© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Planning

13. Getting organized for

purchasing

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Program

Purchasing organization structure

Factors influencing location of purchasing in the

organization

Levels of task, responsibility and authority

Organizational structures within purchasing

Consequences for purchasing professionals

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Purchasing organization structure

N=-302

A more detailed analysis showed that since 1988, purchasing

organization structure moved towards hybrid structures (e.g.

coordination or combination central / decentral)

Purchasing structures appear to vary among companies

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Factors influencing location of purchasing in

the organization

The organizational location of purchasing is very much dependent on the view management holds towards the purchasing function.

Management view is related to the following factors:

Purchasing’s share in the end-product’s cost price

Financial position of the company

Extent to which the company is depending on the supply market

Purchasing reports to

General management

Production management

Logistics management

Financial management

Purchasing turnover ratio High Low

x

x

x

x

Technical complexity High Low

x

x

x

x

Logistics complexity High Low

x

x

x

x

Strategic impact High Low

x

x

x

x

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Levels of task, responsibility and authority

Strategic purchasing decisions (long term impact) Development and issuing operational guidelines, procedures and task

descriptions, which provide authority to the purchasing department

Development and implementation of auditing and review programs

Outsourcing of activities and/or functions

Establishing long term contracts with preferred suppliers

Adopting a supplier strategy based on multui- versus single sourcing

Major investments

Deciding on financial participation in suppliers (backward integration)

Formulating policies concerning transfer pricing and intercompany

supplies

Formulating policies on reciprocal arrangements, countertrade, etc.

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Levels of task, responsibility and authority

Tactical purchasing decisions (medium term impact) Agreement on corporate and/or annual supplier agreements

Preparing and developing value analysis programs

Adopting and conducting quality certification programs for suppliers

Selection and contracting of suppliers in general

Programs aimed at supply-base reduction

Operational purchasing decisions (short term impact) Ordering process

Expediting activities related to released orders

Invoice verification and payment

Troubleshooting

Monitoring and evaluation of supplier performance

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Levels of task, responsibility and authority

Relationship between the three managerial levels and some

management positions

Strategic level X X X

Tactical level X X X

Operational level X X

Top

management

Logistics

manager

Purchasing

manager.

Senior

buyer

Buying

assistant

Managerial level

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

Structures for multi-unit companies Decentralized purchasing: BU purchasing is responsible for all

purchasing decisions

Centralized purchasing: central purchasing department is responsible for all strategic and tactical purchasing decisions

Centralized/decentralized purchasing organization: both corporate purchasing and BU purchasing exist next to each other and divide responsibilities and activities

Pooling structure: combination of the previous three structures aimed at combining common requirements across operating units. There are different forms of pooling: Voluntary coordination, Lead buyership and Lead design concept.

Cross-functional sourcing teams: contracting is done centrally by a commodity team. However, all operational purchasing activities are decentralized.

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

Centralised versus decentralised purchasing: some criteria

to consider:

Commonality of purchasing requirements

Georgraphic location

Supply market structure

Savings potential

Expertise required

Price fluctuations

Customer demands

In practice these considerations appear to be decisive when

deciding on buying products centrally or otherwise.

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

Advantages

Direct responsibility of operating

companies

Stronger customer orientation

towards internal user

Less bureaucratic purchasing

procedures/higher operational

flexibility

Less friction costs due to

coordination

Direct communication with

suppliers

Disadvantages

Dispersed purchasing power, lack of economies of scale

No uniform way of handling towards suppliers

Scattered supply market research

Limited possibilities for building up specific expertise on purchasing, supply markets and components

Different commercial purchasing conditions among different operating companies

Advantages and disadvantages of decentralised purchasing

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

Cross functional sourcing teams at IBM

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

Purchasing organization in single-unit company

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Organizational structures within purchasing

Purchasing organization in single-unit company

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Consequences for purchasing professionals Function Responsibilities Skills required

Corporate

Procurement Officer

(CPO)

Management and coordination of key

purchasing and supply processes throughout

the organization

Senior executive

Excellent management skills

Leadership

Corporate buyer Strategic commodities Specialist commercial skills

Long term planning horizon

Communication skills

Broad business orientation

Purchasing engineer New materials and components

New suppliers

All-round technical background

Medium term planning horizon

Commercial skills

Communication skills

Project buyer Equipment and serrvices Specialist project management skills

Team player

MRO Buyer MRO supplies and services Generalist

Efficient order handling

Assortment manager

Service oriented

Commercial skills

Materials planner Materials and order planning

Order handling

Vendorrating

All round common sense

Stress resistant

Service oriented

Problem solving skills

© Cengage Learning – Purchasing & Supply Chain Management 4 ed (1-84480-024-5)

Consequences for purchasing professionals

Compared with ten years ago, purchasing professionals are: Higher educated (business degree, MBA)

Responsible for more dollars

More likely to be a women

Negotiating more long term agreements

Involved in outsourcing decisions

Looking out on a global market shape

Reducing costs and the number of suppliers