chapter 13 organization and structure of purchasing
TRANSCRIPT
Chapter 13Organization and structure of purchasing
Program
Purchasing organization structure Influencing factors of position of purchasing Levels of tasks, responsibilities and authority Organizational structures within purchasing Purchasing job profiles
Purchasing organization structure
Strongly depends on business characteristics and situational factors
Level of centralized or decentralized structure Centralized Centralized hybrid Hybrid Decentralized hybrid Decentralized
Usually a mixed organizational form is chosen
CPO reporting line
Organizational structure 2003 1995 1987
Total Total Total
# % # % # %
Senior VP/Group VP 48 16.90 % 54 18.75% 6 2.06%
VP financial/CFO 46 16.20% 34 11.18% 21 7.22%
Executive VP 43 15.14% 47 15.46% 54 18.56%
President/CEO 41 14.44% 48 15.76% 47 16.15%
COO 21 7.39% - - - -
VP Administration 21 7.39 % 26 8.55% 40 13.75%
VP Manufacturing/Production/operations 19 6.69 % 48 15.79% 71 24.40%
Other 19 6.69 % 18 5.92% 23 7.90%
VP Corporate/shared Services VP 17 5.99% 2 0.66% - -
VP Materials/Logistics 5 1.76% 22 7.24% 25 8.59%
VP Engineering 4 1.41% 2 0.66% 4 1.37%
Total 284 100.00% 304 100.00% 291 100.00%
Johnson and Leenders (2004)
Supply organizational structureOrganizational structure 2003 1995 1987
Total Total Total
# % # % # %
Centralized 72 25.35 % 69 22.85% 83 28.04%
Centralized Hybrid 116 40.85 % - - - -
Hybrid 28 9.86 % 196 64.90% 175 59.12%
Decentralized Hybrid 46 16.20 % - - - -
Decentralized 22 7.75 % 37 12.25% 38 12.84%
Total 284 100.00% 302 100.00% 296 100.00%
These figures show that over the past decades purchasing has become much more visible a the top floor of large corporations
Johnson and Leenders (2004)
Factors influencing location of purchasing
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
Tasks, responsibilities and authorities
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 multi- 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.
Tasks, responsibilities and authorities
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
Tasks, responsibilities and authorities
Relationship between the three managerial levels and some management positions
Strategic level X X X
Tactical level X X X
Operational level X X
Topmanagement
Logisticsmanager
Purchasingmanager.
Seniorbuyer
Buyingassistant
Managerial level
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 Line/staff organization: both corporate purchasing and BU
purchasing exist next to each other and divide responsibilities and activities
Hybrid 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.
Organizational structures within purchasing
Centralized versus decentralized purchasing: some criteria
to consider: Commonality of purchasing requirements Geographic 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.
In practice these considerations appear to be decisive when deciding on buying products centrally or otherwise.
Organizational structures within purchasing
Centralized purchasing organizational structure (example)
Organizational structures within purchasing
Decentralized purchasing organizational structure (example)
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
Organizational structures within purchasing
Centralized/decentralized purchasing organizational structure (example)
Organizational structures within purchasing
Cross functional sourcing teams at IBM
Van Weele and Rozemeijer (1996)
Consequences for purchasing professionalsFunction Responsibilities Skills required
Chief Procurement Officer (CPO)
Developing corporate sourcing strategies, systems and reporting
General management skills
Leadership
Communication skills
Corporate buyer Strategic commodities Commercial skills
Long term planning horizon
Communication skills
Broad business orientation
Category buyer New materials and components
New suppliers
All-round technical background
Medium planning horizon
Commercial skills
Communication skills
Project buyer Investment goods and maintenance goods and services
Project management skills
Technical education
NPR-Buyer General and facility goods and services Generalist
Business administration
Commercial skills
Materials planner Materials planning
Order handling
troubleshooting
Vendor rating
All round
Pragmatic
Customer driven
Stress resistant
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
Conclusions
Purchasing structures appear to vary to a great extent among companies. This is due to the different views which top-managers hold towards purchasing and supply.
When analysing the scope, tasks, responsibilities and authority of the purchasing function, we differentiated between the strategic level, the tactical level and the operational level.
Purchasing structures appear to be highly volatile: a period of centralized purchasing is often followed by a change to the other way around.