Purchasing and Supply Chain Organization

1. Purchasing and Supply Chain Organization Chapter 5 CENGAGE LEARNING Monczka – Handfield – Giunipero – Patterson

2. Chapter Overview • Purchasing’s position within the organizational structure • Factors affecting purchasing’s 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

3. 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 purchasing’s position in the organizational structure important? Purchasing & Supply Chain Management, 4e

4. Factors: Purchasing’s Position • History • Type of industry • Total value of goods and services • Other • Founding philosophy • Type of purchased materials • Ability to influence company performance Purchasing & Supply Chain Management, 4e

5. 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 Purchasing & Supply Chain Management, 4e

6. Organizing the Purchasing Function • Specialization within purchasing • Sourcing and negotiating • Purchasing research • Operational support and order follow-up • Administration and support Purchasing & Supply Chain Management, 4e

7. 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 Purchasing & Supply Chain Management, 4e

8. Purchasing Research • Developing long-term material forecasts • Conducting value analysis programs • Assessing supplier capabilities • Analyzing supplier cost structures Purchasing & Supply Chain Management, 4e

9. Operational Support and Follow-up • Supporting day-to-day operations including expediting • Preparation and transfer of material releases • Strategic vs. tactical purchasing Purchasing & Supply Chain Management, 4e

10. 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 Purchasing & Supply Chain Management, 4e

11. Purchasing Department Activities • Buying • Expediting • Inventory control • Transportation • Managing countertrade arrangements • Insourcing -outsourcing • Value analysis • Purchasing research • Material forecasting • Supply management • Other Purchasing & Supply Chain Management, 4e

12. Other Department Activities • Receiving and warehousing • Managing travel expenses • Production planning and control • Commodity futures trading • Global transportation and materials management • Economic forecasting • Subcontracting Purchasing & Supply Chain Management, 4e

13. Strategic Activities • Manage relationships with critical suppliers • Develop electronic purchasing systems • Implement companywide best practices • Negotiate companywide supply contracts • Manage critical commodities Purchasing & Supply Chain Management, 4e

14. 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 Purchasing & Supply Chain Management, 4e

15. Placement of Purchasing Authority • Centralized • Decentralized • Hybrid combination Purchasing & Supply Chain Management, 4e

16. 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 Purchasing & Supply Chain Management, 4e

17. Factors Influencing Authority • Organizational business strategy • Responsiveness vs. efficiency • Total purchase dollar expenditures • Cost savings required • Geographic dispersion • Overall philosophy of management Purchasing & Supply Chain Management, 4e

18. Strategic vs. Operational Sourcing Purchasing & Supply Chain Management, 4e

19. 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 Purchasing & Supply Chain Management, 4e

20. Advantages of Decentralization • Speed and responsiveness • Understanding unique operational requirements • Product development support • Ownership Purchasing & Supply Chain Management, 4e

21. Product Development Support • Utilize early supplier involvement • Evaluate long-term material requirements • Develop strategic plans • Determine if substitute materials are available • Anticipate product requirements Purchasing & Supply Chain Management, 4e

22. Hybrid Purchasing Structures • Lead buying division • Regional buying groups • Global buying committees • Corporate purchasing councils • Corporate steering committees Purchasing & Supply Chain Management, 4e

23. 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 Purchasing & Supply Chain Management, 4e

24. Key Processes • Customer relationship management • Customer service management • Demand management • Order fulfillment • Manufacturing flow management • Sourcing • Product development/commercialization • Return channel processes Purchasing & Supply Chain Management, 4e

25. An SCM Structure Example Purchasing & Supply Chain Management, 4e

26. Challenges of Using Teams • Waste time and energy • Enforce lower performance norms • Create destructive conflict • Make notoriously bad decisions • Exploit, stress, and frustrate members Purchasing & Supply Chain Management, 4e

27. Work Team Planning Guide • Identify appropriate team assignments • Form work team and select members and leader • Determine member training requirements • Identify resource requirements Purchasing & Supply Chain Management, 4e

28. Work Team Planning Guide • Determine team authority levels • Establish team performance goals • Determine how to measure and reward participation and performance • Develop team charters Purchasing & Supply Chain Management, 4e

29. 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? Purchasing & Supply Chain Management, 4e

30. 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? Purchasing & Supply Chain Management, 4e

31. Determine Training Requirements • Have team member training requirements been assessed? • Is required training available on a timely basis? Purchasing & Supply Chain Management, 4e

32. Identify Resource Requirements • Are sufficient resources provided or available to support the assigned tasks? Purchasing & Supply Chain Management, 4e

33. Determine Authority Levels • Have team authority levels been determined? • Have team authority levels been communicated throughout the organization? Purchasing & Supply Chain Management, 4e

34. Establish Team Performance Goals • Has the team established objective and measureable performance goals? Purchasing & Supply Chain Management, 4e

35. 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? Purchasing & Supply Chain Management, 4e

36. 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? Purchasing & Supply Chain Management, 4e

37. Hurdles to Using Teams • Extensive use of part-time members • Not rewarding team member effort • Individualistic U.S. national culture Purchasing & Supply Chain Management, 4e

38. 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 Purchasing & Supply Chain Management, 4e

39. Horizontal Organization Marketing Engineering Finance Supply Mgt

40. 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 Purchasing & Supply Chain Management, 4e

41. Horizontal Organization Features • Open information channels • Internet • Intranets • Deployment of information technology • Rotation of managers across business units Purchasing & Supply Chain Management, 4e

42. 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 Purchasing & Supply Chain Management, 4e

43. Co-Location with Internal Customers Purchasing & Supply Chain Management, 4e