CIPS L4 Session 7 & 8

Session 7
The purchasing
organization
www.mbindoconsulting.com
Organizational
structures
Why structure?
Coordination
Control
Planning
Implementation of objectives
Types of structures
Entrepreneurial small firms
Functional
Divisional
Matrix
Entrepreneurial
Entrepreneur
Informal
Boss owns decisions
No hierarchy
Subordinates
Good for flexibility, agility
Functional Structures
Organized along functions

Centralised
Clear chain of command
Specialisation
Tends to fragment organizations

Silos
compartments
Divisional
Products/territories
Divisions have functions within
Empowerment
Customer focus
Can lead to independent

approaches, lack of standards
Matrix structures
Math
Humanities Science
MA Degree
Msc Degree
Mphil Degree
Line authority direct chain of command

Project authority - over selected staff assigned to department
Lead buyer
Additional purchasing responsibilities to

colleagues in another department
Purchasing embedded within manufacturing

or production
Adv purchasing is closer to the user,

responsive
Disadv non-professionals involved in buying

Business partnering
Theme work closer with other functional areas
Business partners are purchasing staff working in

multidisciplinary teams
Assists large & complex functions deliver

purchasing requirements
Common in divisional and matrix structures
They represent purchasing in user divisions

Purchasing roles &

responsibilities
Generic roles
Head of purchasing
Purchasing manager
Senior purchasing manager
Supplier manager
Contracts manager
Purchasing analyst
Expediter
Head of purchasing
Strategic (long-term)
Overall responsibility and accountability for purchasing
Responsibility over 3rd party expenditure (???)
depends on power structures, culture and paradigms
in organization
Overall direction, policies and strategy or procurement
Promote role of purchasing across peers and other
functions
Stakeholder management, leadership, communication
Some organizations refer to role as purchasing
director, chief purchasing officer, vice president of
purchasing
Purchasing manager
Operational (day-to-day)
May be
category based IT, production, raw material (e.g. EABL,

KQ)
or manage entire company spend
this depends on size, power structures, culture and
strategic role of purchasing in organizations
Roles review 3rd party spend, supplier selection,

competitive bidding, negotiation, contracting,
contract management, disposal
Also referred to as sourcing manager, category
manager, commodity manager
Senior purchasing
manager
Role similar to purchasing manager,

differs on scope
May be responsible for several

purchasing managers
May be responsible for a group of spend

categories IT, production, marketing
Supplier manager
Role post-contractual award
Supplier management for contract/supply fulfilment
Holistic supplier mgt may use tools such as

balanced score cards
Supplier development
Sometimes referred to as supplier relationship

managers
Contracts manager
Focus on contract admin, as opposed to

relationship
Large or complex supply contracts

engineering, infrastructure e.g. construction
of a power plant, highway, aircraft hangar
Responsibility contract mgt, payments (sign

off certificates), issue contract notices/
contract change notices
Purchasing analyst
Support function
Data gathering
Data analysis
Market research
Financial analysis
Expediter
Chase orders
Ensures delivery schedules are followed
Track deliveries
Important where raw material input is
critical to company value chain
Where inventories are critical for working
capital hence need for JIT
What is the future of this role with advances
in supply chain mgt especially technology
interfaces?
Part-time purchasing
responsibilities
Staff from other divisions may be involved in
managing spend beyond the purchasing
function. Why?
History as organization evolved from sole

entrepreneur to mature business
Technical some technical functions don't

trust core purchasing to bring to bear
professional skills in managing spend. Common
in highly technical areas oil, gas, aviation
Part-time purchasing
responsibilities
Deliberate avoidance fear of losing control of spend

(maverick buying)
Disadvantages
Potential lack of professionalism

Inconsistency with policy
Exposure to commercial risks
Mitigation ensure part-time purchasers are involved in

communication, training, guidance on policy issues
Centralise or
decentralise?
Degree to which responsibility and

authority are delegated
How purchasing is structured in

organization
Generally
Functional structures centralised
Divisional structures decentralised
Centralise or
decentralise?
Arguments for
centralisation
Arguments for decentralisation
Decisions easier to
communicate and coordinate
Responsibility devolved leading to buy-in,

motivation, entrepreneurial spirit
Consistency single location
Decisions can be made with better

understanding of local environment,
culture & customer needs
Control on resource allocation
Customer responsiveness high
Economies of scale lower

admin costs
Staff development and cross fertilisation

for adaptation
Opportunity to use specialist

skills
Quicker decision making without reference

to centre
Quality & speed of decision

making
Greater customer and product knowledge
Policies & procedures easy to

standardise, implement
Purchasing more visible and involved in

local matters
Session 8
Supply markets &

supply chains
Supply markets
Need to review the relative strength of

suppliers in a market
Need to understand variables that increase or
diminish power
Buyer dominance - occurs when
supply exceeds demand

numerous suppliers and lots of alternatives
demand is low or limited
switching costs low
buyer loyalty low
buyers have significant leverage
prices depressed
Supplier dominance
Occurs when
many buyers, demand exceeds supply
Few suppliers
Low competition
Leads to high prices and significant leverage

for suppliers
Buyers may keep switching to try to find the

best deal despite there being few alternatives.
Some economic terms

Monopoly
Highly restricted supply market
Single participant
High relative power over buyers
Mitigation - consumer protection/welfare
Examples???
Some economic terms

Oligopoly
Restricted supply market
Few participants (2 6)
Suppliers have relative bargaining power over buyers
Monopsony
Restricted buyer market
One buyer dominates
Buyer has high bargaining power over suppliers

E.g. tobacco industry vis farmers?
Some economic terms

Cartel
Restricted market place
Participants collude to control prices
E.g. OPEC
Buyer supplier power

matrix (Cox)
Supply chains
Supply chain - system of organizations, people, technology,
activities, information and resources involved in moving a
product or service from supplier to customer. Supply chain
activities transform natural resources, raw materials and
components into a finished product that is delivered to the
end customer http://en.wikipedia.org/wiki/Supply_chain
Levels of supply chain

(Harland 1996)
Level1:Theinternalsupplychain
Level2:Thedyadicsupplychain
Level3:Theexternalsupplychain
Level4:Thenetwork
SCM benefits
Elimination of waste communication, demand mgt, quality mgt
Efficiency automation, technology, JIT
Shared resources/capabilities collaboration removes

unnecessary competition & duplication
Synergy buyers and suppliers share resources, capabilities,

ideas
Cost-base reduction supplier rationalization, automation

reduces transaction costs
Customer focus quality & fitness for purpose ensures end

customer satisfaction
Innovation shortened lead-times
an enabler
Supply chain modeling.

There are a variety of supply chain models, which
address both the upstream and downstream sides.
The SCOR (Supply Chain Operations Reference)
model, developed by the Supply Chain Council,
Measures total supply chain performance
Is a process reference model for supply-chain

management - from the supplier's supplier to the
customer's customer
Includes delivery and order fulfillment performance,

production flexibility, warranty and returns processing
costs, inventory and asset turns, to evaluate overall
effective performance
of a supply chain.
Supply chain
modeling.
The Global Supply Chain Forum (GSCF)
framework built on key business processes that

are both cross-functional and cross-firm in nature
Each process managed by a cross-functional

team
representatives from logistics, production,

purchasing, finance, marketing and research and
development.
Supply chains &chain

networks thatand
work together with SCM
Supply
approach are called supply networks
networks
(CIPS)
The supply chain starts with the extraction of raw material
(or origination of raw concepts for services) and each

organisation within the supply chain adds value to the
product or concept in some way as it passes from one
organisation to the other
The supply chain extends through to the final sale and

delivery to the final customer and through to disposal
What examples of supply chain networks are you aware of in

your organisation?
Are you aware of any competition in supply networks that
you are familiar with?
Supply networks
Every organization has multiple suppliers, who
in turn have their own multiple suppliers...
Characteristics of a supply networks
Suppliers bring distinct supply competencies
Relationships, structures are flexible &

collaborative
Supply networks
Relationships are need driven
Shared resources, joint development, synergy

& innovation
Co-opetition members collaborate on one

project, compete in another
One party coordinates to meet customer

requirements
Network sourcing
Prof Peter Hines (1994)
Tired supply structure, relies on SMEs
High asset specificity and risk sharing

between customers and suppliers
Bilateral design combined skills of

customer & supplier
Network sourcing
Supplier innovation new products &

processes
Long-term relationships trust, openness,

profit sharing
Rigorous supplier grading supplier selfcertification
Supplier development
Supplier tiering
Network sourcing opportunities exist within

tiered structures
Tiers: levels within supply chain taking

responsibility for coordination & mgt of the
supply chain aspects
Automobile industry final assembly

suppliers are responsible for sub-assembly of
component parts
Supplier tiering
(Diagram from workbook by Mike
Fogg)
Agents in the supply chain
Add value to the chain by bringing parties together

and assisting with negotiations
Manage relationships up and down the chain
Assist with communication and marketing
Provide additional market information many are

experts in their field (information asymmetry)
Examples are PR agent or consultant acting on

behalf of a client.
Agents in the supply chain

Key features:
Provides a service
Trusted adviser to client
Helps negotiate deal does not contract directly
Market experts
Key differentiator information & knowledge


CIPS L4 Session 7 & 8

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CIPS L4 Session 7 & 8

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Session 7

Good for flexibility, agility

Organized along functions

Tends to fragment organizations

Can lead to independent

Line authority direct chain of command

Additional purchasing responsibilities to

Purchasing embedded within manufacturing

Adv purchasing is closer to the user,

Disadv non-professionals involved in buying

Theme work closer with other functional areas

Business partners are purchasing staff working in

Assists large & complex functions deliver

Common in divisional and matrix structures

They represent purchasing in user divisions

Purchasing roles &

category based IT, production, raw material (e.g. EABL,

Roles review 3rd party spend, supplier selection,

Role similar to purchasing manager,

May be responsible for several

May be responsible for a group of spend

Role post-contractual award

Supplier management for contract/supply fulfilment

Holistic supplier mgt may use tools such as

Sometimes referred to as supplier relationship

Focus on contract admin, as opposed to

Large or complex supply contracts

Responsibility contract mgt, payments (sign

History as organization evolved from sole

Technical some technical functions don't

Deliberate avoidance fear of losing control of spend

Potential lack of professionalism

Mitigation ensure part-time purchasers are involved in

Degree to which responsibility and

How purchasing is structured in

Arguments for decentralisation

Responsibility devolved leading to buy-in,

Consistency single location

Decisions can be made with better

Control on resource allocation

Customer responsiveness high

Economies of scale lower

Staff development and cross fertilisation

Opportunity to use specialist

Quicker decision making without reference

Quality & speed of decision

Greater customer and product knowledge

Policies & procedures easy to

Purchasing more visible and involved in

Supply markets &

Need to review the relative strength of

Buyer dominance - occurs when

supply exceeds demand

Leads to high prices and significant leverage

Buyers may keep switching to try to find the

Some economic terms

High relative power over buyers

Mitigation - consumer protection/welfare

Some economic terms

Restricted supply market

Suppliers have relative bargaining power over buyers

One buyer dominates

Buyer has high bargaining power over suppliers