Planning 13 Getting organized for purchasing Cengage Learning

Planning 13. Getting organized for purchasing © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1 -84480 -024 -5)

Program n n n 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 Purchasing structures appear to vary among companies N=-302 A more detailed analysis showed that since 1988, purchasing organization structure moved towards hybrid structures (e. g. coordination or combination central / decentral) © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1 -84480 -024 -5)

Factors influencing location of purchasing in the organization n The organizational location of purchasing is very much dependent on the view management holds towards the purchasing function. n Management view is related to the following factors: Purchasing’s share in the endproduct’s cost price ¨ Financial position of the company ¨ Extent to which the company is depending on the supply market ¨ © 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 n Relationship between the three managerial levels and some management positions Managerial level Strategic level Tactical level Top management Logistics manager Purchasing manager. X X X Operational level © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1 -84480 -024 -5) Senior buyer Buying assistant X X X

Organizational structures within purchasing n Structures for multi-unit companies ¨ Decentralized purchasing: BU purchasing is responsible for all ¨ Centralized purchasing: central purchasing department is ¨ Centralized/decentralized purchasing organization: both purchasing decisions responsible for all strategic and tactical purchasing decisions 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 and disadvantages of decentralised purchasing Advantages n n n 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 n n n 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 © 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 n 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 © Cengage Learning – Purchasing & Supply Chain Management 4 ed (1 -84480 -024 -5)