S). Thus, the results of related activities performed by staff research personnel were ranked as being of slightly greater importance than the same activities performed by buying personnel. From this it can ‘be concluded that related activities performed by the staff .probably would be rated at least as high in importance as when performed by buying personnel. Personnel Involvement ,1. The Purchase Research Staff The purchase research staff was heavily involved in related activities performed by companies with staff. Table 10-6 shows 377 Table 10—5. Importance of related activities performed solely by the purchase research staff or solely by buying personnel in companies with staff Percent of Activities Number Performed Companies Considered Related Activities Reporting of Greatest Importance H H .13 (D .G a) U c o c H 01 E: H U‘ c: m m m c o m m mam scam mt“ c -H m c 0 ma: -San m m o >iH o m m o >M40 g u.4 s 0.4 m v.4 otva m m m m c In mic Incu¢ Supply Current Market Information to Others 23 34 26% 26% Prepare Data for Vendor Negotiation 22 34 15 9 Maintain Price Index 31 25 10 12 Prepare or Maintain Purchasing Manual 46 14 28 21 Maintain Purchasing Library 25 17 8 0 Prepare Purchasing Budget 39 17 5 6 Conduct Mgt. Audit of Purchasing 46 8 22 0 Prepare Forecast of Business Trends 23 10 13 10 Inform Another Department on Current Business Trends 25 21 4 14 Prepare Purchasing Personnel Requirements Forecast 31 15 6 l3 Administer or Conduct Pur- chasing Training Program 37 14 14 7 Assemble Competitor Intelligence Information 8 14 l3 16 AVERAGE 3.6 2.3 14% 13% AmdfiOwumm wcgflb use Sn NHMHOS meHOHHom moflfiwflum mo unouuom 05 mg 00H paw :pozozh mwdum: .SoH sokfiw ”:50qu “m we: :vmksmb mononommmp m5 3:0803025 HoGGOSSom mucosa we? v.85 £033 5 @0833qu mofigflom omofi 3 mo Samoyed 0:» mg .03 can :wmdum Sb NHoHom econ? no“ Gmfiw mmduqmonmm o5 Gomez—ob oucmummflp 2er o .m 0 .S 0 .m m .m w .m m .S S .m S .v 0 .H N mmHHH>HHU< .OZ MU§H>< ....SS .S SS .S SS .S SS SSSS ..SSS .SSS eSSS .SSS .SSS Szmummm mo§m>< SS SS SS SS SS SS SS SS S S nosSSSSS 85S 4:35 uofiuomEoU oHQEoSSSSS SS SS SS SS SS SS SS SS SS SS Emumopm SEES; S535 ...Sunm “03500 no Houmcfiegw SS SS SS SS SS SS SS SS S S 380qu Sam HmGGOSHmnH mawmdfiondnm 0.5%on SS. mo 00 0w mm 0m .3. S0 0 mm mpcouh. mmmfimsm ”2::th so unmeuummon— noguofifioq SHOWS Sm SS mS mm Sm Sm Sm mm 0m 0m mmenH mmofimdm mo umdoonoh undamanm am em up SS S0 S0 A0 S0 00a 00a mcoflmuomO wfimmsounna mo “:54 “cogmwdcmz «36:00 SS SS SS SS SS SS SS SS SS SS Smmcnm Sfimfifii 382m SS SS SS SS SS SS SS SS SS SS 3283 Sfimmaousm 53232 S SS SS SS SS SS S SS SS SS Essa: Sawmmfigm cwmucmdg .So onmmmunm mm mm So HS 0m m0 mm 0m 0 0 xopfi 002nm £35.32 SS SS SS SS SS SS SS SS S SS .32 82:5 8S 33 232m e§om £on aka»... o\emh o§N¢ 053mm. e§¢N galv gem abom mavemuo Ow GOMHNSHOHGH . Hogans: fiBHHSU 3995 e f e f e f e f. e f v V a v Y a v V a ..w Y a v Ya Sewage—o 8m S. SS SSS SS SSS .....S SSS“... SSS SS “my. .3 HS mv odymv odev odymm odem oov. Sh DSb Sh DSb 8m DSb SI DSb SI DSb H.308 . .86 9.8003 000-00m $91.00“ 00H nmpGD 33:3 82:2 52% SSS: SS @3800 «wait/30m 033m; sumo $55.3th momsmmgou omofi mo 300.39 S mm .088 Scam .860 So, . HESS :33 Swimmer—Sou 5 mmflgflod. poumavé ,5 Savant/HOSE“ mmmum nuumvmou 9220qu .oaofi 3de ---—<_.-...“ m,“ that ' actii rese: toge acti PQIC SiZe alt} aPPE and aC 379 that the research staff alone performed 52% of the 12 related activities which were performed in companies with staff. The research staff was involved (performed the activity alone and together with the buying staff) in 67% of those related activities performed. The staff, alone and in total, was involved in a smaller percent of the related activities performed in the smallest size category than in any of the three larger size categories, although in these three larger size categories there did not appear to be any relation between related activities performed and company size. The Conduct Management Audit of Purchasing Operation activity had the largest involvement both by staff algae, and in total, with the staff involved in 81% and 86%, respectively, of the companies which performed that activity. The Supply Current Market Information to Others, and ASSemble Competitor Intelligence Information activities had the smallest percent of total staff involvement in those companies which performed these activities (56% total involvement). The Assemble Com- petitor Intelligence-Information activity had the smallest staff alg§g_involvement (25%). The staff alggg_performed an average of 3.6 of the total 12 related activities, and was involved in 4.6 of these related activities in companies with staff. 380 From the above information the following conclusion is indicated: If a company has staff purchase research personnel, these personnel probably would become involved in a consider- ebleiamount of work of other than a strictly research nature. The staffyprobably would assist the buyer and administrator by performing certain related activities involved in the operation of the purchasingifunction. 2. The Buyer The buyerywas involved in the performance of 1.3 times as manyirelated actiyltiee in companies without staff as in com- panies with_etaf§. Table 10-7 shows that in companies without staff the buyer performed an average of 35% of the 12 related activities, while in companies with staff the buyer was involved in performance of only 28% of the 12 related activities and alone performed only 19% of the related activities. In only three activities--Prepare Data for Vendor Negotiation, Inform Another Department on Current Business Trends, and Assemble Competitor Intelligence Information--was the buyer involved more heavily in companies with staff than in companies without staff. The buyer elgne was involved less in each of the 12 activities in those companies with staff. The average number of related activities in which the buyer alone was involved in companies with staff was 2.3; Table 10-7. Buying personnel involvement in related activip g 38]- Percent of Companies ' in Which Buying Personnel Involved Companies Cos. Related Activities w/ Staff w/o Staff m c a) en 2 ">18 a) 5 8° 8 a) £3 0,3 2:00 ...-a c: U) o .g"! >~ H o . H H :3 G) v—1 .--1 <1) > :3 Q) mm< ems mm Supply Current Marketing Information to Others 34% 54% 61% Prepare Data for Vendor Negotiation 34 61 50 Maintain Price Index 25 28 39 Prepare or Maintain Purchasing Manual l4 19 40 Maintain Purchasing Library 17 18 33 Prepare Purchasing Budget 17 21 40 Conduct Management Audit of Purchasing Operation 8 11 18 Prepare Forecast of Business Trends 10 20 21 Inform Another Dept. on Current Business Trends 21 32 24 Prepare Purchasing Personnel Requirements Forecast 15 19 28 Administer or Conduct Purchasing Training Program 14 18 28 Assemble Competitor Intelligence Information 14 24 15 AVERAGE PERCENT 19% 28% 35% AVERAGE NUMBER OF RELATED ACTIVITIES 2. 3 3. 4 4. 2 a Percentage was computed on the 99 companies with staff, and the 205 companies without staff. It is not a percentage of only those companies which performed the activity. 382 elgge_and with the research staff the buyer was involved in an average of 3.4 of the 12 related activities. In companies without staff, the buyer was involved in an average of 4.2 related activities. These data support the conclusion that the presence of a purchase research staff does serve to relieve the buyer of the performance of certain related purchasing activities. Data Sources Used Companies wlth appurchase research staff used 1.6 times as manyydata sources in theirypurchasing research as com- panies without staff. Companies with staff used an average of 44%.of the data sources listed while companies without a research staff used only 28% of these data sources in their purchasing research (Table 10-8). Each of the 22 listed data sources were used by a higher percentage of companies with staff. On the following ten data sources the percent of companies with staff which used the source was at least twice as large as the percent of companies without staff which used the source (figure in brackets indi- cates the number of times greater the percent for companies with staff was than the percent for companies without staff): Publications of Foreign Governments (19), U. S. Government Personnel (6.8), Representatives of Foreign Governments (4), 383 Table 10-8. Data sources used in purchasing research; data sources considered most useful Data Sources Books on Purchasing Consultants Corporate Annual Reports Other Depts. of Your Company Public Libraries Purchasing Personnel in Other Companies Representatives of Foreign Governments Trade Association Personnel Trade Newspapers and Magazines U. S. Government Personnel Vendor Sales Personnel Vendor Technical Personnel Publications of: Foreign Governments N. A. P. A. Trade Associations United Nations U. S. Dept. of Agriculture U. S. Dept. of Commerce U. S. Dept. of Labor U. S. Dept. of Interior Universities Vendors AVERAGE PERCENT AVERAGE NO. DATA SOURCES Percent Percent Companies Companies Using Considering Most Useful w/ w/o w/ w/o Staff Staff Staff Staff 67% 5 5% 5% 8% 21 9 6 2 48 31 5 2 73 54 26 15 18 6 1 .5 66 44 12 10 12 3 0 O 35 21 6 3 81 6O 20 16 27 4 8 O 74 64 25 25 73 57 35 24 19 l 0 0 17 61 9 13 62 38 10 4 15 O l O 23 12 7 3 38 17 10 2 26 8 8 0 l7 6 5 .5 30 8 2 l 61 47 ll 7 44% 2 8% 10% 6% 9.8 6.1 2.2 1.4 384 Publications of Universities (3.7), Publications of U. S. Department of Labor (3.3), Public Libraries (3), Publications of U. S. Department of Interior (2.8), Consultants (2.3), Publications of U. S. Department of Commerce (2.2), and Publi- cations of United Nations (used by 15% with staff, none with- out staff). It is perhaps significant that while there was not a large difference between the percent of companies with, and without, staff which used many of the less technical data sources for their purchasing research, the more technical sources, such as government personnel and publications, were used much more extensively by companies with staff. From this it might be concluded that those companiee with a purchase research staff ege more aware of, and utilize, data sources of a more techni— cal nature. Within individual industries wide differences in. the use of the more technical data sources occurred, as Table 10-11 shows. Considerable variations existed among the companies with, and without, staff in the percent which used each of the data sources. Trade Newspapers and Magazines was the data source used by the largest percent of companies with staff (81%), and Publications of N.A.P.A. (National Association of Purchasing Agents) was the source used by the next largest percent (77%), ‘while Representatives of Foreign Governments was the data source 385 used by the smallest percent of companies with staff (12%). In companies without staff, Vendor Sales Personnel was the data source used by the largest number of companies (64%). Publications of N.A.P.A. was the source used by the next largest percent (61%), while Publications of the United Nations was the source used by the smallest number (none used that data source). The average number of data sources used by companies with a purchase research staff was 9.8, while in companies without staff an average of only 6.1 data sources were used. From the above information and the data in Table 10-8, the following conclusion is indicated: Companies with a purchase research staff probably would utilize a substan- tially greater number of data epurces in securingpinformation :necessary forypurchaeing research, and would be_llkely to employ a larger number of the more technical data sources. JData Sources MoeppUseful Companies with a purchase research staff found 1.7 times as many dataiggcee most useful in purchasing research as vggpe found by companies without staff. Those companies with aa:research staff indicated an average of 10% of the listed data sources were considered most useful, compared to 6% of the data sources in companies without staff (Table 10—8) . 386 On all but two of the 22 listed data sources, the percent of companies with staff which considered each source most useful was as large or larger than the percent for companies without staff. Only Books on Purchasing and Publications of N.A.P.A. were considered most useful by a larger percent of companies without staff than companies with staff. The data sources, Vendor Technical Personnel and Vendor Sales Personnel stand out as being considered most useful by a high percent of companies both with and without staff. Vendor Technical Personnel was considered most useful by 35% of the companies with staff and by 25% of the companies with- out staff. Vendor Sales Personnel was considered most useful by 25%.of the companies in both groups. Other Departments of Your Company was also considered most useful by a high percent of companies with staff, for 26% indicated that data source as being most useful. The average number of data sources considered most useful by companies with staff was 2.2. In companies without staff, an average of 1.4 data sources were considered most useful. From the above information, and the data in Table 10—8, it can be concluded that companies which have a purchasing research staff probably would find a substantially larger number of data sources most useful in their purchasing research than companies without staff. 387 Relation Between Company Size and Data Sources Used The number of data sources used in purchasingiresearch increased with company size in those companies with a research staff. Compeny size did not appear to affect the number of data eources used in companies without staff. Companies with staff used an average of 6.9 data sources in the smallest size category, 9.6 sources in the next size category, 9.2 sources in the next to largest category, and 11.9 data sources in the largest size category. Companies without staff used an average of six data sources in both the two smallest size categories, 5.4 sources in the next to the largest category, and 8.4 data sources in the largest size category (Table 10-9). Reletion Between Industry Classification and Data Sources Used In all but two of the 14 industpy groups in which some companies had staff, those companies with staff used more data sources in their purchasing research than were used by companies withoutyetaff. In only Textile Mill and Apparel, and in Ordnance: Leather; Professional, Scientific, Optical; Miscellaneous Manufacturing was the average percent of data sources used in purchasing research higher in those companies without staff than in companies with staff (Table 10-10). 388 S .S S .2 S .S S .S S S .S S S .S S0859 mo mmmzoz mo< SS SS SS SS SS SS SS HS ezm0mmm m0§m>< SS SS SS SS SS SS SS SS 8008> SS SS S SS S SS 2 SS 838.8300 SS SS S S S SS S S2 8:808 8 .800 So SS S S S S SH SH SH .884 8 .080 Si: SS S S SS S SS SH SH 00.88800 8 .080 .S .0 SS S S SS S SS S SS 880838... 8 .080 So S SS S S S SH S S . S882 0008: SS SS SS SS SS SS SS SS 8888003 882. SS SS SS SS SS SS SS SS .S. .m .S. .2 0 mm 0 MN N NH O O muCOEEHOSVOU GwMOHOrH ”HO mGOUMUSQSfiw SS SS SS S SS SS SS SS 80888 808809 808> SS SS SS SS SS SS SS SS 8888A 818 808> S2 SS S S S SS S SS 88088 0888880 .S .0 SS SS SS SS SS S SS SS 808802 08 8888302 0005. SS SS SS SS SS HS 2 S 88088 8880830. 889 0 mm. m m. m 0 O O muCQEGHm>OD GMSOHOM HO m®>mududmmmhflvm SS S SS SS SS SS SS SS 888800 .880 8 8888s S8888m SS SS S S S S S S 88085 02.8w SS SS SS SS SS S SS SS 88800 .80.» 8 3880880 880 SS SS SS SS SS SS SH SH 388m 808... 8080.80 S SS S S S SS S SS B83880 .SSS .SSS .SSS .SSS .SSS .SSS .SSS ..SSS 880888 8 380m mOUHSOM Mama 2 S _S S SS SS SS S 38088.8 8 80802 S88 S88 S88 S88 000m 80m 808 S88 o\3 \3 o\3 \3 o\3 \3 ON? \3 85 082 SSS-SSS SSS-SS SS2 80:: 88:00 82:2 030m SSS: 08m 88800 030 SGSQEOU Sb .00H50m dado some magma momemEoU 40:0” 3me Table lO-lO. Data sources used, by standard industrial 389 classification Number of Percent Companies Using Data Industry ‘ Sources W/ W/ o w/ w/ 0 Staff Staff Staff Staff Food and Tobacco 9 37 50% 30% Transportation Equipment 17 20 37 25 Chemicals 13 20 62 31 Machinery, except Electrical l4 16 39 30 Primary Metals 10 18 4O 31 Electrical Machinery, Equipment and Supplies 9 15 46 29 Paper 3 13 64 21 Crude Petroleum and Natural Gas 7 8 46 26 Fabricated Metal Products 5 10 38 19 Stone, Clay, and Glass 4 8 47 3O Textile Mill Product and Apparel 1 9 27 33 Ordnance; Leather; Professional, Scientific, Optical; Misc. Mfg. 4 5 38 40 Mining 2 5 25 19 Petroleum Refining 0 6 -- 25 Rubber and Plastics O 6 —— 16 Lumber and Wood 1 4 23 12 Printing and Publishing 0 5 —- 25 AVERAGE 44% 28% 390 The Paper industry had the highest average percent utiliza- tion of the 22 data sources in companies with staff (64%), followed by Chemicals (62%), and Food and Tobacco (50%). The industry with the smallest average percent utilization of data sources in companies with staff was Lumber and WOOd (23%). Half of the industry groups, in which some companies had staff, utilized an average of 40% or more of the 22 data sources, while in only one of the 17 industry groups did companies without staff utilize an average of 40% of the data sources in purchasing research. Table lO-ll presents, by industrial classification, the percent of companies with, and those without, staff which used each of the 22 data sources in their purchasing research. Analysis of specific data sources used, by industry classifi- cation, does show, for instance, that all companies with staff in the Paper industry and Primary Metals industry utilized the Trade Association Personnel data source. Probably this is due to the fact that these industries have strong trade associations. All the companies with staff in the Food and Tobacco industry used the Publications of the U. S. Department of Agriculture source, which can be explained by the types of commodities with which this industry deals. This table is presented primarily for the use of purchasing executives in particular industries who might wish more detailed information on the data sources used by companies in their industry. 391 so as: as; s2 $2 $3 £3 s3 $3 $8 ezmommm mu§m>< o -- ow -- om -- om -- ow -- m o 9::szan 6cm mascara o 0 mm 2: om o o o om o v H $2605 683 ES .8663 o .. mm 1 S -- o -- mm -- o o 8:3an ES spasm o -- om -- mm -- o -- om -- o o 9:530 Sagohom o o 2. o om om oo o ow om m m mass: 6 mm ow mp ow mm om o 3 mm m w .32 .022 swung 63230.0. .Hdsowmmgouna £05004 m0uamspu0 o o me o 3 o mm 0 6m 2: m H 33.3.2. 25 52 33on 0 mm mm 3. mm om o 0 mm 2: w a 3.20 $20 .286 o om ow ow om 8 o om om ow 2 m 68¢ $82 6382an 2 o om 6m 0 S o E om S m a 30 12:32 28 Esmzobom @630 2 mm am 2: mm mm m 2: 2. S 2 M 39$ om mm mm S 2. mm om mm 3 6m 3 a $2.53 65m 5589va S.S:Eomg Hmowuuogm 6 om om on x. 3 o 6 cm 3 m: 2 £302 sanctum o o 3 3 E. S 2 mm me E 3 i HSESBM Emuxo £35334 2 3. oo mm mm as S 3 3 E cm 2 2888.5 m m: cm mm 2 3 m 2 8 Z 8. 2 388.9st cozzmtoamafie ea «8 as: $8 $8 $3. cs: $3 $3 $3 S. a 8933. 38 68m Edam 3.3m wmmam 3.3m Edam Edam Emu—m Edam 33m Edam madam mwdum o\3 \3 AK? 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S o S w... 2: w 2: w o S ...... 88m S we 2 Sm ow we n S... e m... 9. we 8:88 388885 3:05.302 HMUMHHUSM we on o o S om mm 2. o 2 om om £882 Sarcasm om 3 o E S E 3 mm S E S S Sarcoma 88.8 $85882 ms mm m .S S 2: om mm 2 2 mm .S 28285 E S 2 3 mm 3 2 mm o S 9. 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BZHUdHnH HO§Q>< mcEEBE 28 33:5 muonwonnm @003 USN .3554 muflmmfim wad umnndm wawcwwmm Edmaouuonm $352 .32 .832 £838 .omucfiom .Hmcgmmomonnm ”ugh—mod moucmcvuo Hmudmmd‘ cam H32 @3388 mmmHO $30 .985 muodwoum H.332 “530:an me 3.332 93 8:30.“qu 3:50 nmmmnm mofimmdm .ucmenfidvm Sumcfiomz Hmufibomfim 3.332 >um82nm Hdowbomfim ummuxo SHmGEUMvA mHMUMEmAD acoflawdwm coflmuuommcdufi 003308 98 vooh m ..wa §¢ $2. $3 OS $8 .3 <5: 6% $8 a»: $3 mm I- ow nu c .... o u- o I- on .. mm mm om 2: mm o o o o o o o A: ..- mm u- o u. o -u o -.. o .. mm -.. mm -.. o I- o -.. o ..- S ..- 2 mm on o 0 cm 0 o o o o om ow mm oo mm 0 mm o o 0 mm ow om mm mm no 0 mm on: 3 0 mm 0 mm o om 3‘ no mm mm mm o om Ma mm mm om 2 mm ow ow o ow o c o 0 0H 0% cm ow mo cm 2 mm c on 0 am mH mm Hm we Hm cod 0 mm 0 mm m mm ma 2: mm 3» ow mm Ma mm 2 o N. E» n vv Hm ow 3 0v o S : om S om : ow em on cm 2. o «a o o o 5 mm va gm No mv 00H m mm ma vm ma 0v om up mm hm may .3. 2 ma m 0 ma mm m ¢N $8 $3. $2. ..Eo $3 ..E m .3 $2 gm $2 $2 «.mm 33m madam madam Edam mmmum mumpm wwmum 3.8m wwmum 33m 33% ammum o\3 \3 0\3 \3 Q3 53 ON? \3 0\3 \3 0\3 b5 mmousom 34¢ mo mmfimm .8235 .393 .500 cowudNSSD muovcm> 335.33 .umoQ Java .EQQ mmdu mo mo .m .3 mo .m .9 mo .m D mo $893 A 983.8 983.8 983.8 maoflmo mqoflmu m may m>< u :9an .. 335nm . 395nm .. Sauna u «Edna coflmoawm m .20 > .3365 83380 A H -S 2an 395 Chapter Summary This chapter presented information on related activities performed, by purchase research staff and buying personnel, and data sources used in purchasing research, in companies with and without staff. Data for this analysis were obtained from the questionnaire sent chief purchasing executives in the 500 largest United States industrial firms. Additionally, examples of related activities performed by the purchase research staff in the 10 companies interviewed was presented to illustrate the types of activities engaged in by staff purchase research personnel. Examples were given of related activities such as the following: Parts Interchangeability Lists, Dissemination of Commodity Data, Price Break Manual, Commodity Price Book, Computation of Price Index, Preparation of Purchasing Manual, Purchase Audit, Lead Time Lists, and Administration of Pur- chasing Training Program. Those companies with a purchase research staff performed 1.6 times as many of the 12 related activities as were performed by companies without staff. All 12 related activities were performed by a larger percent of companies with staff than by companies without staff. The tendency for companies with staff to perform more related activities than companies without staff held true in all but one of the 14 industry groups in which some companies had a research staff. 396 Companies with staff declared 2.3 times as many of the related activities were of greatest importance as were indi- cated by companies without staff. On all 12 related activi- ties a higher percent of companies with staff declared the activity of greatest importance than was declared by companies without staff. The number of related activities performed increased with increased company size in companies with staff. Company size did not seem to affect the number of related activities per- formed by companies without staff. Those related activities performed solely by the purchase research staff were ranked only slightly higher in importance than the activities performed solely by buying personnel. Fourteen percent of related activities performed solely by the research staff were declared of greatest importance, com- pared to only 13% of activities performed solely by buying personnel. The purchase research staff was heavily involved in related activities performed in companies with staff. The research staff algae performed 52% of the related activities performed in companies with staff, and was involved in 67% of those related activities performed. The staff alone performed an average of 3.6 related activities, and was involved in an average of 4.6 related activities. Thus it 397 can be concluded that when a research staff is present, that staff probably would become involved in a substantial amount of work of other than a fact-finding, investigative, research nature. The buyer was involved in more related activities in com- panies without a research staff. An average of 4.2 related activities were performed by the buyer in companies without staff, but only 3.4 related activities in companies with staff. This indicates that the presence of a research staff does tend to relieve the buyer of the performance of some related activities, permitting him to concentrate more fully on his' actual buying duties. Companies with a purchase research staff used 1.6 times more data sources in their purchasing research than companies without staff. An average of 9.8 data sources was used by companies with staff; only 6.1 sources were used by companies without staff. Companies with a research staff also used a larger number of the more technical data sources. Companies with research staff also considered 1.7 times more data sources most useful than was considered by companies without staff. An average of 2.2 data sources was rated as most useful by companies with staff, compared to 1.4 data sources by companies without staff. 398 The number of data sources used in purchasing research increased with increased company size in companies with staff, but not in companies without staff. In all but two of the 14 industrial classifications in which some companies had staff, the average percent utiliza- tion of data sources was larger in companies with staff than in those without staff. 399 CHAPTER XI ADMINISTRATION OF PURCHASING RESEARCH Introduction This chapter presents illustrations of practices and pro— cedures used in the administration of the staff purchasing function in the interviewed companies. An attempt was made during the interviews to secure inform- ation on the specific purchasing research administrative practices in each company, such as: (l) the initiation of research studies, (2) the scheduling of research work, (3) the report of findings at the completion of research projects, (4) the follow-up made of completed research projects, (5) the budgeting and accounting for the expenses of purchasing re- search, and (6) the method used to evaluate the results of staff purchasing research effort. The information obtained by the interviews is summarized at the beginning of this chapter and is followed by a descrip— tion of the staff purchase research administrative practices in six of the interviewed companies. These descriptions of administrative practices in specific companies are intended only as illustrations. The reader should keep in mind that only a small number of firms were interviewed in this study; thus the data on staff purchase research administration are “Oi ind pr ar WE 400 not necessarily representative of the 500 largest United States industrial firms. Initiation of Research Projects In the companies interviewed, specific purchase research projects could be initiated by personnel from any functional area of a company, but in practice, the majority of projects were conceived by people within purchasing. Specific projects on the Purchased Materials, Products or Services category of topics, but excluding the Commodity Study; Supply, Demand, and Price Forecast topics, were initiated usually by buying personnel. Since staff research personnel frequently were not associated closely with actual buying operations, they fre- quently had to rely on the buying personnel to recognize the need for study on specific items purchased. Specific projects in the other research topics, and part- icularly the Commodity Study topic and the Purchasing System topics, normally were initiated by the research staff or by the purchasing manager. Since these types of projects often affected several plants or divisions within a firm, they normal- ly were initiated by some individual in a position to see the over-all picture of purchasing's responsibilities. Scheduling of Research Work Although the purchase research manager normally scheduled the work within his section, the purchasing manager exercised mad the in 8X1 th‘ be 401 much influence over the scheduling of research work. Frequently the purchasing manager approved proposed work priorities, and in almost all cases his approval had to be obtained before any extensive projects were undertaken. Such close supervision over the scheduling of work of the research personnel might have been due, in part, to the relative newness of the staff pur— chasing research activity within the purchasing organization. In most of the companies interviewed, the staff purchase re- search function had been in existence for less than ten years. Reports of Staff Research Work Formal reporting systems for results of specific research were not extensively used. Only three of the companies used a formal reporting system. These three reporting systems con— sisted of appropriate forms on which to record progress on particular projects and to detail cost savings at the comple— tion of successful projects. In only two categories of topics—— Purchased Materials, Products, or Services; and the Purchasing System—~did the three companies use these formal reporting systems. In all firms, at the completion of a specific research pro— ject,a report, taking various formats, was made to the pur— chasing manager, presenting results of the research effort, and :recommendations resulting from the research. Frequently these reports were made by an office memorandum. I956 com; the per The no: 402 Summary reports regarding research accomplishments and research plans were made by the research personnel in all companies interviewed. Normally these reports were made to the purchasing manager, but in some cases copies of these re— ports were furnished higher management within the company. There was no standard format for such reports, although they normally summarized the work that had been completed during the period; projects which were currently under study; and, in the case of those reports made yearly, indicated the work anticipated in the succeeding year. Summary reports were made monthly in several of the companies and yearly in most of the companies. Follow-up quRecommendations A follow—up of results of research recommendations was made by the purchase research staff in all but one of the ten companies interviewed. These follow-ups were made to deter- mine the outcome of recommendations which had been accepted, and to assist in resolving difficulties which might have arisen in instituting the recommendations. Whenever there were difficulties in securing cooperation of operating or buying personnel, these matters were referred to the purchasing manager, for his decision and action. The staff purchasing research personnel did in fact operate in a staff capacity, and had no direct authority to compel com- pliance with their recommendations. 403 Budgeting and Accounting_ Few of the companies prepared a budget for the staff pur- chasing research function, or determined the costs of completing specific research projects. The purchase research manager participated in preparation of a budget for purchasing research in only two of the companies interviewed. This partially was because the major expense in the research programs of most companies was the salaries of the research personnel, which could be determined readily. The two firms in which the research managers prepared a budget were both companies in which one of the major activities was that of arranging and/or conducting training sessions, and preparation of necessary text materials. Attempts at the determination of detailed costs of completing specific projects were not made in any of the companies. The feeling was expressed by several of the purchase research managers that attempts to "cost out" specific research projects could not be done in any meaningful manner, and that the total research costs, and benefits, must be considered if meaningful expense data were to be produced. In all but one of the companies interviewed, total research expenses were charged to general purchasing administration expense, due to the dif— ficulty of determining the amount of expense which would apply to a specific division or department. The one company which 404 did distribute costs of the total research effort based it on the relative dollar amounts of purchases of the various divisions, but recognized this was a somewhat arbitrary method of allocation. Evaluation of Benefits Formal attempts at a dollar evaluation of the benefits of staff purchase research work were made primarily on topics researched in the Purchased Materials, Products, or Services category (and excluding the Commodity Study; Supply, Demand, Price Forecast; and Tariff topics) and the Purchasing System category. These dollar evaluations normally attempted to determine the amount of savings which resulted from the pur- chase of a different material, or from use of a different method of purchasing. For example, in the case of a material substitution, the computation would be made by subtracting the new purchase cost per item from the old purchase cost, and then multiplying this difference by a normal, annual usage. The amount of saving was usually computed for only a one— year time period, because it was assumed that changes result— ing in savings became standard practice after one year. In the interviewed companies, no attempt was made to evaluate, in a quantitative manner, the benefits received from other types of purchasing research, such as research on Vendors, or on Commodity Study; Supply, Demand,or Price Forecast; or Tariff topics. 405 Purchase Research Administration in Specific Companies This section presents a discussion of the administrative practices used in the staff purchase research function in six of the ten companies with staff which were interviewed. In some cases, exhibits of specific forms used in the adminis- trative procedures are included. The six companies are iden- tified as company A through F. However, in order to maintain company anonymity, these company designations bear no relation to other similar individual company designations used in other chapters of this study. 1. Company A Company A's purchasing function was decentralized by major plants. although certain controls were maintained by the cen- tral office purchasing department. The staff purchase re- search function was located in the central office purchasing department. All purchasing personnel within the company were encouraged to initiate research projects. However, the majority of pro- jects were conceived by the staff purchase research personnel. According to the research manager, ". . . over ninety percent of the ideas we work on, and which result in cost savings, are initiated by the Purchasing Research Section itself. For instance, when I was an Analyst, I used to frequently pick up a stack of drawings of high dollar value items and go 406 through the drawings asking questions regarding why it was made the way it was, why it had the particular features it had, and why it was made of the particular material it was." The research manager's approval was necessary before an analyst started work on a particular project. This was an in— formal approval, primarily for the purpose of establishing work priorities, for according to the research manager, the Analyst "normally juggles about 16 balls at once." The re- searchers within the department did not specialize, either by' type of research project or by company division, although if a particular researcher had special knowledge on a particular topic or topics, an attempt was made to assign this type of project to him. In this company, each researcher was expected to handle the complete research on a project, with such advice of others as he might request. A complete record was maintained on all research projects, through use of a "Purchase Research and Analysis Project Report" (Exhibit ll—l), which was prepared when a project was initiated. This report stated the objectives of the project, the methods of research to be used, and anticipated savings. It was made in three copies: one for the research manager, one for the company's chief purchasing executive, and one re- tained by the researcher. Each initial report on a new project was assigned a project number, and every time a major new devel- opment occurred in the research on this project, the same form, 407 EXHIBIT ll-l PURCHASE RESEARCH AND ANALYSIS PROJECT REPORT Project No. Project Title: Date: Started Date: Completed *Annual Savings: 1. Assigned To: 2. Division(s) Affected: PROJECT DESCRIPTION AND OBJECTIVE STATUS REPORT Date *1. Initial Estimate-—Start of Project 2. Actual--Project Completion 408 with the same distribution, was made. These reports, main- tained in chronological order, thus gave a complete history on the progress of a particular project. Several files on part- icularly lengthy projects were over fifty pages in length. Projects were closed with the completion of another copy of the "Purchase Research and Analysis Project Report." In order for a project to be considered completed, the researcher had to arrive at a recommendation showing benefit to the company, or else to have found no feasible or beneficial solution to the problem under study. Once a favorable recommendation was reached, it was communicated to plant purchasing personnel for their action. For a project to be considered favorably closed, the recommendation had to have been accepted by the plant, and the researcher had to have received a report from the plant showing the purchase order effecting the change recommended by the researcher, the quantity bought, shipment date, and a satisfactory inspection report on the material. A follow—up of favorable recommendations which did not appear to have been accepted by the applicable plant was made by the chief purchasing executive. Each researcher prepared a monthly summary report for the research manager and the chief purchasing executive on the status of all open projects, and the results of all projects completed.that month. Also, the Purchasing Research Section 409 prepared an annual "Cost Reduction Record," detailing their activities, which the chief purchasing executive then presented at a meeting of the Corporate Operating Committee. This an- nual report was started in 1958, in which year $289,000 in savings were accomplished through staff purchasing research projects; in 1959 the savings were $473,000. The total amount of savings was broken down by month, and by person performing the research. Evaluation of benefits from purchasing research was based on the difference between the price paid as a result of the research and that previously paid, multiplied by current an- nual usage. The total savings on any project were based on only the next 12 months' usage, as supplied by either production control or purchasing. In the case of an item which was transferred from one of the company's manufacturing facilities to a vendor, the amount of savings was considered to be the difference between vendor price and the company's out—of- pocket cost to the manufacture. Overhead costs were not in— cluded in the calculation. No formal report of purchasing re— search savings was made for general distribution, since it was felt the operating pe0ple might resent such claims, and feel that the purchasing research people, "are only blowing their own horns." The expenses of the Purchasing Research Section were included in the over-all purchasing administration budget. No attempt 410 was made to compute or assign research costs to specific pro- jects, or to establish specific dollar cost reduction goals for the Purchasing Research Section. 2. Company B In Company B, the purchasing function was largely cen- tralized within the home office, although a few purchasing personnel were located in branch plants. The staff purchasing research personnel were located at the home office. Projects were initiated by purchasing management or by the purchase research staff. Projects initiated by the staff arose from three principal information sources: (1) literature, in the form of sales brochures or trade magazines read by the researcher (40%1x>50% of projects arose from this source); (2) literature, or information, received by personnel out- side the purchasing area, such as the operating departments or research and development, and forwarded to the researcher as something "to look into"; and (3) conversations with sales personnel calling on the company. Informal approval of specific projects was obtained from the purchasing manager. Estimates of research costs and potential benefits from proposed projects were presented to the manager only in the case of projects for which much as— sistance and support from other departments within the company would be required. The purchasing manager determined the 411 over-all priority of research projects, but the specific re- search schedule was determined by the research manager who stated: "The priority in which different projects are done is a matter of timing, depending on production requirements, problems in data collection, and the personnel involved. The potential savings, some of which are quite apparent, also helps determine the order in which projects are pursued." Each project aimed at a specific cost reduction was assign— ed a research project number. On-going projects, such as one on personnel staffing requirements, were not assigned pro- ject numbers since there was no anticipated completion date for such projects. File folders were maintained, by project number, for each project. Each folder contained complete in- formation on data gathered, estimates made, and reports made. Additionally, a loose-leaf notebook was maintained containing information, chronologically, on all projects which had been initiated. In over four years of activity, 121 projects had received a file number, of which 26 were still active. A project was considered closed when the recommendation had been accepted; when it appeared that, for good cause, the re- commendation could not be accepted; or when it was determined that the results of the project would be of no significant benefit to the company. Before a project was considered closed, an informal follow-up was made by purchasing research of all 412 projects on which a favorable recommendation was reached. When resistance on the part of operating personnel to a favorable recommendation was found, this matter was referred to the pur- chasing manager, for his action. A letter to the purchasing manager was necessary to close a particular project file. This presented recommendations and an estimate of dollar savings, "whenever this could be done, conservatively, pegged to the dollar differences." Additionally, every six months, the purchase research staff prepared a sum- mary report for purchasing management on the status of all active projects. No summary report was made of the total annual dollar savings resulting from the work of purchasing research, for it was felt these savings resulted from the combined effort of several departments, and it would be inaccurate to attribute these savings solely to the work of the purchasing research staff. It also was indicated by the purchasing manager that these savings were on a diminishing basis, for, "It was pretty simple to get the easy situations and come up with sizeable savings, which we have already done. However, the more involved problems take longer, and the results are a bit more problematical." The cost of the staff purchasing research activity, consist- ing almost entirely of salaries, was budgeted in the over—all purchasing administrative budget. 413 3. Company C Company C operated a large number of plants. Each division of the corporation had its own purchasing staff, but large dol- lar value and heavy use items, required by more than one division, were purchased by the headquarters purchasing office. The majority of the time of the purchase research section, located in the headquarters purchasing office, was spent in research of an economic nature (Commodity Studies; Demand, Sup— ply, and Price Forecasts; Tariff Studies). A large number of the research projects were initiated by the purchasing manager. Perhaps 10% of the projects were initiated by purchasing personnel, either in the headquarters office or in one of the divisions or plants. "Request work" of this nature was given top priority in the scheduling of xnork. Perhaps 20% of the work was initiated by the research manager himself, with informal approval of the purchasing Inanager. The research manager was attempting to increase the Exercentage of projects which he initiated, for he strongly :felt.the need for research in some areas which were not being :besearched. As a basis for determining which new materials could 1x3 most profitably studied, the company rated each raw material cum 14 criteria, as shown by Exhibit ll-2. Each raw material xmas given a point rating on each of these 14 criteria and a sum- 1nation of these point ratings was used as a basis for the selection 414 EXHIBIT 11-2 INDICATORS FOR NEED OF PURCHASE ANALYSIS PROJECT GROUP & NO. CRITERIA A. Value E. 1. Top Dollar (Current or Future) Product Profitability 2. Red Dollar Buying Position 3. This Company a Substantial Buyer Price/Cost Characteristics ~JG\UIb (D Infrequent Price Changes Frequent or Seasonal Price Changes Cost Not Competitive Divergent and Unfavorable Product Price/Raw Material Cost Trend High Unit Cost Availability 9. 10. 11. 12. 13. Imports as Percent of Industry Supply Limited Suppliers New Suppliers Adding to Market Availability Limited Make vs. Buy Quality 14. Have Had Quality or Specifications Problems 415 of those raw materials to be studied which offered the largest potential benefit to the company. No attempt was made to estimate potential dollar costs and savings on proposed pro- jects, except intuitively. The research manager scheduled the work of the department, and submitted this schedule to the purchasing manager for his approval. Very little close supervision was exercised over the work of the research personnel, due to its very special- ized nature. Within the research section, there was some special— ization of work, for the research manager made all price fore- 'casts, including those used in commodity studies made by others in the purchase research section. Upon completion of a particular project or study, a report 'was made to the manager of purchases, with distribution to other interested individuals. In addition, the research manager furnished the purchasing manager a monthly one-page summary report of all projects currently under study. The research section followed up all completed projects, to (determine results and to assist in resolving any problems which had arisen. No formal evaluation was made of the dollar benefits accruing tun the organization as a result of the work performed by pur- cfluasing research. It was felt that it would be fruitless to attempt a dollar and cents evaluation of work of this nature, and 416 that the only way to evaluate the worth of this type of pur- chasing/research was to query people in the buying groups as to whether these efforts furnished them worth—while information. The expenses of the purchasing research section, which consisted largely of salaries, were included as a part of the purchasing administrative budget. No attempt was made to determine the costs connected with particular projects or types of projects. At the beginning of the 1960 budget year, con- sideration was given to charging the expenses of purchasing research to the various operating divisions, based on time spent for each division, but it was decided to continue charging these expenses to general purchasing administration. 4. Company D Company D's purchasing function was partially decentralized, .for each major product division had its own purchasing organiza- 'tion. Major items used by several divisions were purchased by 'the general office purchasing department, although corporate gnarchasing responsibility for some common use items was assigned 'to a particular division, when it was felt that division was iJI an advantageous position to buy a particular item. The pur— CmmEoo mHCu .nmmsn mm .mH> m .mCmmEoo HOSUOCm .HmuHommxm wCoz oCm Hmhsn mm .mH> 0H OH H m mCmmEou mHnu .HmmMCmE mCHmmCUHCm Ho Hm>5Q mm .mu> HH .HmmMCmE mHmHHmumE DCMHQ .mnm mCmmEoo h .Conmmmmu mCHmmnoHCm CH mHCu .mCHuCCooum CH .mu% m umHHMHommm >uHDOEEOU .mn» N om m h >CmmEoo mHnu ..ummo mCHquooum mo CoHuumm moHumHumum mCmmEoo oCm umoo CH .mu» m “owmEoo mHflu .Conmmmmu mCHmmCUHCQ Hm3u0Cm .CMHoHumHumum mm .mu> N .quumHmmm mmmum mm .muh m HH N w >CmmEoo mHnu .noummmmn ummeE CH now» H .COHuodpoum CH .mum me uowmEoo HOCDOCm .umHEmno Coummmwu mm .mn» m mCoz m N m hCmmEoo HOCDOCm ..ummo Soummmmu mCHHOXHmE CH umHHMHommm muHoOEEoo mm .mu> m mCoz g g g hCmmEoo mHCu .moCmHHmmxm mCHHmeHmCm .mnm HH mCOZ NH .08 m m >Cmmeoo HOCDOCm NCMQEOU mHsu .OOCmHHmmxw mCHHmmCHmCm mummw n .um>HmCm mmmnousm mm .mH> m m N N mCmmEou mHSH .mCthn mCoz whom» g .mCHuHowmxm .muh m m H H mCHmmnoHCm COHuHmom qummHm ou MOHHQ >CmmEou COHuHmom .OU CmCu Hmnuo mUCmHHmmxm .mUCmHHmmxm mCHmmnousm qummHm NHOmH>HmmCm CuH3 uComem whom» .02 CH mumm» .oz 433 Members of top purchasing management had been promoted from ' the position of purchase research supervisor in two of the companies. In one of these companies, the Chief Purchasing Agent was formerly the purchase research supervisor; in the other company the Assistant Purchasing Manager formerly headed the purchase research function. This indicates that purchasing research experience may give an individual the breadth of knowledge needed to assume higher managerial positions within purchasing. In three companies the research supervisor was promoted to his present position from a subordinate staff purchasing research position. In two other companies the individuals occupying the position of research supervisor held positions in marketing research prior to their present position. Only three of the eight supervisors had experience as a buyer. This indicates that in the companies interviewed, the majority did not consider actual purchasing experience a prerequisite for the job of managing the purchase research function. 4. Compensation Wide variation existed in the salaries of this Small sample of purchase research supervisors. The lowest indicated annual salary range for the position of research supervisor was from $10,000 to $12,500; the highest range was from $27,000 to $36,000. 434 The average salary of the eight research supervisors was slightly under $15,000 a year. These salary figures were adjusted upward in each company to reflect the value of fringe benefits received (pension, bonus, insurance, etc.) based on information from the appropriate company accounting department. It should be remembered that these eight companies varied widely in size, location, and type of industry. Also, there was considerable variation in the scope of the research function which each man supervised. The Purchase Researcher Twenty-three individuals doing work of a non-buying, fact- finding, research nature within the purchasing department were interviewed. None of these 23 individuals supervised the work of other purchase researchers. Some of these purchase researchers performed work on several research topics, while others worked on only one general type of topic, such as preparation of intermediate and long-run supplyv demand, and price forecasts for purchased materials. Five of the 23 researchers reported to some member of purchasing management (three to the chief purchasing executive, and the other two to a subordinate manager within the purchasing department). The other 18 individuals reported to a purchase research supervisor. 435 1. Titles A wide variety of titles were used for the individuals doing purchasing research. Several of those interviewed had the term "analyst" as part of their title, such as Puchasing Analyst, Purchase Research Analyst, Raw Materials Analyst, or Value Analyst. Exhibit 12-l indicates the 20 job titles used. Job descriptions for two of these positions also are included (Appendix 3—3 and 3-4). The job descriptions have been modified, as necessary, to preserve the anonymity of the company. 2. Education The average level of educational achievement of the individuals in the position of purchase researcher was high. Of the 23 individuals interviewed, 18, or over three-fourths, were college graduates (Table 12-2). Five individuals, over 20% of the total group, held master's degrees. Of the five individuals who were not college graduates, three had attended college. The two individuals who had no college work were both in the same company. One had been with the company 18 years, the other for seven years. There does not appear to be any consistent pattern to the educational backgrounds of purchase researchers, although of the six researchers whose work was almost entirely on topics in 436 Exhibit 12-1. Titles of purchase researchers Purchase Analyst (2) Purchasing Analyst (2) Consultant - Economic Analysis Assistant Purchasing Research Analyst Analyst - Paper, Lumber, and Textiles Analyst — Purchased Products and Services Costs Analyst - Ferrous Metals Analyst - Transportation Research Value Analyst Assistant Raw Materials Analyst Analyst - Purchasing Training and Education Value Engineer Plant Liaison Manager Analyst - Purchasing Surveys and Practices Staff Assistant - Operations Assistant to the Director of Procurement Staff Assistant - Purchasing Research (2) Analyst - Purchasing Techniques Research Analyst - Equipment and Facilities Assistant Manager, Purchasing Research 437 .mOCmHOm HmHOOm . mpHm HMHQQHA Q .mmOHomm pCm .moCmHom HMOHDHHOQ .munm HmuwQHH .EmHHmCHCOH .hnumHEmno CH Comm mCOm mH MHCO Hoonom CmHm mundtmum DOC pHU yon .mmmHHoo UmpCmuufi wmumma m.Hon£omm mmhmma m.uwumm2 Hmuoe umnuo mCHHmmCHmCm moHEOCoom .Eofl .mdm .muoo< uonz COHumuscm mHmConmmmH mmmnuusm mN mo oCCOmeUmQ HmCOHumospm .NINH OHQMB 438 the Purchased Materials, Products, or Services category (excluding the Commodity Study and Supply, Demand, or Price Forecast topics) all but one had an engineering educational background. Three of these researchers had degrees in engineering, two had taken engineering in college but not graduated, and one had a degree in accounting. Of the three researchers doing work almost solely on the Commodity Study, and Supply, Demand, or Price Forecast topics, two had educational backgrounds in economics. One of these three researchers had a bachelor's degree in accounting and a master's in agricultural economics; another held a bachelor's degree in economics and a master's in economic history; While the third individual had a bachelor's degree in chemistry, and was taking graduate work in business administration. 3. Work Experience 3 The average number of years in purchasing research work for the 23 researchers was slightly over two (Table 12-3). Only one individual had been in purchasing research work as long as seven years; one individual had been in this work for six years; two for five years; two for four years; and four had been in purchasing research work for three years. Ten of the researchers had been in purchasing research for one year or less. The large number of individuals with relatively few 439 .moo Hmnuo CUH3 mOCmHHmQxO OHmmmuu “.00 mHCD .umeMCm wumu COHumunommCmnu mm .mu> m mCOZ h H b uthMCm umoo w Houmuu mCHmeQ CH mUCmHHmme .mu> NN ImHCHEom HomuuCoo .u>om ..oo mHnu .mCHuCCouom .mu» m mm .00 mHau ..mu» m mH v o EHHm HOCDOCm CDH3 .umE thmMO CH .mu> h “.00 mHflu .mCHummeE UCm OUCmCHm .mn> m mCoz v .mOE o m mmHHmmCm w .QHCom mUHmmo mo mCoz Cowsn.:oo mHCp ..mu> 0 NH 0 v muomuuCoo Oahu umou Co mCHxHOB umHHmHowmm mCHmmnu Imam mm ..00 HOCDOCm \3 .mu» mH “.¢.m DCMHQ w .HCQ COHuosuumCoo wCoz CH .00 mHnu .mH» m m H m mach mCstQ Mo aumHHm> CH mCoz .oo HOCDOCM \3 .mu» mH H H N .00 HOCDOCM \3 quEmHCOOHm .deom HmuHmmo w COHumHu wCoz ImHCHfiom HomHuCOUQCm m m H umuHm pmumHH mUCOHmexO mUCmHummxm .00 qummHm .mwu .UHCQ HOQECC umOHMH SCH? .mCHmmCUHCQ mCHmanHCm CuH3 CH COHuHmom Cmnu nguo OUCOHmexm mummh .oz whom» .02 mnmnoummmmu mmmsouso mN mo moCoHCmmxm .muNH mHnme 440 .00 .00 umLDOCm .C0Huusooum mHCu HomMCmE mHmHumuwz CBOCxCC .moE m mH .00 mHCu .moCmCHw .mu> g .CoHDUCooum .mu» HH .00 mHCu ..4.m mm 0...:H m «N m NH 000 m-WQU. soflom .00 mHCU .COHHUCGOHQ .mu> g H0 HONCQ mm .mn» MN om m @H >0C0mm >HODMHCm0H .00 HOCHOCM DCOECH0>0m CDH3 .mum g ..Eom .CUHCQ CH .mu> h h h mH .m00 umCDO .ummMCmE muoCsom mm .00 .mu> m .HOHUCOU COHDUCGOCQ mHCD .qumm mCHmeUHCm o mCHnmmCHmCm .mu> N H0 H0>CQ mm .mu> 0 HH m vH .00 mHCu ..ummo mCHuCCOUUm m0 CoHuomm m0HumHumum oCm umoo 0Coz CBOCHCC .moE m MH HouHom MmmmmmBOC “00 mHCu .mCoHDMku 0HHQCm 0Coz CSOCHCC CBOCxCC NH .00 mHCD .mCHuC5000m .mu» m OCOZ OH H HH .00 mHsu .mCHummCHmCm m©0£umfi .mu> h 0COZ m N CH MCDMHHmHCHE©m .00 mHCD .mmHmm uomnuCoo .u>0m mm ..00 .mu» @ .mCHummCHmCm .mu> OH mHCu .mCHmms0HCm .mum 0 MN .m0& 0 m .00 mHnu .mCHummCHmCm mausooum 30C ..mn> mH 0Coz mH .mOE @ m umHHm pmumHH 00C0HH0mx0 .00C0Hummxw .00 qummHm .mmu HmnfidC ammuMH CDHB .mCHmmCUHCQ mCHmm£0H5m CuH3 COHHHmom szu Hmnuo 00C0Hnmmxm mummh whom» .Aomscauaoos muma magma 441 + o + HH + m mmmum>< .00 ConuOCm ..ummt m0H80C000 CH .mu> g OCOZ M M MN .00 mHCu .pwHEOCU Coummmmu mm .mH> M .00 mHnu ummsn mm .mu> m m .m0& 0 NN .>0C0mm Cuummmmn mum>HHm CH umHEOCoum mm .mu» m “EHHM mCHuHCmCoo CuHB .umH IHmHommm mUHEOCoom mm .mu> N 0Coz m m HN .00 mHCD .Hmthmmxm 0Coz .Hmhdn mm .mu» N\H H N .mOE M ON .00 mHsu .Hmhsn ©Cm 0Coz ummHMCm 00HHQ ..mu> 0H 0N s 0H umuHm cmumHH 00C0Hummx0 monHnmmxw .00 “Commum .mmu .0959 ConEsC ummUMH CuH3 .mCHmmfluusm mCHmmnuusm CuH3 CH COHuHmom Cmnu Hmnuo 00C0Hnwmxm whom» .02 mumma .02 .AomsCHuCouv mlNH wHQmB 442 years in this type of work may be partly explained by the relative newness of staff purchase research positions in many of the ten companies interviewed. Eleven years was the average length of employment of purchase researchers with their present company. One individual had been employed by his present company for 30 years, but only the last three in purchase research. Five individuals had been with their present company 16 or more years before going into purchase research work. Five of the researchers had started with their present company in that job. Two of these five were doing primarily commodity study research, and had held jobs in the economics area with their previous employers. Fourteen of the researchers (60%) had had some type of purchasing experience prior to assuming their present position. Ten of these fourteen had this purchasing experience with their present employer; three had experience in purchasing with a different employer; and one researcher had purchasing experience both with his present employer and with a previous employer. The average number of years purchasing experience for the 23 researchers was slightly over six. Of those nine researchers Who had purchasing experience with only their present company, the average was over nine years of experience. Nine researchers had no purchasing experience prior to assuming their present position. Two of the three individuals 443 engaged primarily in making commodity studies had had no purchasing experience. Since this work was dependent more upon analytical knowledge, perhaps actual buying experience would have added little to their skill in making these studies. Four of the nine without actual purchasing experience were with one company, engaging in research on topics in all three major research categories. In this particular company, none of the staff purchase research personnel, including the research supervisor, had had any actual purchasing experience. Another of the individuals who had had no purchasing experience did research solely on the Transportation topic; another was concerned primarily with the administration of a Value Analysis program; another, with an engineering background, was involved only in research on the Substitution, Specification, and Method of Production or Manufacture topics. Six of the 23 researchers had had no work experience, other than in purchasing. Of those researchers who had previous work experience in areas other than purchasing, the most frequently indicated areas of this experience were production, engineering, and accounting. 4. Compensation The average annual salary of the 23 researchers was $13,700. The median annual salary was $12,000. Salaries went from a low 444 range of $7,500 to $10,000,to a high range of $18,000 to $24,500. These salary figures were adjusted upward in each company to reflect the value of fringe benefits received (pension, bonus, insurance, etc.) based on information from the appropriate company accounting department. Desirablewgualifications In each of the companies interviewed, an attempt was made to determine what education and experience background was considered desirable for persons doing staff purchase research work. The opinion of the chief purchasing executive on this matter was obtained in eight of the ten companies interviewed: in the other two companies this was discussed with the purchase research supervisor. The person interviewed was asked to express his opinion on what qualifications were desirable for a staff purchase research employee. In several of the firms, the personnel presently occupying one or more of the researcher or research supervisor positions did not meet the stated desirable qualifications. All persons interviewed stated that a college degree was desirable for persons in staff purchase research positions. Most specified that the degree should be in accounting, business administration, economics, engineering, or statistics. One firm, in the Chemical Industry, specified a degree in 445 chemistry, with some additional college work in business administration. Most executives said they would prefer an individual who also held an advanced degree, although one firm felt that an advanced degree might be a handicap to an individual. This particular firm had originally started its purchasing research effort with persons holding advanced degrees, but experience did not meet their expectations, due perhaps to the personalities involved. Two of the companies indicated that for work on the Commodity Study and Supply, Demand, or Price Forecast topics, actual purchasing administration or buying experience was not considered necessary, and perhaps would not even be helpful. All companies considered some buying or purchasing administration experience desirable for individuals working on the other topics. In the words of one research supervisor: Much of our work might be termed as "trouble shooting" in that we are called in from time to time to assist in problem areas which arise in our branch purchasing operations. Actual purchasing experience or experience in purchasing administration is necessary if the researcher is to understand the problem and surrounding circumstances, and also to gain the respect of the purchasing people in our branch purchasing operations. A Director of Purchasing put it this way: "The purchase researcher needs to have some experience at a buying desk, in order to be sensitive to what the buyer can or cannot do." The purchasing managers in two of the firms in which a large part of the work of purchasing research consisted of 446 major commodity studies felt that related experience in economic analysis or marketing research was desirable, and essential, for that type of work. The purchasing managers in three of the firms stated that cost accounting experience was desirable. Four of the purchasing managers stated that engineering experience. preferably in product design work, was desired in their staff purchase research personnel. These latter four firms were ones which devoted considerable attention to the Substitution, Standardization, Specification, and Method of Production or Manufacture research topics. It should be noted here that the educational background possessed by the largest number of purchasing research personnel was engineering; however, the majority of purchasing managers did not indicate this as the most desirable educational back- ground for people in a staff purchasing research capacity. This apparent dichotomy between desirable and actual educational background can probably be explained by the fact that few universities in the past have offered much advanced work in the functional area of purchasing and materials management. Thus companies have been limited as to their source of persons to fill staff purchasing research positions, and have had to employ persons having an educational background which differs from that considered most desirable. The National Association of Purchasing Agents in recent 447 years has increased considerably its efforts in the area of professional development. Perhaps still a further increase is warranted in professional development efforts directed at making possible increased educational opportunities for persons in staff purchasing research positions and individuals who might wish to pursue this as a career. Chapter Summary A total of 31 persons in the job categories of purchase researcher and purchase research supervisor in ten companies were interviewed, to determine the educational background, work experience, and compensation of purchase research personnel in these companies. In eight of the ten companies the staff purchase research function was headed by a research supervisor, who had one or more subordinates reporting to him. In three of these eight companies the supervisor performed primarily administrative duties; in the other five companies the purchase research supervisor himself researched various topics. Four of the purchase research supervisors had the term "manager" in their titles. Six of the eight supervisors were college graduates; the other two supervisors had done some college work. Two of the six degree holders had a master's degree (one in business administration, the other in agricultural economics). Three of 448 the supervisors had bachelor's degrees in engineering, one in business administration, one in economics, and one in public and international affairs. The average number of years experience of the supervisors with their present company was 11; the average years of experience in their present position as purchase research supervisor was two. Three of the supervisors were promoted to their present position from a subordinate purchase research position, and two came from the market research area. Only three of the eight supervisors had had any actual buying experience. The average annual salary, including fringe benefits, of the eight managers was $15,000. The lowest salary range was from $10,000 to $12,500; the highest from $27,000 to $36,000. Twenty-three purchase researchers (staff purchase research personnel in a non-managerial capacity) were interviewed. Five of these individuals reported to a purchasing manager; 18 to a purchase research supervisor. A variety of position titles were used for the job of purchase researcher, but the term "analyst" was used in the title of several of these positions. Eighteen, or over three-fourths of the purchase researchers interviewed,were college graduates, and five of the researchers held a master's degree. Those researchers who did work primarily on such topics as Substitution, Standardization, or Method of Production or Manufacture had, 449 for the most part, educational backgrounds in engineering. The majority of those researchers who did primarily commodity study research had degrees in economics. The average number of years of the researcher in his present position was slightly over two, compared to an average of 11 years total service with his present company. The individual with the longest years of service in the position of purchase researcher had been in that position only seven years, again giving evidence of the relative newness of staff purchasing research positions. Ten of the researchers had been in pur- chasing research work one year or less. Fourteen, or 60%, of the researchers had had some actual buying or purchasing administrative experience. The average number of years of buying or purchasing administrative experience of these 14 researchers was slightly under ten years. The average salary of the 23 researchers was $13,700; the median salary was $12,000, including fringe benefits. The low salary range was $7,500 to $10,000; the high range was $18,000 to $24,500. All purchasing executives interviewed indicated that a college degree was a desirable qualification for staff purchase research personnel. Actual buying experience was considered desirable for staff research personnel, but for people primarily involved in the preparation of commodity studies of purchased materials it was not considered a necessity. 450 CHAPTER XIII BENEFITS. DIFFICULTIES AND FUTURE OF STAFF PURCHASING RESEARCH Introduction This chapter discusses the benefits which have been received by companies from the utilization of a staff purchase research function and the difficulties which have been en- countered in the staff approach to purchasing research. Additionally, estimates of expected future growth of the staff purchase research function are presented, to indicate the direction and magnitude of changes which might be anticipated in the developing trend toward the performance of purchasing research by staff specialists. The data on the benefits, difficulties, and future of the staff purchasing research function were obtained largely by the mail questionnaire. Specifically, responding executives were asked to supply the following four items of information: (1) the benefits which had been received from purchasing research (Question 11), (2) the year in which a person will be assigned full time to purchasing research, if no one already was assigned (Question 5), (3) whether any purdhasing research positions, or major types of projects, had been abolished during ~ 1959 or 1960 (Question 10), and (4) the estimate of the five— 451 year future for purchasing research in their company (Question 9). The questionnaire also invited comments on purchasing research, and many of the additional comments made concerned the benefits which had been received from the staff purchasing research function. Some information on the benefits, difficulties, and future of the staff purchasing research function was obtained from the ten companies with staff which were interviewed, and is presented in this chapter. Most of the quoted statements in this chapter were obtained by the questionnaire. All quotations indicate the industry in which the respondent was located. Over—aIlBenefits of Staff Purchasing Research Many companies stated the major benefit to their company from the staffppurchasing research function had been a "better buyinqdiob." While most companies did not indicate specific benefits received from staff purchasing research, almost all companies with staff who responded to the question on benefits from their research staff indicated that the work of the staff had enabled their company to obtain greater value for dollars expended by the purchasing department. The following four statements about the over-all benefits of the staff research function are indicative of the results achieved from purchasing research by those companies with a purchase research staff: 452 In an era of increasing competition, a definite need for Purchasing Research became apparent. The Director of Material created the "Procurement Planning" section for the purpose of researching and evaluating data for improving costs and purchasing practices. Resultant benefits were gratifying. The improvement of cost reduction techniques through constant application of purchasing operations research and analysis will continue to help . . . maintain our status as a competitive . . . manufacturer. (Transportation Industry) We are able to buy more intelligently having first gone through a period of investigation. We are able to see our problems before they arrive and prepare for them. We are able to unearth imaginative solutions to present problems that would not develop if we simply performed the day-to-day buying function. (Chemical Industry) Purchasing research provides a tool to more effective buying through examination, exploration, comparison and the application of ingenuity with an organized, factual approach. (Transportation Industry) Purchase research has paid off in: Lower-cost materials Reduced costs (Investment) for unit of capacity. Equipment with lower operating costs. New materials that resulted in lower-cost finished product. 5. Better cost control by means of long-term contracting. 6. Reduced cost of purchasing. (Chemical Industry) wai-J Specific Benefits of Staff Purchasing Research Several of the companies with a purchase research staff found the use of a staff specifically benefited their purchasing operation by assuring an organized approach to purchasing research and by providing the buyer with the type of information he needed to perform effectively his purchasing job. Other 453 specific benefits from the staff approach to purchasing research were commented on by some of the surveyed purchasing executives; the seven specific benefits indicated from the use of a purchase research staff are discussed below. 1. An-Organized Program The upe of a purchase research staff tends to assure that pugchasing research will be done on an organized basis. Several purchasing executives commented that purchasing research should be a key activity in any well-run purchasing department. This study showed that companies without a research staff did do some purchasing research, although the amount of research done was considerably less. Many of the purchasing executives in companies with staff stated a major benefit from the use of a staff was that purchasing research will be done on a planned, orderly basis, which would assure more valuable results from purchasing research. Some stated that if they did not have a research staff, this would greatly limit the amount of research that could be done. Two of the comments regarding this specific benefit from the use of a research staff were as follows: The greatest benefit of Purchasing Research is having a Continuous and Organized cost-reduction program-- regardless of how good a thing is, it must be continuously sold and this will only come about on an organized basis. (Primary Metals Industry) 454 Can research subjects that operating personnel, because of time, responsibilities, etc., can not cover. (Electrical Machinery, Equipment. Supplies Industry) 2. Specialized Knowledge The use of specialized staff purchase researchgpersonnel makes available specialized skill and knowledge to the_purchasing organization. Some areas of purchasing research may require technical skill or knowledge that is not possessed by buying or administrative personnel within the purchasing department. For instance, the type of research involved in the Commodity Study, and Supply, Demand, and Price Forecast topics may require specialized economic and statistical background and knowledge for optimum results from this research. One of the purchasing executives commented on the specialized knowledge of staff personnel as one of the benefits received from staff purchasing research, as follows: Major benefits are in the area of supply-demand analysis on agricultural commodities. These analyses lead to price judgments. This work probably requires staff assistance--a new viewpoint. The other research work can probably be done just as well by the buyer, provided his work load permits. (Chemical Industry) 3. Aid to the Buyer The use of a purchase research staff aids the buyer through provision of information on which better buying decisions and more effective negotiations can be based, and relieves the 455 ppyer from certain research responsibilities, permitting him to concentrate on his primary buying responsibilities. Previous chapters have shown that the presence of a research staff does decrease the involvement of the buyer in the purchasing research that is done, permitting the buyer to devote more time to his buying job. Several of the purchasing executives did indicate that the presence of staff does relieve the buyer of certain research responsibilities, and provides the buyer with information which enables him to do a more effective job of negotiation and buying, as the following seven quotations indicate: Our thinking on having a staff man handle most of the work is that it frees the various branch plant buyers from developmental work and allows them time to con- centrate on their immediate buying job. It gives them more time to buy and enables them to do a better buying job. (Miscellaneous Manufacturing Industry) The staff man conducts the general research and the line buyer is free to do research, or value analysis, or just plain better buying job on Specific items. (Machinery, except Electrical, Industry) Results from Purchasing Research work, from the time it was established, have been primarily additional information and tools for buying personnel.y They have been well received and useful. (Paper Industry) Commodity studies have benefited our buyers' ability to bargain. (Electrical Machinery, Equipment, and Supplies Industry) Buyers able to negotiate on much firmer ground due to over-all training and information fed by purchasing research. (Electrical Machinery, Equipment, and Supplies Industry) 456 In conjunction with the buying area, Purchasing Research has contributed to substantial improvements in coordinating the business aSpects of administering an annual buying job of major proportions. In line with this, improved communications with regard to market evaluations, current economic developments, etc., have contributed much to getting the buying function in a more knowledgeable position. (Transportation Industry) 4. Training Ground for Buying Personnel Staff purchase research positions may be used as a training ground for buyers andppurchasing administrators. Several of those companies interviewed felt one of the benefits of an organized purchasing research organization was that these staff positions could be used to provide excellent training for purchasing personnel. Since purchase research personnel often do research on a myriad of research topics and perform many related activities, these personnel are exposed, in breadth and depth, to many purchasing problem areas. In some of the interviewed companies, buyers were rotated through purchase analyst positions as a part of the department's internal training program. In two of the companies interviewed, previous research managers had been promoted to purchasing administrative positions. Some of the executives responding on the questionnaire also indicated one of the benefits from the staff research program was that it provided an opportunity for training buying personnel, as the following quotation shows: 457 We also use our Value Analysis Group for the develop— ment of buyers. This is an excellent training ground. (Transportation Equipment Industry) 5. Increased Purchasing Organization Effectiveness The results of work done by a purchase research staff often enable. greater organizational effectiveness in the purchasing function. Companies doing research on the Purchasing System topics have often found that a major benefit of the work done by the research staff in this area is the development of a more effective purchasing organization structure, as well as administrative procedures which simplify the purchasing job and enable performance of the total purchasing job with fewer personnel. Three of the executives in the companies surveyed highlighted this as a major benefit from their staff purchasing research function, as the following quotations show: Research studies have enabled us to change our organization and assignments resulting in a budget reduction for purchasing of $78,000 for fiscal 1961. (Electrical Machinery, Equipment, Supplies Industry) Purchasing department performance has shown areas of over-load and areas of inefficiency. Results: redistribution of work load has increased total output without apparent reduction in quality of work. (Electrical Machinery. Equipment, Supplies Industry) Benefits derived from purchasing research have resulted in substantial reduction in personnel due to improved methods of inventory control, processing of purchase requests and record keeping. (Transportation Equipment Industry) 458 6. Improved Vendor Relations The ability to better evaluateypurchase alternatives and to make sounder purchasing decisions, based on information supplied by the research staff. may result in improved vendor relationships. Although this was not frequently indicated as one of the benefits from the staff purchasing research function. it was indicated by a few of the purchasing executives, as the following quotation shows: Have improved sales relationships with vendors and have produced plus business. (Food and Tobacco Industry) 7. Increased Status of the Purchasing Function The work of a purchasing research staff frequently brings increased recognition to the_purchasing department and results in improved relations betweenjpurchasing_and other departments of the company. Frequently an aggressive staff purchasing research program, by enabling more efficient use of the purchasing dollar and by developing better systems for servicing the purchasing needs of other departments, will increase the stature of the purchasing function within the firm. Staff research personnel often work closely with personnel in other departments to develop mutually satisfactory solutions to problems. The work done by the staff also demonstrates the willingness of purchasing personnel to actively study various 459 aspects of the purchasing function as a basis for increasing purchasing efficiency. Several of the purchasing executives indicated that in- creased purchasing status was one of the main benefits they had received from the staff purchasing research function, as the following six quotations illustrate: More recognition from other departments due to help we were able to give them through better knowledge of conditions applying to a good buying job. (Electrical Machinery, Equipment, Supplies Industry) Increased scope of purchasing authority and responsibility. (Primary Metals Industry) Improved communications with other divisions and departments of the company. (Primary Metals Industry) These and other programs, completed or in progress, have improved the stature of Purchasing within the company; interdivisional relations have improved; general acceptance of Purchasing as a contributor to the Company. (Chemical Industry) The Value Analysis area of Purchasing Research has paid off in dollars, but beyond that, it has improved relations between manufacturing, engineering, and purchasing. (Electrical Machinery, Equipment, Supplies Industry) Purchase Research has caused us to call upon other services of our company in order (1) to correlate our efforts with company objectives at the lowest cost in time and money, and (2) to acquaint our mangement and associates with our activities.(Chemical Industry) Profitability of Firms with a Staff Purchase Research Function Those firms with a purchase research staff were more profitable than firms without staff. To provide some indication 460 of profitability of firms with and without staff the data on profit as a percent of sales and profit as a percent of invested capitalwere collected and averaged for the 99 firms with staff, and the 205 firms without staff, which responded to the mail questionnaire. These data on profits were obtained from the "Fortune Directory of the 500 Largest U. S. Industrial Corporations" in the July,l960,issue of Fortune.1 Thus these financial data were for the year 1959. Table 13-1 presents these data on profit as a percent of sales and profit as a percent of invested capital, for both companies with and without staff. These data are presented both for companies which made a profit in 1959, and for the total group of companies. Four companies in each group had incurred a financial loss during 1959. Companies with staff showed a higher profitability on both financial measures. Considering only those companies which had made a profit, companies with staff had an average profit as a percent of sales of 6.18%, compared to 5.81% for companies without staff. Companies with staff had an average profit as a percent of invested capital of 12.41%, compared to 11.38% for companies without staff. When the total number of companies (both those which showed a profit and those which showed a loss) l"The Fortune Directory: The 500 Largest U. S. Industrial Corporations," Fortune, LXII (July, 1960), pp. 131-150. 461 .p0pCH0x0 000H 0 SDHB m0HCmmE00 usom 0:9 Q .AoomH .NHsnv Hqu .mCSDCom :.mC0Hu0H0QHOU HMHHumeCH .m .D pm0mumq OOm 0CD ">C0u00HHQ 0CCDHOm 039: “00H50mm OH.HH Oh.m mmmam usonuH3 m0HCmm800 MON Hmuou 03B OO.HH Mm.m mwmum CDHB m0HCmmEOU mm Hmuou 0:9 OM.HH Hm.m QuHmoum m 0me sauna mmmum usosuaz mmacmmsoo How was Hv.NH mH.O QuHmoum m 0me £0H£3 mmmum SDH3 m0HCmmEOU mm 038 HmuHmmo p0um0>CH m0 uC00H0m 0 mm uHmoum m0Hmm mo uC00H0m 0 mm uHmoum 0mmu0>¢ mmosu cam .suHs mmmmum C0um0m0h 00050HCQ m .uSOCuH3 m0HCmmEOU C003u0n pump HmHoCmCHm 0umm0nmmm m0 ComHHmmEOU .HIMH 0Hnme .II II iiilcll.| \.I . . 462 were considered, the differences between average percents drop, but still those companies with staff had a higher average profit as a percent of sales, and also as a percent of invested capital, than companies without staff (Table l3-l). These data certainly do not offer any conclusive proof that the presence of a staff purchase research function determines over-all profitability of a firm. Conceivably, those firms with a purchase research staff are ones which are not only aggressive in their treatment of the purchasing function, but are also doing a more aggressive job in other management areas. Since this study did not attempt conclusions on the effects of the staff purchase research function on over-all company profitability, the above data are presented only as an indication of what might be a relationship between the presence of a staff purchase research function and the profitability of a firm. Further research, which was not attempted by this study, might be warranted in attempting to establish the relationship between over-all profitability and the various aspects of the purchasing function. Difficulties Encountered in Staff Purchasing Research Although the results of this study have indicated an impressive list of advantages from the utilization of staff personnel for the performance of purchasing research, some 463 limitations to the use of purchase research staff were found in the companies interviewed and also in the replies to the questionnaire. Two of the companies interviewed indicated that the work of the staff purchase research personnel was not readily accepted at first by the buying personnel within the organi- zation. The first reaction on the part of buying personnel was that the staff research personnel would usurp, or diminish. their status in the purchasing department. Such conflicts as were pointed out by the research personnel in these two companies are relatively common organization problems and have been widely treated in the literature of management.2 This conflict between the staff and the buying personnel in one J of those companies interviewed had been overcome, and it was felt by the purchase manager in that company that the work of the research staff had now earned them the respect and cooperation of plant purchasing personnel. In the other company. considerable difficulty had been experiencedvfith certain members of the 2See for example, Keith Davis, "Friction in Human Relations, ,A Study in Staff-Line Relationships," Business Horizons, School of Business, Indiana University (December, 1956), pp. 44-48; Improving Staff and Line Relationships, Studies in Personnel Policy, No. 153 (New Y0rk: National Industrial Conference Board, 1956), pp. 70-80; Lyndall F. Urwick, "Fitting in the Specialist without Antagonizing the Line," Advanced _Mgnagement, XVII (January, 1952), pp. 13-16 464 buying organization in getting cooperation in providing information needed by the staff. This study did not produce any evidence to support the contention that the presence of a research staff reduces the total amount of purchase research in which the buyer is involved. It is true that this study indicates that the buyer in companies with staff was involved in a smaller percent of the topics actually researched than in companies without staff. However, the buyer actually was involved in more research topics in those companies with staff, because companies with staff did research on so many more topics (see Chapter VI). Three of those companies responding by questionnaire which did not have a research staff, and as nearly as can be determined. had never utilized a purchase research staff, indicated doubts as to the advisability of the establishment of specialized personnel for the performance of purchasing research. From what this study has learned about the staff purchase research function, the validity of the following objections is question- able. The quotations of these three executives follow: While purchasing research is a highly regarded, necessary augment of our purchasing activity, we do not favor the highly formalized concept which major corporations practice in that operation. It is our considered opinion that in a department which is limited in personnel we would be ill advised to employ a specialist or specialists to carry on an activity which the buyers and administrators are well qualified to execute in their own areas of specialization. Attention 465 to the research and study aspects of their assignments contributes in a substantial way to the development of the buyers and their assistants. (Electrical Machinery, Equipment, and Supplies) There is no pure purchasing research here. As the need arises that specific need would be researched. This is a 1ean,hard-core company with no excess fat at the administrative level for abstract or esoteric re- search. (Primary Metals Industry) Am dubious about Purchasing Research. No doubt it advances knowledge, but it also provides opportunities for "make work" (Parkinson's Law) and petty jealousies. etc. Am doubtful if the bank account at the end of the year would indicate that P. R. people paid their salaries. In this new competitive economy we may not be able to afford these things, desirable as they may be; and we may have to make more "seat of the pants" judgments. (Electrical Machinery, Equipment, and Supplies) Company Plans to Establish Purchasing Research Staff Fourteenypercent of those companies without a staff purchasing research function had definite plans to establish the function. Question 4 of the questionnaire asked companies to indicate the year in which they planned to assign a man full-time to purchasing research. Twenty-four of the 173 companies without staff which answered this question indicated definite plans to establish staff purchasing research personnel within their purchasing department (Table 13-2). Seven companies indicated they plan to establish a staff in 1961, six companies plan to establish a staff in each of the years 1962 and 1963, and five companies plan to establish 466 Table 13-2. Company plans to establish purchase research staff Number of Companies, (Sales, Million Dollars) Under 100- 500- 1,000 100 499 999 & over Total Number w/o staff 52 121 21 11 205 Year Plan to Establish Staff 1961 6 l 7 1962 4 l l 6 1963 5 l 6 1964 or later 3 2 5 No plans 44 83 14 8 149 Blank 5 21 4 2 32 Total w/ definite plan to establish a Purchase Research staff 3 l7 3 l 24 1'” ' he“ ‘ I. .1. . “IL: L“. I '0 (n .10 L821 ‘ “‘3‘- ": anslqzqhfig‘: ‘ gr- ”(fungi :ki ajl‘t‘”"..n ”*UWNuui s ' 467 a purchase research staff in 1964 or later. While the answers to this question were only estimates, these data do show that the trend toward the establishment of the staff purchase research function should continue in future years. The 24 companies with definite plans to establish the staff purchase research function were scattered through all but four of the 17 industrial classifications. Only in Lumber and Wood, Printing and Publishing, Rubber and Plastics, and Textile Mill and Apparel did none of the companies indicate plans to establish staff purchasing research positions. Four companies in Food and Tobacco; three companies in Primary Metals, and in Electrical Machinery, Equipment, and Supplies; and two companies in Chemicals, Petroleum Refining, Transportation Equipment, and Machinery, except Electrical indicated plans to establish staff positions. One company in each of the other industry groups had plans to establish a research staff. Thus in almost all industry groups, one or more companies were definitely planning to establish the staff purchasing research function. 'Several of the purchasing executives in companies which had definite plans to establish a purchase research staff made statements regarding their need for, and plans to establish, this staff. Five of these comments of the chief purchasing executives follow: .- h . 9" 4: EDI." ,‘ 0 ;7w nor: w' m 5:: swoi ‘ “V 'muonui -, .mwmoo $9 -- ‘uaraaom "‘“~fi!i '. L ultra-hat crzgjfjr~_ my! bus who!“ - '13 [935“ Ill! .r.rasdo:wq 1383! v2.1: :ooosm w «moan ilbiiabénl who "32m . .. _ - :wxe ‘Ytgfl‘fin' V W , snot r1 e. 31 anslq h:& h? " .t iaiidsdss- ‘vo -xr ttuq 9d: 3%} L: :as 03 aaslq- —U;, pnibtflgi‘x“ I-‘_ u. : fiaadj 30 468 Our research program began about four years ago. At present we still place the responsibility with the buyer. However, with a formal inventory control program now established, we will start extensive purchase analysis. This will require a full-time researcher whereas at present we approach this on a part-time basis, directing the buyer in his efforts. (Food and Tobacco Industry) Our company is presently in the process of developing a strong, active purchasing department. Through previous experience we know the value of purchasing research. We have a definite need for such an activity, but we have many other problems to overcome before we expand in this area. We will develop the potential of purchasing re— search as a separate arm of our department as soon as we can, but it is four to five years off. (Chemical Industry) Because of mergers and changes in organization by our company in the last five years, it has been impossible to organize the department to the extent thought necessary. Purchasing research has been done by Purchasing personnel on an informal basis somewhat as the occasion demanded. Benefits have been both monetary and informative. The extent of monetary gain has been sufficient to form a basis for a request for additional personnel. (Chemical Industry) Purchasing research is growing rapidly in this company and soon should be a formal program at every division. At present, most research is performed by the buyer, with help from other departments. (Electrical Machinery, Equipment, Supplies Industry) Unfortunately we do not possess the manpower to conduct this function as we would like . . . . It is our hope that management will recognize the need in the near future. (Primary Metals Industry) Also significant to an analysis of the future trend toward the establishment of the staff purchase research function is the fact that when asked specifically whether any purchase research positions had been abolished during 1959 or 1960 "F"- dziso . ,34i‘18 9'3 : vs'lma .‘I "7 ._, .6‘L1d"l_ .7 n .81 . ’ ‘ L; 35 "Z. ". 3321b ‘0. " -.:;~.x'£ 039 , 4 L030: 100 D Q :‘9 .900". ‘_\\ 42.1911“. 'inh E m. . . _ 1911.30 Ym' -‘ _'..' 9W .solflf'm .' .. as Hall“; 7'- ind -.m- t g b 11330.4?“v ”.3459“ , ' - finnmb “. ' SAME-1° $13.. 0 para 4 acoinl nag;,. ° o‘lfifl I’llm' , 4m 10 3a". I - f .‘j 5 101”»: J'. \ ‘ ) j 1 Q A l3“ 4?. 19.130 “v." ' : ’.' . , "HF-W3 .2 ‘- 1' "I o r. " 1:975:11)? .— , - - zorulfi 33”,“, xcxmltt‘Z) ' " lrfix‘c. 13d? 3° 11:: befitflg.~ ,3- (1") A- . V” no need. “1., c .' 469 (Question 10), only three of the 304 responding companies indicated such action had occurred. Of these three companies, only one had actually discontinued the staff research function. The other two companies had either reduced the number of staff purchase research positions, or transferred the research position organizationally. The company which had discontinued the function did so during the 1960 recession. Their statement relative to the discontinuance was: ". . . with economic pressures, more of our purchasing research has been placed with our buying and purchasing administration group-—it is not a matter of de-emphasis, but of location." The company which had reduced its purchase research staff from two to one man, also did this during the 1960 recession. Their statement was: "For a year and a half, one other man was assigned, but because of the austerity program, the work force had to be reduced." The third company transferred the function organizationally. Their statement was: ". . . discontinued Value Analyst in Purchasing Department--now assigned to Production Planning Dept. with value analysis in Purchasing Dept. now being done by buying personnel." 470 The Future Importance of Purchasing Research Aygreat majority of all companies, both those with and those without staff, predicted that purchasing research would grow in importance in their company. Eighty-two percent of those companies with staff and 79% of companies without staff predicted that purchasing research would grow in importance in their company over the next five years (Table 13-3). Question 9 asked the respondents to make an estimate of the five—year future for purchasing research in their company. The percent of companies with staff which indicated a considerable increase in importance of purchasing research in their company (38%) was 1.4 times as great as the percent for companies without staff (27%). This indicates that companies with staff forecast a larger role for the_purchase research function than Iyaglfgpecast by companies without staff. The percent of companies with and without staff which predicted no change in importance was essentially the same (18% and 21%, respectively). Only one company of the total 276 companies which answered this question indicated that . . . 3 purchaSing research would decrease in importance. A greater 3This company, one with staff, indicated they had slightly over 50%.of their total purchasing personnel in a staff research capacity--an unusually large percentage! Additionally, this company is one that is known to be undergoing significant organizational changes. 471 m0 uC00H0m 03p mH-0HCmHm 0m0pC00u0Q 0C9 .C0Hum0do mHCp 0p OCHpComm0H 000Cu .COHum0so mHCM H03mCm u0C pHp m0HCmmEOU mN Q .m0HCmHm m0 OCHOCCCH m0 005000Q.$OOH 0p Hmu0p.>HHHmmm000C u0C 0p mCECHOUm o H o o o o. o H o . o mocmuuomsH CH >Hnmu0pHmC00 0mm0u000 o o o o o o o o o o mocmuuogsH CH >H0umH0OOE 0mm0H00Q Hm mH as em 0 Hm mm 6H an o mocmuuomsH CH 0mCm£0 uoz mm as 0 mm He mm Hm mm mm mm mucmuuomsH an >H0umn0pofi 0mm0H0CH XBN Xmm Rom XOH XVN RHM XSN Xmg XHN Xmm 00CmuuomEH CH >H90C0pHmC00 0mm0H0CH ummo0uom omH mm m Ha HH ms 00H mm we m mauecommmm M0HCmmEOU .oz mmmum mmmum mmmum mmmum mumum mmmum mmwum mmmum mmmum mmmum 0\3 \3 0\3 \3 o\3 \z o\s \3 o\3 \3 Hmuoe u0>0 0 OOO.H momloom movIOOH OOH M0OCD AmumHHoo coHHHHz .mmamm mmmav mNHm scmdsoo M 0mCOQm0m CUmm OCHumUHpCH uC00H0m 0NHm >Cmmfiou an .30H00m0u OCHmmnousm m0 00CmuH0mEH 0H5psm 0:» m0 m0umEHumm .mlMH 0Hnme 4. 4mm...» I: h..- in?» map as.» ‘ll. Towing: '0- 1-3,. a. . \ A.- aim amt—anion. :asonfi ...!le , 'Ill'l 472 increase in importance of purchasing research was predicted by the companies with staff in the smallest size group than was predicted by companies with staff in the larger categories. This might be explained by the fact that, as this study showed, the staff purchasing research programs in the smaller companies did not seem as well developed as in the larger companies. either in terms of numbers of staff purchase research personnel or in number of topics researched. The fact that the percent of companies with staff in the largest size category which predicted a considerable increase in importance was relatively small can probably be explained by the fact that many of these companies already had well-developed staff purchase research programs. For example, several companies with staff in the largest size category which indicated no change in importance for purchasing research in their company already had large numbers of personnel in staff purchase research positions, and indicated research done on a majority of the research topics. Table l3-4 presents the forecasts of the five-year future importance for purchasing research by industrial classifications. In all industry classifications but one, over 50% of companies with, and those without, staff indicated that the importance of purchasing research would increase in their companies. The one exception was Fabricated Metal Products, where 60% of "‘ ‘ kvl“ , £4. 39350113,» . n7; 3 w'x 12110 .>‘ ‘,. biuow rip, I c‘ ' w"- ' t 473 =.>HQmC0OHmC00 0mm0u00Q= p0u00HOCH mmmum CpHB >C0QEO0 0C00 .C0Hum0so mHCD H03mCm DOC OHO m0HCmmEOU DCOH0I>uC0BB Q .m0quHm m0 mCHOCCOH m0 00:000Q.XOOH 0p mmouum Hmuou mHHHmmm000C u0C 0O mCECHOUm Ow ON Ov NO ON OH O o .mmz .0mHS "HmoHumO .0HMHDC0H0m .HMCOHmm0m0Hm “H0Cum0q “00C0COCO OH MN Om MM OM we MM m ooomnos OCm Ooom HH 0 HO 0 HH 00H O H Hmummma a HHHC mHHuxme mm o om om mm o a m omcHaHz MH am mm mm mm MM OH OH .mHsam coHumuuommcmue Hm mm Me so OM HH 4H m mmuammsm 6am .ucms IQHCOM .>H0CH£002 H00HHU00HM OH O OM Ow so «O OH OH .00Hm um00xm .NH0CHCUME MM OO mg ON NN ON m m muooooum Hmu0z .Qmm HH om Om om MM om OH OH mamumz sumsaum MH 0 mm mm mm HO O M mmmao .NmHo .mcoum MM 0 HO o o o M o moHummHm w swapsm MM O OO O NH O O O mCHCHm0m EC0H0Hu0m MM MN Om NO HH OH OH MH mHmoHE0£0 ON O mm O O O O O OCHuCHHm ON O Om MM OM MO OH M H0mmm O O MM OOH XMO O M H @003 OCm H0QECH RON XBH Rum KOO XOH XMM M O 000 Hmusumz o EC0H0Hu0m 0OCH0 mmmum mmmum mmmum wmmum mmmum mmmpm mmmum mmmum NWIIIIII. o\z \3 o\3 \3 o\s \3 o\3 \z CumsncH 0mCm£0 poz >H0umu0voz >HQmH0OHmC00 m0mC0Qm0m 0mm0H0CH 0mm0H0CH Q .02 m0mComm0u £000 OCHumUHOCH uCO0H0m COHDmUHMHmmmHU muumspCH >3 .Q0H00m0u mCHmMQUHCm m0 00CmuH0mEH 0H5usm 0CD m0 0umEHumm .OIMH 0HHMB _:J%#w r canoludaH. Lawns—02H thuzuwwsz .... unauivpoaou ; u I . t. O, _.... s .....c. as. 0 gohcuuwn _.n 300.... n3. HE 3am.— m; “uawufl ... e. ..wimzmv 474 companies with staff indicated no change in the future importance of purchasing research. With only three exceptions, in all industry classifications in which some companies had staff. the percent of companies with staff which indicated purchasing research would increase considerably in importance was greater than the percent for companies without staff. The only three exceptions were Fabricated Metal Products; Mining; and Electrical Machinery, Equipment, and Supplies. In five of the 14 industrial classifications in which some companies had staff, all companies with staff indicated that purchasing research would increase in importance; in only one of the 17 classifications did all the companies without staff indicate purchasing research would increase in importance. These data by industrial classification also emphasize that those companies with staffjpredicted greater future importance for purchasing research in their companies than wag predicted by compapiegywithout staff. Several of the companies with staff commented on the future growth potential of staff purchasing research in their company. Indicative of these comments are the following four quotations: ". . . with this largely behind us we now have the basic framework set up to push purchasing research in a much bigger way in the future, and I feel that this area may well consist of at least three people in another year. (This company, in the Primary Metals Industry. had one researcher). Potential is tremendous. (Stone, Clay, Glass Products Industry) 475 To date, this function has proven to be extremely valuable and no failures have been experienced. Greater emphasis will be placed in this area on a long-term basis. (Chemical Industry) We believe very positively that the Purchasing Research function could grow in importance, as results today are substantially less than the potential. I believe this certainly to be true when considering Purchasing from the standpoint of the various companies and corporations involved. fIn our own case, we believe that we have accomplished a great deal in the area of Purchasing Research and that if we took a guess, we would find that we have arrived at an ascending curve of about 75% of our potential. We would expect to reach, in due course. at least 80% or 85% of our potential. From Purchasing as a whole, the Research function undoubtedly lags a great deal. My gueSs, although it is only a guess, would be that Purchasing Research, as such, represents only 20% to 25% of the possible potential. Certainly it is an interesting subject and I am highly pleased with the results which we have obtained. It has been a great contributing factor to the over-all efficiency of our purchasing and has been an invaluable aid to assisting various purchasing specialists in our different groups. It is undoubtedly true at the moment that Purchasing Research overall does lag Market Research for the sales function, but they have had it for a considerably longer time than Purchasing. It is also conceivable that Market Research from a sales standpoint should always be larger perhaps than that of Purchasing, but certainly not of greater importance necessarily. (Chemical Industry) The effect of this present study on the future of the staff purchasing research function cannot be known. A summary of the results of this study will be mailed to all purchasing executives who responded to requests for information about their company's practice of purchasing research. However, it is possible that the results of this study may have some ()3 L10“ 3»; M163 -" '_‘fni8:9 ‘ ‘ “was at” Landon.) - fqmoafifl 131593“ wad 9%! r. 'm-vq 2’00. '3 :15; 38 mindw 3 ~52; .lssb H? 38d: ‘ .. re: 0:! x. 111-JO . . it} which! 19 :d and ’1‘ 1-'.'::1910,t11u g. A. .1 ear. 0: b1- 5‘ 7': . “Valllll ‘- ., .mariK‘1 -' ..‘1 »::-o .9me3": j 7 I'ld t i » uq 215113 SH. ,. , " "01.55133“ )1! WEEK‘S” . _ Parf- 19.16???"- ' ~' 476 influence on the still further growth and development of the staff purchasing research function in major United States industrial firms. Chapter Summary This chapter discussed the benefits realized from the use of a purchase research staff, the difficulties in use of staff for purchase research, and the future of the purchase research function. The information presented on benefits, limitations, and future of staff purchasing research was obtained largely from those companies responding by questionnaire, although some information on these aspects of the staff purchase research function was obtained from the companies interviewed. The majority of companies stated the major benefit to their company from the utilization of a research staff had been a "better buying job." Illustrative of statements on the major benefit of staff purchasing research activities is the following quotatdtu1made by one of the chief purchasing executives: "Purchasing research provides a tool to more effective buying through examination, exploration, comparison and the application of ingenuity with an organized, factual approach." The staff purchase research function had provided the following seven more specific benefits for some of the companies: (1) an organized program, Which emphasized research as a means "'qu flow; I :qjqxs um); Q mama an" -Aafiqssfst“ '41. 985“: 1"; " _- L k J' _. ... '. .1 Wk 477 of improving purchasing performance; (2) specialized knowledge, necessary if research was to be done on certain topics; (3) aid to the buyer, by providing information on which better buying decisions and more effective negotiations could be based, and by relieving him of research responsibilities so that he could concentrate more fully on his buying job; (4) a training device for buying and administrative personnel; (5) increased purchasing organizational effectiveness, through research, which enabled development of a more effective organizational structure and more efficient purchasing procedures; (6) improved vendor relations, through the ability to better evaluate pur- chasing alternatives and to make sounder purchasing decisions; and (7) increased status of the purchasing function, by improving relations between purchasing and other departments, and by demonstrating the progressiveness of the purchasing department. Those companies with a purchase research staff had a higher percent of profit to sales and to invested capital for the year 1959 than companies without a research staff. No contention is made that this better financial performance was necessarily due solely to the presence of the staff purchase research function, although it tends to support the position that the more successful companies have been somewhat more aggressive in their treatment of various aspects of the purchasing function. 0" °- . ' 5‘ , l but m-. L' 91»: vi :E'fllVOIml '- I l :‘r. atisxfiulblf“ .guv. m) 99MB 1': pniaadé-ruq ' fans ((2de ..xn eiuitflfli'?‘ 1.31 93 10M «aria [.an 4.5977Ji (Vim “Jan-Fed 350;?“ hi: pnii‘}?&‘ ‘ ..‘fisqmon ..C-flfiil‘.‘ 2.:- 4 ; . r , ‘ -z '2; meow, - :2“. . ‘. '; : 'l‘ 7 116x15 986155-? ' 7156!“ ‘1 ‘ {-1. . ",1. wm'oa 906.31. *‘._.,' ,I 1... 478 Two of the companies interviewed indicated that considerable resistance was found on the part of buying personnel when the research staff was first introduced, for buying personnel felt the work of the staff would diminish their importance within the purchasing department. Fourteen percent of those companies without staff indicated they had definite plans to assign at least one man full-time to purchasing research in the near future. At least one company in almost all industry groups planned to establish the staff purchasing research function. This indicates that the already established trend toward the establishment of full-time staff research positions within the purchasing department is likely to continue in the future. Over 75% of those companies both with, and without staff, predicted that purchasing research would grow in importanCe in their companies over the next five years. Those companies xMith staff forecast a somewhat larger growth in importance for purchasing research than was forecast by companies without staff. 479 CHAPTER XIV SUMMARY AND CONCLUSIONS Need for Study This study was made to provide new information on the staff purchase research function within the purchasing depart- ment of large American industrial firms. Such a study has been needed, for purchasing occupies a position of extreme importance and influence in the business system. In most industrial firms, purchases are the largest dollar control element with which management must be concerned. Purchasing, however, has remained a relatively unexplored frontier of knowledge, and to date, little information has been available on an important and rapidly growing phase of purchasing--the staff purchasing research function. For the purpose of this study, staff purchasing research is defined as systematic investigation and fact-finding, by staff specialists, undertaken to improve purchasing performance. {these staff specialists are located, organizationally, within ‘Ehe purchasing department and devote the majority of their tineeto providing data and information useful to buying and administrative personnel in purchasing. Ample evidence was found by this study to support the Inajor hypothesis that the staff purchasing research function is an emerging managerial function, exercising an increasingly you” -.,. M13101]! :4... I I. O l . . .‘ 19'st fig all.” , ,. I J :vrmoflifq'. ,5 1 —¢ r“ v 480 important influence on materials decisions, and becoming established as an important area of activity within the purchasing department of major industrial corporations of the United States. This study of staff purchasing research covered such areas as: prevalence of staff, historical growth, objectives, personnel involvement, topics researched, evaluation of bene- fits, related activities performed, administration of research, data sources utilized, background and compensation of personnel, and future potential growth of staff purchasing research. These data were analyzed by three basic classifi- cations: (1) company size, (2) type of industry, and (3) companies with and companies without purchase research staff. Background As a background for this study, an examination was made of early literature on purchasing to determine the first writings on the use of staff for purchasing research (Chapter III. This examination proved that the literature on purchasing began many years earlier than recent authors have indicated. The nineteenth century literature covered many topics still widely discussed today, such as: seeking competitive bids (1870), 481 organization of the purchasing function (1890), duties of a purchasing agent (1890), standardization (1890), capital equipment purchasing (1892), and the responsibilities of the purchasing agent (1898). The first book found devoted exclusively to purchasing, The Handling of Railway Supplies--Their Purchase and Disposition, was published in 1887. Book on Buying (1905) was the first book found devoted exclusively to purchasing in other than railroad organizations. Articles on industrial purchasing began appearing with increasing frequency after the turn of the century and by 1927, approximately 15 books on purchasing had appeared. Literature on Staff Purchasinngesearch In 1928 two books, Scientific Purchasing by Edward T. Gushée and Lionel F. Boffey, and Principles of Scientific Purchasing by Edward F. Harriman, were published presenting well-developed managerial approaches to purchasing. Both strongly recommended the employment of staff purchasing research personnel within the purchasing department for collection and analysis of data upon which to base purchasing decisions (Chapter III). No further references to the staff purchase research fiinction were found until after World war II. Starting in 1947, articles on staff purchase research 'J 911:) M w 21‘) Jacki. ’11,!{5m2 "i .-._- u‘x r1521!) 3M4 m- 5.91an “' flaps-‘3 P“: ‘5' -‘v ! SHEXO‘IW '- .; .. .ngd ~ ‘ !?{:'!3 n- ' m I 9 v Pro-'1 W31" ' 3 n 1905115“ 9d? b9 :13:qu adj. .ziwaoqu Tutti I"! 9‘ 482 began appearing in trade magazines and became increasingly frequent in the 1950's. Although these articles described specific company practices, indicating increasing interest in this subject, they made little attempt to prbsent aggregate information. Methodology To determine whether staff purchasing research is an emerging managerial function, exercising an increasingly important influence on materials decisions, and becoming established as an important area of activity within the purchasing department of major industrial corporations in the United StateS, 13 specific hypotheses were tested. The data to test these hypotheses were gathered by the following two primary means: (1) interviews conducted during 1960 and 1961 in ten large industrial firms Which utilized a purchase research staff; and (2) a questionnaire mailed in .March, 1961, to 491 chief purchasing executives in the 500 largest United States industrial firms. Three hundred four ‘usable responses were received, or a 62.6% response. JRelative to other studies of this nature, this response was ‘gratifyingly large and provided a substantial amount of (data upon which conclusions of this study have been based Udhapter IV). To provide an indication of the prObable effect ' 483 of staff purchasing research, responding companies were divided, for purposes of comparison,into two groups: those with a purchase research staff and those without staff. All the following 13 specific hypotheses were tested and substantiated. Prevalence of Staff Purchase Research 1. The staff purchase research function has been established in a substantial number of the 500 largest United States industrial firms (Chapter V). Almost one-third of the companies responding to the mail questionnaire utilized full-time staff purchase research personnel. Ninety-nine (32.6%) of the 304 companies which responded indicated one or more staff purchasing research personnel were employed within the purchasing depart- ment. TWo hundred five companies (67.4%) reported they had no staff purchasing research personnel. A much larger percent of companies in durable goods industries utilized a research staff (40%) than in non-durable goods (21%). Relation to CompanySize 2. The utilization of aypurchase research staff is related to companygsize (Chapter V). Sixty—two percent of companies in the largest size category (1959 sales of over $1,000 million) In; 484 had a purchase research staff, compared to 40% in the $500- 999 million category, 32.8% in the $100-499 category, and only 13.3% in the smallest size category. The utilization of a purchase research staff also was related to the total number of personnel in the purchasing department. A much larger percent of companies with a large number of personnel in the purchasing department employed a purchase research staff than did companies with a smaller purchasing department. Growth Trend 3. The staff approach toppurchasing research has been largely a post-World War II development (Chapter V). Eighty- seven percent of those companies with a purchase research staff established it during 1950 or later. Less than 7% of the firms had established a research staff prior to the end of world War II, although one firm had established a purchase research staff as early as 1900, one in 1928, and four in 1930. The number of new establishments of the staff purchase research function has approximately doubled every five years over the last 15 years (1946-1960). This indicates a strong growth trend toward utilization of the staff form of organization for purchasing research. 485 Number of Personnel 4. The numberppf personnel in a staff research capacity within the purchasing department is related to the total number ofgperggnnel within theppurchasing department (Chapter V). The number of personnel in staff purchasing research positions increased with company size. Also, the number of personnel employed in purchasing increased with company size. Therefore. this indicates that the number of staff purchasing research positions increased as the number of purchasing personnel increased. The average number of staff purchasing research personnel was 7.5. To illustrate objectives and organization of staff pur- chasing research, case studies of several companies were presented in Chapter V. Research Done and Results Pgoduced 5. Companies with a staff purchase research fupction do more research andgproduce more worth-whilejgesearch results than companies without a staff purchase research function (Chapters VI, VII, VIII, IX). Companies with staff researched 1.75 times as many topics as companies without staff. Companies with staff researched an average of 62.6% of the 38 topics listed, compared to 35.8% for companies without staff. Also, each of the individual topics was researched by a l ‘ i gissd: ;w_:enn a liq "lo 1' (i313! .‘n ‘ ‘: 1.1g at . 5‘ n1 aajsothut- Y a". J QGQIOHI , . v . ‘ 1.1.33.3". 03 fi v.7. Bongo: ,. . 486 larger percent of companies with staff (Table 14-1). Further- more, in all but one of the industry classifications, companies with staff researched a larger percentage of topics (Appendix 2). Company size appeared to influence the number of topics researched only in companies with staff. Most worth-while results were achieved on 1.8 times as many topics by companies with staff. Also, most worth-While results were indicated by a larger percent ofcompanies with staff for 36 of the 38 research topics (Table 14-1). Furthermore, in each industrial classification, the companies with staff declared a larger percent of topics produced most worth—While results (Appendix 2). Evaluation of Research 6. The results of research done by staff purchase research personnel are valued more highly than research done by buyers or admigistrators within the purchasing department (Chapters VI, VII, VIII, IX). In those companies which had a research staff, 29% of the topics researched solely by the staff were declared as having produced most worth-while results. This was 1.7 times larger than for the buyer (17%) and 1.45 times larger than for the administrator (20%). 487 ®.H o.m h.H OH 0H w NH mg vb m.H m.m m.N oH mH m 0H mm mm m. h.H o.m 5H MH 0 OH mm mm h.H v.m o.m MH mm m 5H mm on v.H ¢.m m.H mm vm hH Hv mg mm mm 00 H m H m H H H we up H.H ©.m m.m Hm mm m mH em mm b. H.H n.H @H HH m m mv om @.H N.N ¢.H pm He mH mm mm om h. H.H ¢.H gm mm om Hm mm mm b. v.H m.H HH m m h be vm r. o.H m.H XNH XNH XCH XQH firm Xfim UcoHum uuHmmcom Qwocwu mmwum mmmum mmmuw mmmum wmmum mmmum -396 3.3000 oh: \3 0\3 \z obs \z UHQOB mGHuuommm Umnoumwmmm .moo HH¢ ...,mafi. Ea muouomm U r O maenoumommm mmUHsmmm mHH£3I£uu03 umoz .moo mo mcHumoHch unmoumm usmoumm pmmomuom mUHHm mocmfiuomumm Hmhsn mcHum ISHm>w How conumz mocmEuomumm .ummp mcflmmnousm mCHum IsHm>m mom vogumz ucwEmstm mcflmmmuoum mumn mHmmHmsm 05Hm> huHommmo HMHocms new mo mflmmemca >59 no me2 cmHmmU mEHom mpsum muHUOEEOU mumpno umeMHm mmHuHHHomm soHuosp noun mo mHthmc< mUHSOm >Hmm5m HMHucmuom mchGHm mUHQOB noummmmm muHsme mHenzunuHOB umOE couscoum monou .Umzoummmou monoe .leH mHQMH 488 ~.H o.H me He m 8 mm hm nonconm 3mz m.m e.H me me e m He em use no mmmmq m.. o.m me e m e om mm unsoomflw ammo Ho ucmfihmm m.m s.H me mm e ea mm mm ummumuom seamsm m.m m.e b as m 5 mm «o mocmEHomumm HmHHQQSm mcHumfi uem>m you scrum: m.e s.H mm mm m ma . mm «o coeumoHMHommm H.H ¢.H mm mm NH ea me em coeusuflumnsm m. ~.H em mm 5H 0H Hm em mcflmmxomm o.H e.H mm em 0H we we so sufiucmsa s . noose uomnuou m.H e.H mm mm mH ma we we Houucoo snoucm>cH s.H ¢.H me me s «H me me ammommeo mmuom m.H m.H ea me 5 ma oe as mumouo Smsu Ho HHmEm m.H m.H em mm we we be as aoflumwflnnmncmum m.m m.H me me 0 ma He es :ofiumsHm>m mocmEHomumm HOCG®> ‘ amucmu mmmum mmmpm mmmum mmmum mmmum mmmum mnemoe noummmmm ouemmcmm unsuoo o\z \3 o\3 \3 o\3 \z muouomm MUHQOB mcHuHommm UHQOB pmnuumommm .mou HH< mcHfloummmmm SUHSB .mou .mou >Hso mo unmonmm muHommm mflflififiuuoz umoz mCHHMUHUGH ucmuuwm .Apmficfluaouv leH anma .aoo flhao_ muwat ._ TwAUAMTNmm .mOU hhfi 3..nn% finelu0£un 1. n 4.. 05.. /£ wwmum ammum actumCHmm ouHmmcmm unsouo 0\3 \3 o\3 \3 o\3 \3 muouomm monoe mcHuHommm UHQOB pmaoummmmm .moo HH< mcHnoummmmm soan .mou .moo ch0 mo unmonmm muHsmmm geaifluuoz umoz mcwumoHch ucmuumm w>n50 mchnmmq mumoo COHUSQHuume mo mumEHumm .mHE Ho GOHuUSG loam mo vogumz >m>u5m wosufluum umHHmmsm GOHHMHdmmH uuomEH 0cm MMHHmB xmpcfl moHum mo :OHHMHDEHom musuosuum Ho mnSUmUOHQ mSHUHHm mumoo mcHHsuomm Inng no wumEHumm ummomuom panama cowumunommcmua mump msoHuMHmH mpmus mUHQOB Suummmmm .prchucouv HLVH GHQMB ,u.va... .. .rwfii.,1 .‘ ELL .. ELM.-. .....r; ; .aou m ouHmmcmm unsouo o\3 \3 o\3 \3 o\z \z muouomm MUHQOB mcHuHommm UHQOB Umnoummmmm .moo HHG mcwnoumwmmm eoan .moo .moo >Hco mo unmoumm muHSmom wHfiH3|£uu03 umoz . mCHumoHch unmoumm mUHQOB “mmmum>4 monoa Emumhm mchmno Imam HH «mmmnw>d mUHmoa Honcm> m "mmmum>¢ mUHQOB mmUH>Hmm .HO . MUUHHU .mHmHHmumz pmmmsunsm mH "mmmnm>d ammumnum memm Hoocm> mUHQOB soummmmm .ApmscHucoov HrgH wHQma o . -tl.‘ 2 .33 ‘53..) 1’3 £0.33 announooou auwnfiq. .....uflm imam Jana... wanna Homafla1.1.. . w. ....GOuauu. re ;nuuu<> .....Hmw LUIEfi - . n. m ..n. I t. I - . 0‘ m. J) :04. 4. 491 Table 14-1 (Continued). 3This rating is not necessarily comparable between companies. Any bias probably would favor the category "W/O Staff." bRatio of the percent of companies with staff to the percent of companies without staff which researched a topic. cRatio of the percent of companies with staff to the percent of companies without staff which indicated a topic produced most worth-while results. dRatio of the percent of companies with staff to the percent of companies without staff which indicated most worth- while results produced when a topic was actually researched. eDue to the small number of firms which declared this topic produced most worth-while results, this factor may not be too meaningful. fNo companies without staff indicated this topic produced most worth-while results. 492 Involvement of Staff 7. In companies with a purchase research staff, that staff alone does the complete research on many of ththopics researched (Chapters VI, VII, VIII, IX). In those companies which had a research staff, the staff alone did the research on 23% of all topics researched, and was involved in 45% of the topics. The staff alone researched an average of 5.4 topics and was involved in 10.6 topics (Table 14-2). Assistance to Buyer and Administrator 8. The utilization of a purchasing research staff assists buyers and administrators by relieving them of certain research duties (Chapters VI, VII, VIII, IX). The administrator alone did the research on 24% of all topics researched by companies with staff, compared to 39% in companies without staff. The administrator was involved (did the research alone, or with others in the department) in a smaller percent of topics researched by companies with staff than without staff (41% to 54%), (Table 14-2). The buyer alone did the research on only 22% of topics researched in companies with staff, but 46% of topics in companies without staff. In total, the buyer also was involved in a smaller percent of topics researched in companies which had staff, compared to those without staff (47% to 63%) (Table 14-2). 493 How mmmum>m on“ ou Hmuou no: mmE .mUHQOp HHm mmHHommumo mounu map How mmmwum>m .mchcdon mo mmdmommm m.m N.HH N.m m.m H.N ¢.N ¢.H H.H o.H o.m ¢.H m.H ®.¢ m.m ¢.m h.N Xmo find Row XNN mm mm mm mH mm mm Hm mm Rum Rag Xmm va O. o. mmmum mmmum mmmum wmmum o\3 \3 0\3 \3 mmmum mmmum c.0H e.m moHdde HH¢ m.m s.H monoe Emuwmm mCHmmnoudm N m. mUHQOB Hoocm> m m.m monoe moH>Hmm .muosponm .HMHHmumz pmmmnonom musoummmmm UHU Hm: Iaomumm mo aoHumo IHMHmmMHU sumo £UHQ3 GH moHQOB mo Hmnfisz wmmnm>< sme xmm monoe HH¢ Ne gm monoa Emumwm mchmaousm mm 0H moHQOB Hondm> Rom xmm mUHQOB moH>Hmm .muodoonm .mHmHHmumz pmmmnunsm “mach nonmmmmm CH ucmfim>Ho>sH pawonmm wmmnm>¢ Hmuoa mGOH< Hmuoe mcoHa HMGGOmHmm mussm Houmnumflsflfipd mmmum aoummmmm mmmflousm moon noumwmmu cH chcomumm mo ucwaw>Ho>cH .~u¢H wHQma “mewm wwsum . . , . w wwuum wwmww. .om we 6“»: .F. LUCWpDHM 494 Thus, if an equal amount of research were done by companies with and without staff, the administrator and buyer would be involved in a smaller percent of the research in those companies with staff. In this sense, the staff does relieve the buyer and administrator of certain research duties. (However, it should be remembered that, as this study has shown, companies with staff research substantially more topics.) Involvement in Related Activities 9. Frequently staff purchase researchppersonnel are involved in activities of an administrative nature, in addition to research duties (Chapter X). Twelve related activities were listed on the questionnaire. It was indicated that when related activities were performed, staff alone did 52%, and was involved in 67%, of them. The staff alone per- formed an average of 3.6 of the related activities, and was involved in 4.6 of them (Table 14-3). Those companies with staff performed 1.6 times as many related activities as companies without staff, and rated 2.3 times as many of them as being of greatest importance. The presence of a research staff also appeared to affect the involvement of the buyer in performance of related activities. 7?. ”Fifi lsups a 12b~a auo . ‘ J. 16018 5 .!~'2 I. I'I .' - 6 ' 1~§13 d3£" L . .‘5 " _ 11.51736 bill ~ 0 .igfl. AJHHG 31m ", ‘ 1 59.111an h'r):usd$ 30;;1r ,j ‘~4 ~ ... rfjlw U ;:.J[|fil4m09‘l.‘l~. A :4 fi-Ed 3‘ 495 Rh 0 nxeNm Xe Rm Rm m Rum om mN H e mH Nm mm no N m mN mm on mm H m mN om m@ we e h we hm hm em N U h HN me om Hm N HH mH hm Nb mo N m ow oo 00 mm H N mm me mm Hm m mH ow mm mm mm w 0 mm mm om mN 0H MH om ew Rom Rom XHH XmH xHo Run Hmuoe maoHe 0\3 \3 0\3 \z ooCmuHomEH ummummuw mCHEuomnmm meHomuwm wumB CUHCB mo mCHHMHU mmHCmmEOU mmHUH>Huom CH pm>Ho>CH mmmum 30H£3 CH mmHCmmEoo mo UCmonm Ion mmHCmmEoo mo quonm mo quonm uCooumm ommuw>< COHumEHomCH mUCmm .LHHHmuCH HouHummEou mHnEmmmm Emumonm mCHCHmuB mCHmmflo IHCm uodeoo Ho CmumHCHEUC ummomuom mquEmHHCWmm HmCCOmHmm mCHmmaunsm mummmum mUCmHB mmmCHmCm quHHCU Co quEunmme Hm3u0C< EHOMCH mpCmHB mmoCHmCm mo ummomnom mummmum COHumHmmo mCHmmnoudm mo UHpC< quEmmMsz uUCUCOU ummpsm mCHmMCUHCm mnmmmum humHQHH mCHmmflousm CHmuCHmz HmCsz mCHmmno IHCm CHmuCHmE Ho mnmmmum xmpCH moHHm CHmuCHmz mCOHuMHuommz HepCo> How mama mummmum mumfluo ou COHumE IHOmCH umxumz quHHCU mHmQCm mmHuH>Huo< omumHmm poEHomumm mmHuH>Huom CH mmmum Conmwmmu mo quEm>Ho>CH “moCmuuomEH ummumoum mo pmHmonCoo UCm meHOHHmQ mmHuH>Huom poumem .mIeH anme ‘496 for even though companies with staff performed more related activities, the number performed by the buyer was smaller in companies with staff. (No data were collected on administrator involvement in this area.) Data Sources 10. Companies with appurchase research staff employ a larger number of data sources in developing information necessary for purchasing research, than are employed by companies without a purchase research staff (Chapter X). Companies with a purchase research staff used 1.6 times as many data sources. A higher percent of companies with staff used each of the 22 listed data sources. Also, companies with staff declared 1.7 times as many data sources as being most useful. It is significant that many of the more technical data sources were used much more extensively by companies with staff. Education 11. The individuals employed in a staff purchase research capacity represent a high level of educational achievement, in terms of numbers holding college degrees (Chapter XII). Of the 31 staff purchase research personnel interviewed in the ten companies, 75% were college graduates. Seven (23%) 497 also had master's degrees. The degrees primarily were in business administration and engineering. All purchasing administrators interviewed stated a college education was desirable for persons doing staff purchase research work. Benefits 12. Companies with a purchase research staff evaluate the general benefit received from allytypes of purchasing_research more highly than companies without staff (Chapter XIII). The comments from executives showed that the benefits from purchasing research were evaluated more highly in those companies with staff. The most often-stated benefit from staff purchasing research was a "better buying job." Seven additional benefits indicated from the use of a staff were as follows: (1) an organized research program, (2) specialized knowledge, (3) aid in buying decisions and negotiations, (4) a training device, (5) increased organizational effectiveness and more efficient procedures, (6) improved vendor relations, and (7) increased purchasing status and improved relations with other departments. Future Growth 13. Companies with appurchase research staff evaluate the _future growth potential of_pprchasing research in their ,- 13331.0- JD 9011“;' i: asexual: 498 cup-... u.-- 009 .929 108‘ HID-.1“. .__ .0. -,-. (Chapter XIII). Thirty-eight percent of companies with staff indicated that purchasing research would increase considerably in importance in their company over the next five years, compared to 27% of companies without staff. However, a larger percent of companies without staff indicated a moderate future growth in importance (52% to 44%). Thus, although companies with staff did evaluate the future growth slightly higher, almost 80% of all companies predicted growth in importance for purchasing research. Fourteen percent of companies without staff indicated definite plans to establish a staff, which shows that the trend in the establishment of staff should continue in future years. Only 1% of the 304 surveyed companies indicated re- duction in resources devoted to staff purchasing research in the last two years. Only one company (.3%) indicated purchasing research would decrease in importance in the next five years. Terminal Conclusions Evidence presented in this study points to the fact that staff purchasing research is a rapidly growing managerial function, exercising an increasingly important influence, and 499 becoming established as an important area of activity in American business. Based upon the information gathered in this study, it is concluded that a company with a purchase research staff probably will: 1. Perform more research. j2. Utilize more and better data. 3. Improve research results. 4. Advance purchasing administration. While there is no conclusive proof that these accomplish- ments will result solely from the staff, the weight of evidence indicates that staff is playing an increasingly important role in improving purchasing efficiency. Due to the successes already achieved by purchase research staffs, greater resources undoubtedly will be devoted to this function in the years ahead. For those who wish to investigate 'the potentials of this area more fully, detailed data on many :nesearch topics and industrial classifications have been liresented in prior chapters. It is sincerely hoped that the Jmesults of this initial study will be useful to those already Irtilizing a staff, and to those establishing a purchase research staff in the future. V. 141,1 .m} : '73::7, m. .nui Q 'srfai -. m “39“.!“ u i 11633 5PM” mm mm:- " ‘ mustang; 1 :yel mi: .103 500 APPENDICES 501 MICHIGAN STATE UNIVERSITY EAST LANSING APPENDIX 1 COLLEGE OF BUSINESS AND PUBLIC SERVICE DEPARTMENT OF PERSONNEL AND PRODUCTION ADMINISTRATION March 17, 1961 Dear Mr. A comprehensive study of purchasing research has been under way at Michigan State University for the last year. This study is financed in part, by grants from the National Association of Purchasing Agents and the Purchasing Agents Association of Chicago. Enclosed is a questionnaire on purchasing research which we are asking you, as the leading purchasing executive in a major firm, to complete and return as soon as possible. Individual answers to all questions will remain completely confidential. An early return of your questionnaire will enable comple- tion of this project in the summer of 1961. If you wish a com- .plimentary summary of the complete study, "Purchasing Research in Major United States Industrial Firms," return the enclosed (post card. Please, help us advance purchasing knowledge. Sincerely yours , Harold E. Fearon Research Project Director HEF:at Enclosure 502 SURVEY OF PURCHASING RESEARCH IN MAJOR UNITED STATES INDUSTRIAL FIRMS How is purchasing primarily organized in your company? ___.Centralized, in one location ___.Decentralized, by major divisions or units 2. How many total personnel, exclusive of secretarial and clerical, were assigned to purchasing activities in your company at the end of 1960?_______ Consider PURCHASING RESEARCH to be systematic investigation and fact finding undertaken to improve purchasing performance. For this questionnaire, to establish a basis of comparison, include only those specific purchasing research topics where: a. an individual spent a minimum total of one day's time on a topic, and b. a written report was prepared. -_—- 3. Check by whom and on which topics purchasing research was performed in your company during 1959 or 1960. RESEARCH TOPICS Research on Purchased Materials Products, or Services PURCHASING RESEARCH PERFORMED BY: Staff Purchasing Buying Purchasing Research Personnel Administrators Personnel Commodity stud coo-IOIIIOIOonlooououuocouoooooooso. Correct Order quantity cocoa-o.cocooouoooooo-nco- Demand forecast ...-"..."...uuuu...-...... ..... A. Lease or buy...“.....uuuuuuuuu...-nu..." Make or buy .......................................... Method of production or manufacture-nwn-- New Product ................ .............. ............. Packaging ............................................. Price forecast ...-......".......................... Pricing procedure or structure---------------. Scrap disposal ................................n... Specification "nun-"......".................... Standardization "nun-........................... Substitution ...-u...".........-.......-....u.u... Supply forecast ......".....-"..."...uuu...u... Tariff and import regulation .................. Transportation ...................................... Value analysis coco-ou-oucooo-ooooooooooooooooococoo- lllllllllllllllllll Hlllllllllllllllll illlllllllHlllllli None done coo-coon...Dunno-oo-o-ooooooo-coco-oooooooooo Other (please list) (Question is continued on the next page) (Question 3, continued) -2- 503 RESEARCH TOPICS PURCHASING RESEARCH PERFORMED BY: Staff Purchasing Buying Purchasing B. Research on Vendors Research Personnel Administrators Personnel Analysis of financial capacity --------------- ___ ----------- .___ ------------ ___ Analysis of production facilities ---------- ___ ----------- ___ ------------ ___ Finding potential supply source u ----- - ----- .___--u-u-u- ___ ------------- ___ Estimate of distribution costs~u-u-u~u-n ___ ----------- ___ ------------- ___ Estimate of manufacturing costs ----------- -- ___ -u-- ------ ___ . ------ u-u ___. Supplier attitude survey ------------------ - ----- ___. ----------- ___ ------------ ___. Trade relations data-.... ......................... __ ........... _ ............ __ Vendor performance evaluation ----------------- ___. ----------- ___ ------------- ___ Vendor sales strategy ---------- - ----------------- .___ ----------- ___ ------------ ___ None done --------------------------------------------- .___ ----------- ___ ------------ ___. Other (please list) C. Research on The Purchasing System Blanket orders -------------------------------------- ___ ........... ___ ............ ____ Data processing equipment ---------------------- ____ ............ ___ ............ ____ Forms design ............... . ................... nu. _ ............ _ .... ........ __ Formulation of price index-- ------------------- ___ ----------- ___ ------------ ___ Inventory control ---------------------------- . ..... ___ ........... ____ ........... ___ Learning curve .................................. ..n ___ ........... ___ ............ ___ Payment or cash discount ------------------------ ___ ........... ___ ........... ___ Small or rush orders ............................. ___ ........... ___ ........... _ Method for evaluating: Buyer performance ------------------------------ ____ ........... ___ ............ ___ Purchasing department performance-vn-u ___ ----------- ___ ------------ ___ Supplier performance ------------------------- ___ ........... ___ ............ ___ None done --------------------------------------------- ___ ........... ____ ............ ___ Other (please list) 1+. JReturn to Question 3, and place a double check in the appropriate space(s) 'to designate which research produced the most worthwhile results. 5. Estimate the year when a person was first assigned full time, or will be zassigned full time, to purchasing research in your company: l9.___ No plans____ 6. IRjW‘many personnel were assigned to the following types of purchasing research jpositions in your company at the end of 1960: secretarial and clerical researcher research supervisor 10. ll. -3- 504 Check, in the following two columns, any of the information sources used in purchasing research. Place a double check by those considered most useful. ___Books on purchasing Publications of: __.Consultants ___foreign governments ___Corporate annual reports ___N.A.P.A. ___Other departments of your company ___trade associations __.Public libraries ___United Nations ___Purchasing personnel in other companies ___U.S. Dept. of Agriculture ___Representatives of foreign governments ___U.S. Dept. of Commerce ___Trade association personnel ___U.S. Dept. of Labor ___Trade newspapers and magazines ___U.S. Dept. of Interior ___U.S. government personnel ___universities ___Vendor sales personnel __.vendors ___Vendor technical personnel ___other (please list) Check any of the following related activities performed during 1959 or 1960 by purchasing research personnel, buying personnel, or both. Double check activities of greatest importance. Performed By: Staff Purchasing Buying Research Personnel Personnel Supply current market information to others ----------- - ----- ___ ------------ .___ Prepare data for vendor negotiation ------ - -------- . ------------- .___ ------------ ___ Maintain price index ... ...... ..."... ............. o .......... .... ..... __ ............ __ Prepare or maintain purchasing manual -------------- «on-u ----- .___ ------------- ___ Maintain purchasing library ---------------------------------------- ___ ------------- ___ Prepare purchasing budget--- ---------------------------------------- ___ ------------ ___. Conduct management audit of purchasing operation ----------- ___. ------------- ___ Prepare forecast of business trends ----------------------------- ___ ------------ ___ Inform another department on current business trends ------ ___ ------------- .___ Prepare purchasing personnel requirements forecast -------- ___ ------------- ___ Administer or conduct purchasing training program --------- ___ ------------- ___ Assemble competitor intelligence information ---------------- ___ ------------- ___ What is the five-year future for purchasing research in your company? ___will increase considerably in importance .___will increase moderately in importance ___will not change in importance ___will decrease moderately in importance ___will decrease considerably in importance If your company has added or abolished any purchasing research positions, or major types of projects, during 1959 or 1960, indicate: what and why: (continue on back of page, if necessary) 0n the back of this page, indicate what benefits have been received from purchasing research, and.what criteria have been used to measure results. .Additional comments on purchasing research also are encouraged. 505 MICHIGAN STATE UNIVERSITY EAST LANSING APPENDIX ]_ COLLEGE OF BUSINESS AND PUBLIC SERVICE DEPARTMENT OF PERSONNEL AND PRODUCTION ADMINISTRATION April 4. 1961 Dear Mr. During the week of March 20th you should have received a questionnaire on "Purchasing Research in Major U. S. Indus- trial Firms." Can you please return this questionnaire by April 20th? If you cannot complete the entire questionnaire, please answer as many of the questions as possible. Should you have any problems of interpretation which may be delaying your response, or if you have not received your questionnaire, feel free to call me at ED 2-lSll, extension 2201. If you have already returned your questionnaire, I do wish to thank you for your assistance. The response to date has been very gratifying. To make this research of maximum value, we are striving for as large a return as possible, and we need your questionnaire. Those purchasing executives who return their questionnaire by April 20th will receive a complimentary summary of the com- pleted research during the summer of 1961. Very truly yours, Harold E. Fearon Research Project Director HEF:at A“ ‘S J" l.‘ .r,’ «Inga-ll -. ' qni‘tlufl .. s): I aluminum. 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RESPONSIBLE TO The Purchasing Research Analyst is responsible to the Director of Purchases for planning the research studies, developing the factual data required, analyzing the data and preparing informative reports and recommendations for his approval. STAFF ASSIGNED Staff Assistant - Commodity Research Staff Assistant - Commodity Value Analysis Secretary RESPONSIBILITIES a. Plan the research studies required by the Director and Assistant Director of Purchases; the commodity sections. General Purchasing; and Division Purchasing Agents. b. Develop and follow a schedule for completing the work involved and obtain approvals for the planned studies. 0. Prepare and publish commodity studies of major items purchased by the company. Such studies might include: 1) Historical development of the product. 2) Extent of production facilities. 3) Raw materials costs. 4) Quantities required as related to end products made from the material (Company and other). 541 Position Title: PurchasingiResearch Analyst (cont.) 5) 6) 7) 8) Current and future availability of material reserves and production capacity. History of price structure and its relationship to supply and demand factors. Prices and availability of related or substitute materials. Projections of pertinent factors to the point of reaching possible conclusions that can be used in decision-making and future planning. Prepare and publish studies directed towards providing information and developing recommendations required for management decisions. Such studies might include: 1) 2) 3) 4) 5) Value analyses for commodity purchases. Determination and evaluation of factors involved in decisions to make or buy company requirements. Trends in price and supply and demand factors affecting long-term future prices and availability of materials as a guide for procurement of future requirements and informing interested parties as to possible changes in inventory planning, pro- duction planning, and sales policies and pricing. Development of new sources of supply through comprehensive industry studies. Statistical reports of purchasing activities. Prepare regular monthly reports as requested by the Director or Assistant Director of Purchases. Such reports might include: 1) 2) 3) Status of purchasing activities. Major accomplishments and unusual activities. Short-term trends and forecasts of prices and availability of major purchases. 542 4) Immediate purchasing plans or programs. Assist commodity sections. General Purchasing. in obtaining facts and statistics necessary to make daily purchasing decisions. Supervise the activities of the staff assigned. Perform other duties as assigned by the Assistant Director of Purchases. 543 APPENDIX 3-2 Position Title: Manager — Purchasing Research Reports To: Assistant to Vice President - Purchases Scope of Position Coordinates and directs activities of Purchasing Division concerned with increasing efficiency of purchasing operations and obtaining maximum potential effect of each dollar expended for purchased goods and services. through planning and program development, commercial and product research. and value analysis of purchased acqusitions. Duties Planning and Program Development 1. Designs and institutes programs for the evaluation of the performance of procurement duties. Analyzes operations of the Purchasing Division and prepares studies of improved techniques, systems, and controls. Contacts Purchasing executives of other companies to ascertain method employed in executing procurement responsibilities, and determines applicability of such methods. Develops methods of performing operations incidental to actual procurement, for the purpose of increased efficiency and reduction in administrative expense. Designs and administers Cost Reduction Program of the Purchasing Division. Reviews, interprets, and controls development of statistical reports and information required by the Purchasing Division. Is responsible for coordination of information on the acquisition and delivery of major purchase requirements with consumption rate and standard inventory levels to maintain proper balance of procurement with availability of requirements. 544 Position Title: Manager — PurchasinggResearch (con u 8. 10. ll. Represents the Purchasing Division in development of programs concerned with disposal of surplus and waste purchased materials, including salvage activities. Prepares reports. such as the weekly report to the Executive Vice President. outlining the current situation on major items which are the responsibility of the Purchasing Division. Coordinates, reviews, and furnishes price forecast data required by Accounting Department from Purchasing for use in revising standard costs. Coordinates and reviews price data furnished each month by the Purchasing Division to Cost and Statistics Division for use in preparing price indexes of purchased products and services. Analyzes and prepares for Purchasing management reports and statements on what the change in the index means in the cost of purchased goods and services. Commercial Research 12. l3. 14. 15. 16. .Evaluates source of supply of purchased goods and services in terms of vendor performance, facilities and capacity to produce, industry reports and vendor statements, by coordinating information concerning suppliers from other Corporation departments with such information from the Purchasing Division, and by direct contact with suppliers and visitations to their plants. Also assists in the development of new sources of supply for purchased commodities. Ascertains and investigates new products and materials introduced on the market and determines the possibility of satisfying procurement needs more effectively or more efficiently with such products or materials. Analyzes and interprets trends of business in general and supply-demand relationship of specific purchased commodities. Analyzes prices of purchased commodities in terms of market conditions and cost of production. Prepares long-range economic studies concerning major purchased commodities to assist in resolution of procure- ment policy. Such studies involve contacts with suppliers. industry associations and governmental agencies. 545 Position Title: Manager - PurchasingAResearch (co- ») Value Analysis '17. 18. Designs, establishes, and develops on behalf of the Purchasing Division, programs and projects concerned with evaluating the quality of purchased commodities. including considerations of standardization, specifications, substitution. inspection, and testing of such commodities. Coordinates commercial considerations of Purchasing Division with considerations of other departments regarding the use of purchased commodities to obtain maximum economic advantage through the Purchasing function. Is responsible for development and execution of projects in the Purchasing Division concerned with obtaining greater value in purchased goods and services through analysis of product design, packaging, transportation. manufacturing methods, and materials handling. Contacts sales and operating executives of suppliers and industry and trade associations, and works with executives of other departments in performance of these functions. 546 APPENDIX 3-3 Position Title: Staff Assistant - Commodity Studies 1. BASIC FUNCTION To carry out, as assigned, specific phases of purchasing research studies of commodities and industries, maintain statistical records, prepare statistical reports, assist the Purchasing Research Manager in the preparation of reports covering purchasing research studies and perform other work assigned by the Purchasing Research Manager. RESPONSIBLE TO The Staff Assistant - Commodity Studies is responsible to the Purchasing Research Manager for carrying out the assigned functions. STAFF ASSIGNED None RESPONSIBILITIES a. Prepare or assist in the preparation of commodity studies of major items purchased by the Company. Such studies might include but are not limited to: 1) 2) 3) 4) 5) 6) 7) Historical development of the product. Extent. types and locations of production facilities existing and planned throughout the world. Costs of raw materials required to make the product. Quantities required as related to end products made from the material. History of price structure and its influence on and relationship to supply and demand factors. Prices and availability of related or substitute materials. Current and future availability of material reserves and production capacity. 547 Position Title: Staff Assistant - Commodity Studies (Cont.) ‘b. Prepare and assist in the preparation of studies directed towards providing information and developing recommendations required for management decisions. Such studies might include but are not limited to: 1) Determination and evaluation of factors involved in decisions to make or buy Company requirements. 2) Trends in price and supply and demand factors affecting long-term future prices and availability of materials as a guide for sales policies and pricing, inventory planning, production planning and procurement of future requirements. 3) Development of new sources of supply through comprehensive industry studies. 4) Statistical reports of purchasing activities. Maintain statistical records needed to perform other purchasing research functions. Prepare all or part of regular monthly reports as assigned. Assist commodity sections, General Purchasing. in obtaining facts and statistics necessary to make daily purchasing decisions. Perform other duties as assigned by the Purchasing Research Manager. 548 APPENDIX 3-4 Position Title: Purchasing Analyst Reports To: Manager - Purchasing Research Scope of Position To gather, analyze, evaluate, summarize and present information on purchase contracts and procedures, and on the acqusition, delivery, inventory, performance and testing of purchase commodities, which will assist in guiding Purchasing Division decisions concerned with obtaining greater value in purchased goods and services. To develop, prepare, and coordinate special studies and analyses of purchasing and related activities as required to assist the Manager - Purchasing Research in discharging his responsibilities to line and staff activities. Duties l. Assists the Manager - Purchasing Research in designing. administering, and reporting the results of programs for the reduction of purchase costs and the measurement of cost reduction performance. Develops and recommends improved methods and procedures of performing operations incidental to actual procurement. in order to increase efficiency and reduce administrative expenses. Designs and prepares control charts, graphs, and summarized reports related to purchasing matters, including a "Commodities Manual" covering the most important purchased commodities. Reviews, analyzes, coordinates, and recommends changes in the Purchasing Statistics Programs as an aid to buying personnel in measuring the placement of business to the Company's best advantage. 549 Position Title: Purchasing Analyst (Cont.) lO. Prepares upon assignment both short and long-range studies covering the availability, price, and quality of major purchased commodities to assist in resolution of pro- curement policy. Such studies entail research into natural resources and reserves, production methods and facilities, distribution, exports and imports, prices and price indices, financial structure of the particular industry. consumption, competitive commodities, and technological developments. These data are ascertained from government. trade, and industry publications and by personal contact with responsible persons in the industry. Upon assignment, develops, analyzes, evaluates, and makes recommendations based upon considerations of making or buying items required. As assigned, receives and investigates problems concerning the price, transportation, handling, packaging. use or performance of purchased items, and develops and recommends alternatives for relieving or eliminating such problems. Through discussions with line purchasing and with supplier representatives, company specialists as required, and through independent academic research, he assembles an integrated picture of all pertinent information from which he draws intelligent conclusions and submits practical recommendations. Develops and, as necessary secures clearance for, replies to requests for information regarding company on purchasing operations as received from other companies, stockholders, students, or individuals. Assists Purchasing Division management upon request in the preparation of speeches, the development of articles for publication, the short-notice assembly of facts on a particular subject, or the interpretation of statistical reports. Assists the Manager, Purchasing Research in the performance of his varied responsibilities as may be required. 550 BIBLIOGRAPHY Books and Reports Aljian, George W. (ed.). Purchasing Handbook. New York: McGraw-Hill Book Company, Inc., 1958. Babbage, Charles. On the Economy of Machinery and Manufac- turers. 2nd ed. London: Charles Knight, 1832. Bull, Albert E. Buying Goods: The Commercial Buyer and His Work. London: Sir Isaac Pitman & Sons, Ltd., 1922. Cartmell, Madison. Stores and Material Control, Including Procurement by Manufacture and by Purchase. New York: Ronald Press Company, 1922. Church, Alexander Hamilton. The Making of an Executive. Book II, Part 4, "Purchasing and Storekeeping." Scranton, Pennsylvania: International Textbook Company, 1922. Crisp, Richard D. Company Practices in MarketingiResearch. Research Report No. 22. New York: American Management Association, 1953. Cutting Costs by Analyzing Values. New York: National Association of Purchasing Agents, 1952. Dale, Ernest. Planning and Developing the Company Organization Structure. Research Report No. 20. New York: American Management Association, 1952. Dinsmore, John C. Purchasing; Principles and Practices. Englewood Cliffs, N. J.: Prentice-Hall, Inc., 1922. 1961 Dun and Bradstreet Million Dollar Directory. New York: Dun and Bradstreet, Inc., 1960. Farquhar, Henry H. Factory Storeskeeping: The Control and Storage of Materials. New York: McGraw-Hill Book Com- pany, Inc., 1922. Gushée, Edward Tisdale and Boffey, Lionel Frank. Scientific Purchasing. New York: McGraw-Hill Book Company, Inc., 1928. D. 23.1051I ‘no‘ la ' 6.57 H , _{LAA L. ‘ .‘1k- 4.)} 9.0:: €Y’5 551 Haas, George H., March, Benjamin, and Krech, E. M. Purchasing Department Organization and Authority. AMA Research Study 45. New York: American Management Association, 1960. Harriman, Norman F. Principles of Scientific Purchasing. New York: McGraw-Hill Book Company, Inc., 1928. Hodges, Henry G. Procurement: The Modern Science of Pur- chasing. New York: Harper & Brothers, 1961. Hysell, Helen. The Science of Purchasing. New York: D. Appleton and Co., 1922. Improving_Staff and Line Relationships, Studies in Personnel Policy No. 153. New York: National Industrial Conference Board, 1956. Kett, H. T., et al. Book on Buying. (The Business Man's Library, Vol. VJ New York: The System Company, 1905. Kirkman, Marshall M. The Handling of Railway Supplies--Their Purchase and Disposition. Chicago: Chas. N. Trivess, 1887. Lewis, Howard T., and England, Wilbur B. Procurement: Principles and Cases. 3rd ed. Homewood, Illinois: Richard D. Irwin, Inc., 1957. Lewis, J. Slater. The Commercial Organization of Factories. London: E. & F. N. Spon, 1896. Materials and Supplies. "The Factory Management Series," Chicago: A. W. Shaw Company, 1915. Mitchell, William Norman. Purchasing. New York: Ronald Press Company, 1927. Murphy, Harry Duncan. The Fundamental Principles of Purchasing. New York: The Purchasing Agent Company, Inc., 1924. Organization of Staff Functions. Studies in Personnel Policy No. 165. New York: National Industrial Conference Board, 1958. Pearce, H. C. The Supply Department. New York: Railway Age Gazette, 1911. 552 Poor's Register of Directors and Executives: United States and Canada, 1961. New York: Standard and Poor's Cor- poration, 1961. Purchasing for Industry. Studies in Business Policy No. 33. New York: National Industrial Conference Board, 1948. Purchasing for Profit. AMA Management Report No. 20. New York: American Management Association, 1958. Rindsfoos, C. S. Purchasing. New York: McGraw—Hill Book Company, Inc., 1915. Sampson, Robert C. The Staff Role in Management. New York: Harper & Brothers, 1955. Standard Advertising Register. Vol. XLV. New York: National Register Publishing Company, Inc., April, 1960. A Survey of Marketing Research: Organization, Functions, Budget, Compensation. Chicago: American Marketing Association, 1958. Twyford, H. B. Purchasing—-Its Economic Aspect and Proper Methods. New York: D. Van Nostrand Co., 1915. . Purchasing and Storing. (Factory Management Course, Vol. IV.) New York: Industrial Extension Institute, 1921. Value Engineering. Elizabeth, N.J.: Engineering Publishers, 1959. Westing, J. H. and Fine, I. V. Industrial Purchasing. 2nd ed. New York: John Wiley & Sons, Inc., 1961. Articles Ammer, Dean. "Purchasing Coordinates Plant—Wide V—A Program," Purchasing, XLV, December 8, 1958. "The Purchasing Department: Ford's Cost Control Center," Purchasing, XLVIII, May 23, 1960. Arnold, Horace L. "Purchase by the Organized Factory," The Engineerinngagazine, XXV, June, 1903. 553 Browning, Albert J. “Purchasing--A Challenge and an Oppor- tunity," Purchasing, XXIII, December, 1947. Bryant, C. Willard. "Planning To Meet Materials Shortage . . . the Function of Purchasing Research," Purchasing, XXXV, August, 1953. Cady, E. L. "How Purchase Engineers Function," Purchasing, XX, April, 1946. Cremer, James M. "The Engineer as a Purchasing Agent," Cassier's Magazine, XXXIV, August, 1908. "Current Topics," Cassier's Magazine, XIV, April, 1901. "Current Topics," Cassier's Magazine, XXIV, June, 1903. "Current Topics," Cassier’s Magggipg, XXVI, September, 1904. Davis, Keith. "Frictions in Human Relations, A Study in Staff-Line Relationships," Business Horizons, School of Business, Indiana University, December, 1956. Delaney, J. B. "Purchasing: Research Gets Staff Status in Broad Program of U. 8. Steel," Iron Age, CLXX, December 11, 1952. Diemer, Hugo. "Functions and Organization of the Purchasing Department," The Engineering Magazine, XVIII, March, 1900. Ennis, William D. "The Relation of PurchaSing to Production," The Engineering Magazine, XXIX, July, 1905. Erlicher, Harry L. "Purchasing for Greater Value," Pur— chasing, XXVII, August, 1949. "The Fortune Directory: The 500 Largest U.S. Industrial Corporations," Fortune, LXII, July, 1960. "General Electric's Program Still Sets the Pace," Purchasing, XLII, May, 1957. Hornbach, R. F. "Planning a Cost Reduction Program," Pur- chasing, XXXVI, May, 1954. "How Brain Trusters Span P.A.--Engineering Gaps by Purchasing 1, Research," Purchasing Week, IV, April 10, 1961. 554 ”The Hundred Largest 'Salesmen,'" First National City Bank Monthly Letter: Business and Economic Conditions,hkanork: September, 1959. Kellogg, Ned. "The_Forward Look in Purchasing," Purchasing, XLIV, January 20, 1958. Leonard, James H. "The Coming of Age of Value Analysis," New York Purchasing Review, July, 1960. Lottman, Victor G. "Cost Reduction Through Purchasing," Purchasing, XXV, August, 1948. . "Research Leads to Sound Purchasing Policies," Purchasing, XXV, July, 1948. . "The Techniques of Cost Reduction," Purchasing, XXV, November, 1948. "Machine Shop Notes," The Engineering Magazine, IV, December, 1892. "Machine Shop Practice," The Engineering Magazine, VI, October, 1893. "Market Research for the Buyer," Chemical and Engineering News, XXXII, October 4, 1954. Morse, William H. "The Purchasing Agent and High—Class Product," The Engineering Magazine, XLIX, June, 1915. Nuckols, J. Cecil. "A Complete System for the Purchasing Departmentfl The Engineering Magazine, XXXV, April, 1908. "A One—Man Value Analysis Unit," Purchasing, XL, June, 1956. "Organization for Purchasing," Purchasing, XXV, July, 1948. "Purchase Analysis Cuts Costs, Sharpens Buying Skills," Purchasing, XLVII, November 9, 1959. "Purchase Analysis Helps Determine . . . the Right Product . . the Right Source . . . the Right Price," Purchasing, XXV, July, 1948. "Purchase Analysis Improves Competitive Position," Purchasing, XLIII, November, 1957. 555 "Purchase Analysis in Action," Steel, CXLI, July 8, 1957. "Purchase Analysis: It's a Job for Buyers," Purchasing, XLIX, July 18, 1960. "Purchase Analysis More than Pays Its Way," Purchasing, XL, April, 1956. "Purchase Analysis Savings Run into Six Figures," Purchasing, XXX, June, 1951. "Purchase Analysts Save Money for Ford," American Business, XX, January, 1950. "The Purchase and Inspection of Railroad Supplies," The Railroad Gazette, XXX, 1898. "Purchase Research for More New Products," Purchasing, XLVII, September 14, 1959. "Purchasing Building Materials," The Manufacturer and Builder, XI, February, 1870. "Purchasing and Care of Supplies," The Railroad Gazette, XXII, 1890. "Purchasing at Kaiser Aluminum," Purchasing, XLVI, March 16, 1959. "Purchasirgfor Profit Saves Over $5,000,000," Purchasing, XLIV, February 17, 1958. "Purchasing Research," Purchasing, XXXVIII, May, 1955. "Purchasing Research Brings Big Profits," Purchasing, XLVI, January 19, 1959. "Purchasing Spearheads Value Analysis Program," Purchasing, XLV, December 22, 1959. "Purchasing's Stake in Value Analysis," Purchasing, XLVI, June 8, 1959. Quinn, Richard A. "Value Consulting Pays Off," Purchasing, XLIX, October 10, 1960. 556 Rohan, T. M. "New Ideas Cut Buying Costs . . . Purchase Analysis Team Breaks Precedent Tc>Tern Costs," Iron Age, CLXXXVII, February 23, 1961. "Save $ with Purchasing Research," Purchasing, XXXIX, November, 1955. "Sound Decisions Are Based on Sound Information," Purchasing, XLVII, September 28, 1959. "Statistical Forecasts Minimize Commodity Market Risks," Purchasing, XLIV, April 14, 1958. Stratton, George F. "The Management of Production in a Great Factory: Division of Responsibility and Authority in the General Electric Company's Shops," The Engineering Magazine, XXXIV, January, 1908. Twyford, H. B. "Fundamental Requisites in Purchasing," The Engineering Magazine, LII, March, 1917. Urwick, Lyndall F. "Fitting in the Specialist without Antagon- izing the Line," Advanced Management, XVII, January, 1952. "Value Analysis . . . A purchasing technique that is Saving hundreds of thousands of dollars each Year for the General Electric Company," Purchasing, XXVIII, June, 1950. Ward, A. C. "The Purchasing Department of a Manufacturing Organization." The Engineering Magazine, XLVI, December, 1913. "We Cut Purchasing Costs 3 Ways," Purchasing, XLII, June, 1957. Wharton, H. M. "The Production System of the Westinghouse Electric and Manufacturing Company," The Engineering Magazine, XXXIV, March, 1908. White, Herbert R. “Records for the Purchasing and Supply Department," The Engineering Magazine, XLVI, January,l9l4. Wright, Harold A. "The Fine Art of Buying," The World's Work, X, July, 1905. r 557 Unpublished Material Jones, James Graham, Jr. "A Situational Analysis of the Scope, Organizational Structure, and Function of Personnel Re- search in the Manufacturing Industry." Unpublished Eng. dissertation, Wayne University, Detroit, 1955. McKinney, Tom H., Sykora, WillianuAu,and valentine, Robert T. "A Study of Purchasing Administrators in the Metal Fabricating and Assembly Industries in Illinois, Indiana, Michigan, Ohio, Pennsylvania, and Wisconsin." Unpublished study by graduate students in the Department of Personnel and Production Administration, Michigan State University, 1960. Miller, Stanley Simon. "Value Analysis in the Procurement of Materials," Unpublished D.C.S. dissertation, Graduate School of Business Administration, Harvard University, 1954. ROM USE bum HICH 111111111111u ARIES _ - ... - ‘— ‘ - - - .-