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
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 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?

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 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 Insourcing -
Expediting outsourcing
Inventory control Value analysis
Transportation Purchasing
Managing research
countertrade Material forecasting
arrangements 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

Manage relationships with critical suppliers

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

Manage transactions with suppliers

Use e-systems to obtain standard or indirect
items through catalogs
Operational
Source items that are unique to the operating
Activities
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

President

Vice President
of SCM

Director of Director of Director of

Director of Director of Director of
Strategic Production Customer
Logistics Operations Materials
Sourcing Planning Service

Receiving and Inventory Inbound

Storage Control Transportation
Manager Manager Manager

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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

Supplier evaluation and selection

New product development

Order generation, scheduling, and

fulfillment

Integrated logistics
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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 Marketing

Gain insight to: Gain insight to: Gain insight to:

Demand planning
Supplier performance Material specifications
requirements

Evolving product and

Internal requirements New product ideas
process technology

Capacity, material, and New product Promotions and

service needs requirements planned demand shifts

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