purchasing and supply chain organization

PURCHASING & SUPPLY CHAIN MANAGEMENT, 4ePURCHASING & SUPPLY CHAIN MANAGEMENT, 4e

CENGAGE LEARNINGCENGAGE LEARNINGMonczka – Handfield – Giunipero – PattersonMonczka – Handfield – Giunipero – Patterson

Purchasing and Supply Purchasing and Supply Chain OrganizationChain Organization

Chapter 5Chapter 5

Chapter Overview

Purchasing’s position within the Purchasing’s position within the organizational structureorganizational structure

Factors affecting purchasing’s positionFactors affecting purchasing’s position Organizing the purchasing functionOrganizing the purchasing function Placement of purchasing authorityPlacement of purchasing authority Organizing for supply chain managementOrganizing for supply chain management Using teamsUsing teams Creating the organization of the futureCreating the organization of the future

Purchasing & Supply Chain Management, 4ePurchasing & Supply Chain Management, 4e22

Formal Organization Structure

Shows the assignment of work along Shows the assignment of work along with its accompanying authoritywith its accompanying authority

Helps define how a firm communicates Helps define how a firm communicates and integrates decision makingand integrates decision making

Why is purchasing’s position in the Why is purchasing’s position in the organizational structure important?organizational structure important?


Factors: Purchasing’s Position

HistoryHistory Type of industryType of industry Total value of goods and servicesTotal value of goods and services OtherOther

Founding philosophyFounding philosophy Type of purchased materialsType of purchased materials Ability to influence company performanceAbility to influence company performance


To Whom Does Purchasing Report?

Upper-level function reporting to an Upper-level function reporting to an executive vice presidentexecutive vice president

Mid-level function reporting to an Mid-level function reporting to an executive one level below an executive executive one level below an executive vice presidentvice president

Lower-level function reporting at least Lower-level function reporting at least two levels below an executive vice two levels below an executive vice presidentpresident


Organizing the Purchasing Function

Specialization within purchasingSpecialization within purchasing Sourcing and negotiatingSourcing and negotiating Purchasing researchPurchasing research Operational support and order follow-upOperational support and order follow-up Administration and supportAdministration and support


Sourcing and Negotiating

Identifies potential suppliersIdentifies potential suppliers Negotiates with selected suppliersNegotiates with selected suppliers Performs the buying of goods and Performs the buying of goods and

servicesservices By specific itemsBy specific items By commodity familyBy commodity family By service categoriesBy service categories


Purchasing Research

Developing long-term material Developing long-term material forecastsforecasts

Conducting value analysis programsConducting value analysis programs Assessing supplier capabilitiesAssessing supplier capabilities Analyzing supplier cost structuresAnalyzing supplier cost structures


Operational Support and Follow-up

Supporting day-to-day operations Supporting day-to-day operations including expeditingincluding expediting

Preparation and transfer of material Preparation and transfer of material releasesreleases

Strategic vs. tactical purchasingStrategic vs. tactical purchasing


Administration and Support

Developing policies and proceduresDeveloping policies and procedures Administering and maintaining the Administering and maintaining the

purchasing information system and purchasing information system and databasedatabase

Determining required staffing levelsDetermining required staffing levels Developing departmental plansDeveloping departmental plans Organizing training and developmentOrganizing training and development Developing measurement systemsDeveloping measurement systems


Purchasing Department Activities

BuyingBuying ExpeditingExpediting Inventory controlInventory control TransportationTransportation Managing Managing

countertrade countertrade arrangementsarrangements

Insourcing -Insourcing -outsourcingoutsourcing

Value analysisValue analysis Purchasing Purchasing

researchresearch Material forecastingMaterial forecasting Supply managementSupply management OtherOther


Other Department Activities

Receiving and warehousingReceiving and warehousing Managing travel expensesManaging travel expenses Production planning and controlProduction planning and control Commodity futures tradingCommodity futures trading Global transportation and materials Global transportation and materials

managementmanagement Economic forecastingEconomic forecasting SubcontractingSubcontracting


Strategic Activities

Manage relationships with critical Manage relationships with critical supplierssuppliers

Develop electronic purchasing systemsDevelop electronic purchasing systems Implement companywide best practicesImplement companywide best practices Negotiate companywide supply Negotiate companywide supply

contractscontracts Manage critical commoditiesManage critical commodities


Operational Activities

Manage transactions with suppliersManage transactions with suppliers Use e-systems to source standard and Use e-systems to source standard and

direct items in electronic catalogsdirect items in electronic catalogs Source unique itemsSource unique items Generate and forward material releasesGenerate and forward material releases Provide supplier performance feedbackProvide supplier performance feedback


Placement of Purchasing Authority

CentralizedCentralized DecentralizedDecentralized Hybrid combinationHybrid combination


Size of Purchasing Staff

Type of companyType of company Nature or complexity of products and Nature or complexity of products and

services producedservices produced Physical number of items procuredPhysical number of items procured Scope of purchasing responsibilityScope of purchasing responsibility

Strategic sourcingStrategic sourcing Market research and analysisMarket research and analysis Extent of involvement in servicesExtent of involvement in services


Factors Influencing Authority

Organizational business strategyOrganizational business strategy Responsiveness vs. efficiencyResponsiveness vs. efficiency

Total purchase dollar expendituresTotal purchase dollar expenditures Cost savings requiredCost savings required Geographic dispersionGeographic dispersion

Overall philosophy of managementOverall philosophy of management


Strategic vs. Operational Sourcing

StrategicSourcing Activities

• Manage relationships with critical suppliers• Develop electronic purchasing systems• Implement companywide best practices• Negotiate companywide supply contract• Manage critical commodities

Operational Activities

• 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


Advantages of Centralization

Consolidate purchase volumesConsolidate purchase volumes Reduced duplication of purchasing effortReduced duplication of purchasing effort Ability to coordinate plans and strategiesAbility to coordinate plans and strategies Ability to coordinate and manage Ability to coordinate and manage

companywide purchasing systemscompanywide purchasing systems Developing expertiseDeveloping expertise Managing companywide changeManaging companywide change


Advantages of Decentralization

Speed and responsivenessSpeed and responsiveness Understanding unique operational Understanding unique operational

requirementsrequirements Product development supportProduct development support OwnershipOwnership


Product Development Support

Utilize early supplier involvementUtilize early supplier involvement Evaluate long-term material Evaluate long-term material

requirementsrequirements Develop strategic plansDevelop strategic plans Determine if substitute materials are Determine if substitute materials are

availableavailable Anticipate product requirementsAnticipate product requirements


Hybrid Purchasing Structures

Lead buying divisionLead buying division Regional buying groupsRegional buying groups Global buying committeesGlobal buying committees Corporate purchasing councilsCorporate purchasing councils Corporate steering committeesCorporate steering committees


Benefits of Organizing for SCM

Controlling material and service costsControlling material and service costs Developing an awareness of supply Developing an awareness of supply

chain total cost trade-offschain total cost trade-offs Opening channels of communicationOpening channels of communication Supporting high-potential career paths Supporting high-potential career paths

by developing well-rounded expertiseby developing well-rounded expertise Developing operational efficienciesDeveloping operational efficiencies Creating direct links in the supply chainCreating direct links in the supply chain


Key Processes

Customer relationship managementCustomer relationship management Customer service managementCustomer service management Demand managementDemand management Order fulfillmentOrder fulfillment Manufacturing flow managementManufacturing flow management SourcingSourcing Product development/commercializationProduct development/commercialization Return channel processesReturn channel processes


An SCM Structure Example


Challenges of Using Teams

Waste time and energyWaste time and energy Enforce lower performance normsEnforce lower performance norms Create destructive conflictCreate destructive conflict Make notoriously bad decisionsMake notoriously bad decisions Exploit, stress, and frustrate membersExploit, stress, and frustrate members


Work Team Planning Guide

Identify appropriate team assignmentsIdentify appropriate team assignments Form work team and select members Form work team and select members

and leaderand leader Determine member training Determine member training

requirementsrequirements Identify resource requirementsIdentify resource requirements


Work Team Planning Guide

Determine team authority levelsDetermine team authority levels Establish team performance goalsEstablish team performance goals Determine how to measure and reward Determine how to measure and reward

participation and performanceparticipation and performance Develop team chartersDevelop team charters


Identify Team Assignments

Do assignments justify the use of Do assignments justify the use of teams?teams?

Has the proper team model been Has the proper team model been identified (full-time vs. part-time)?identified (full-time vs. part-time)?

Does executive and functional Does executive and functional management support the use of a management support the use of a team?team?


Form Team and Select Members

Have core vs. as-needed members Have core vs. as-needed members been identified?been identified?

Do members have proper skills, time, Do members have proper skills, time, and commitment?and commitment?

Has a qualified leader been identified?Has a qualified leader been identified? Are customers and/or suppliers Are customers and/or suppliers

needed?needed? Do members understand their roles?Do members understand their roles?


Determine Training Requirements

Have team member training Have team member training requirements been assessed?requirements been assessed?

Is required training available on a Is required training available on a timely basis?timely basis?


Identify Resource Requirements

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


Determine Authority Levels

Have team authority levels been Have team authority levels been determined?determined?

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


Establish Team Performance Goals

Has the team established objective and Has the team established objective and measureable performance goals?measureable performance goals?


Measurement and Rewards

Are approaches and systems in place Are approaches and systems in place that assess team performance and that assess team performance and member contributions?member contributions?

Are there reporting linkages to team or Are there reporting linkages to team or executive sponsors?executive sponsors?

Is team performance effectively linked Is team performance effectively linked to performance reward systems?to performance reward systems?


Develop Team Charters

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

Has the charter been communicated Has the charter been communicated across the organization?across the organization?


Hurdles to Using Teams

Extensive use of part-time membersExtensive use of part-time members Not rewarding team member effortNot rewarding team member effort Individualistic U.S. national cultureIndividualistic U.S. national culture


Organization of the Future

Moving away from a functional silo or Moving away from a functional silo or vertical organizationvertical organization

Adopting a horizontal or process Adopting a horizontal or process approach that cuts across hierarchical approach that cuts across hierarchical or functional boundariesor functional boundaries


Horizontal Organization

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MarketingMarketing EngineeringEngineering FinanceFinance Supply MgtSupply Mgt

Horizontal Organization Features

Flattened hierarchiesFlattened hierarchies Faster decision makingFaster decision making Freer flow of ideasFreer flow of ideas Joint ventures and alliancesJoint ventures and alliances

Cross-functional teamsCross-functional teams Decentralized buying activity along Decentralized buying activity along

with centralized coordinationwith centralized coordination


Horizontal Organization Features

Open information channelsOpen information channels InternetInternet IntranetsIntranets Deployment of information technologyDeployment of information technology

Rotation of managers across business Rotation of managers across business unitsunits


Themes for the 21st Century

Extensive use of teamsExtensive use of teams Greater participation on new product Greater participation on new product

development teamsdevelopment teams Co-location of purchasing with internal Co-location of purchasing with internal

customerscustomers Higher-level chief purchasing officersHigher-level chief purchasing officers Dedicated supplier relationship Dedicated supplier relationship

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Co-Location with Internal Customers

Operations Engineering Marketing

Gain insight to: Gain insight to: 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


purchasing and supply chain organization

Documents

purchasing functionplacement

purchasing information

upperlevel function

purchasings positionorganizing

buying of goods

epurchasing research

eoperational support

order followupadministration