PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

Purchasing and Supply

Chain Organization
Chapter 5

CENGAGE LEARNING
Monczka Handfield Giunipero Patterson

Chapter Overview
Purchasings position within the
organizational structure
Factors affecting purchasings position
Organizing the purchasing function
Placement of purchasing authority
Organizing for supply chain management
Using teams
Creating the organization of the future
Purchasing & Supply Chain Management, 4e

Formal Organization Structure

Shows the assignment of work along
with its accompanying authority
Helps define how a firm communicates
and integrates decision making
Why is purchasings position in the
organizational structure important?

Purchasing & Supply Chain Management, 4e

Factors: Purchasings Position

History
Type of industry
Total value of goods and services
Other

Founding philosophy
Type of purchased materials
Ability to influence company performance
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To Whom Does Purchasing Report?

Upper-level function reporting to an
executive vice president
Mid-level function reporting to an
executive one level below an executive
vice president
Lower-level function reporting at least
two levels below an executive vice
president
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Organizing the Purchasing Function

Specialization within purchasing

Sourcing and negotiating

Purchasing research
Operational support and order follow-up
Administration and support

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Sourcing and Negotiating

Identifies potential suppliers

Negotiates with selected suppliers
Performs the buying of goods and
services

By specific items
By commodity family
By service categories
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Purchasing Research
Developing long-term material
forecasts
Conducting value analysis programs
Assessing supplier capabilities
Analyzing supplier cost structures

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Operational Support and Follow-up

Supporting day-to-day operations
including expediting
Preparation and transfer of material
releases
Strategic vs. tactical purchasing

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Administration and Support

Developing policies and procedures
Administering and maintaining the
purchasing information system and
database
Determining required staffing levels
Developing departmental plans
Organizing training and development
Developing measurement systems
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Purchasing Department Activities

Buying
Expediting
Inventory control
Transportation
Managing
countertrade
arrangements

Insourcing
-outsourcing
Value analysis
Purchasing
research
Material forecasting
Supply management
Other

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Other Department Activities

Receiving and warehousing
Managing travel expenses
Production planning and control
Commodity futures trading
Global transportation and materials
management
Economic forecasting
Subcontracting

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Strategic Activities
Manage relationships with critical
suppliers
Develop electronic purchasing systems
Implement companywide best practices
Negotiate companywide supply
contracts
Manage critical commodities
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Operational Activities
Manage transactions with suppliers
Use e-systems to source standard and
direct items in electronic catalogs
Source unique items
Generate and forward material releases
Provide supplier performance feedback

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Placement of Purchasing Authority

Centralized
Decentralized
Hybrid combination

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Size of Purchasing Staff

Type of company
Nature or complexity of products and
services produced
Physical number of items procured
Scope of purchasing responsibility

Strategic sourcing
Market research and analysis
Extent of involvement in services
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Factors Influencing Authority

Organizational business strategy
Responsiveness vs. efficiency

Total purchase dollar expenditures

Cost savings required
Geographic dispersion

Overall philosophy of management

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Strategic vs. Operational Sourcing

Strategic
Sourcing
Activities

Operational
Activities

Manage relationships with critical suppliers

Develop electronic purchasing systems
Implement companywide best practices
Negotiate companywide supply contract
Manage critical commodities

Manage transactions with suppliers

Use e-systems to obtain standard or indirect
items through catalogs
Source items that are unique to the operating
unit
Generate and forward material releases
Provide supplier performance feedback

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Advantages of Centralization
Consolidate purchase volumes
Reduced duplication of purchasing effort
Ability to coordinate plans and strategies
Ability to coordinate and manage
companywide purchasing systems
Developing expertise
Managing companywide change

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Advantages of Decentralization
Speed and responsiveness
Understanding unique operational
requirements
Product development support
Ownership

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Product Development Support

Utilize early supplier involvement
Evaluate long-term material
requirements
Develop strategic plans
Determine if substitute materials are
available
Anticipate product requirements
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Hybrid Purchasing Structures

Lead buying division

Regional buying groups
Global buying committees
Corporate purchasing councils
Corporate steering committees

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Benefits of Organizing for SCM

Controlling material and service costs
Developing an awareness of supply
chain total cost trade-offs
Opening channels of communication
Supporting high-potential career paths
by developing well-rounded expertise
Developing operational efficiencies
Creating direct links in the supply chain
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Key Processes

Customer relationship management

Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Sourcing
Product development/commercialization
Return channel processes
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An SCM Structure Example

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Challenges of Using Teams

Waste time and energy

Enforce lower performance norms
Create destructive conflict
Make notoriously bad decisions
Exploit, stress, and frustrate members

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Work Team Planning Guide

Identify appropriate team assignments
Form work team and select members
and leader
Determine member training
requirements
Identify resource requirements

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Work Team Planning Guide

Determine team authority levels
Establish team performance goals
Determine how to measure and reward
participation and performance
Develop team charters

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Identify Team Assignments

Do assignments justify the use of
teams?
Has the proper team model been
identified (full-time vs. part-time)?
Does executive and functional
management support the use of a
team?
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Form Team and Select Members

Have core vs. as-needed members
been identified?
Do members have proper skills, time,
and commitment?
Has a qualified leader been identified?
Are customers and/or suppliers
needed?
Do members understand their roles?
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Determine Training Requirements

Have team member training
requirements been assessed?
Is required training available on a
timely basis?

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Identify Resource Requirements

Are sufficient resources provided or
available to support the assigned
tasks?

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Determine Authority Levels

Have team authority levels been
determined?
Have team authority levels been
communicated throughout the
organization?

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Establish Team Performance Goals

Has the team established objective and
measureable performance goals?

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Measurement and Rewards

Are approaches and systems in place
that assess team performance and
member contributions?
Are there reporting linkages to team or
executive sponsors?
Is team performance effectively linked
to performance reward systems?
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Develop Team Charters

Has a formal charter been developed
that details team mission, tasks, broad
objectives, etc.?
Has the charter been communicated
across the organization?

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Hurdles to Using Teams

Extensive use of part-time members

Not rewarding team member effort
Individualistic U.S. national culture

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Organization of the Future

Moving away from a functional silo or
vertical organization
Adopting a horizontal or process
approach that cuts across hierarchical
or functional boundaries

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Horizontal Organization
Marketing

Engineering

Finance

Supply Mgt

39

Horizontal Organization Features

Flattened hierarchies

Faster decision making

Freer flow of ideas
Joint ventures and alliances

Cross-functional teams
Decentralized buying activity along
with centralized coordination
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Horizontal Organization Features

Open information channels

Internet
Intranets
Deployment of information technology

Rotation of managers across business

units

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Themes for the 21st Century

Extensive use of teams
Greater participation on new product
development teams
Co-location of purchasing with internal
customers
Higher-level chief purchasing officers
Dedicated supplier relationship
managers
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Co-Location with Internal Customers

Operations

Engineering

Gain insight to:

Gain insight to:

Marketing
Gain insight to:

Supplier performance

Material specifications

Demand planning
requirements

Internal requirements

Evolving product and

process technology

New product ideas

Capacity, material, and

service needs

New product
requirements

Promotions and
planned demand shifts

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