"Procurement" fad must end.

Twenty years ago or so, a group of purchasing professionals at Caterpillar Inc., Peoria, Ill., pioneered a concept that became known as "partnering" as an antidote to the insanity that had ruled relationships between metalcasting firms and their customers before that time. Because the conditions that gave rise to that short-lived (and much missed) phenomenon are similar in many ways to those that exist today, the time seems ripe to resurrect partnering as an antidote to "procurement"--the latest brand of insanity that has ruled relationships between casting firms and their customers.

For those of you unfamiliar with the concept, partnering was based on the notion that close, stable, mutually beneficial, long-term relationships (free of the typical combativeness and coercion, incessant price shopping, too frequent tooling movement and counterproductive dual sourcing) were in the best interests of both customers and suppliers. It appears that the folks at Cat came to understand, at least for a time, that the path to long-term business success went through total cost rather than price. This included ensuring its suppliers' financial health via appropriate pricing and long-term security while, at the same time, focusing joint-improvement efforts on the two attributes that had the most leverage when it comes to cost and competitive advantage: cycle times and quality.

Interestingly, and despite the fact that the notion of partnering made (and still makes) a great deal of sense, the timing of Cat's effort led some to suspect the company's motives. The North American metalcasting industry had experienced a dramatic decline in shipments and a massive capacity shakeout in the early 1980s as foreign competition forced OEM casting buyers to retrench and seek low-cost casting suppliers in Asia and elsewhere. By the mid-1980s, however, that retrenchment was moderating, the move offshore had proven to be a failure, and the OEMs once again looked to the North American industry to satisfy their growing needs. But the domestic supply base by then was much depleted, capacity was short, and a seller's market existed. This fact forced OEMs to rethink or at least moderate their approach; partnering was one such response.

It is the existence of a seller's market that links the mid-1980s with current marketplace conditions and has exposed today's dominant supply chain management philosophy, which many refer to as "procurement," as a dangerous and fatally flawed fad. In other words, today's market conditions make it clear that "procurement" is not only counterproductive to successful customer-supplier relationships, but also is clearly destructive to the supply base and even may be similarly, though less obviously, destructive to the OEMs themselves. To wit:

* recent casting plant closings have created a significant capacity shortage for many types of castings, but the industry is not investing in new capacity as it has in the past. This is because "procurement" has instilled a fear in most that it is impossible for them to add capacity and make money; thus, OEMs are increasingly forced to rely on questionable offshore sources and dubious domestic sources;

* instead of adding capacity, casting firms have responded by increasing prices substantially over the last several months, thus effectively wiping out many of the so-called gains made by OEM "procurement" teams;

* those OEMs that have turned the "procurement" screws most aggressively over the last several years now are all but blacklisted the better casting firms simply are selling their limited capacity to others and shutting out these companies. As a result, these pariahs are losing revenue by the millions because they can't bid on and/or satisfy their customer orders. For these companies, not only are price savings made via "procurement" being reversed, but market shares and competitive positions are deteriorating;

* with capacity tight and the paramount need to develop new sources of supply, OEMs are finding themselves unable to effectively respond because their "procurement" departments are staffed with inexperienced MBAs who know little about the industry to which their suppliers belong. In the face of allocations and outright casting shortages, many simply do not know where to turn or what to do next.

It seems clear that the unbiased observer must conclude that "procurement" is a dangerous fad that grew out of old, bad habits, a focus on short-term performance and stock prices, and a too narrow and fundamentally incorrect interpretation of OEMs' own best long-term interests. Fuel was added to this fire by a bevy of cookie-cutter solutions offered by the big management consulting firms, which possessed (and still possess) even less knowledge and awareness of our industry than those inexperienced MBAs who now are left holding the proverbial bag. This fad, like all fads, has run its course and now must come to an end. And the sooner the better.

Partnering anyone?