Presentation on theme: "Chapter 13 Organization and structure of purchasing"— Presentation transcript:
1 Chapter 13 Organization and structure of purchasing
2 Program Purchasing organization structure Influencing factors of position of purchasingLevels of tasks, responsibilities and authorityOrganizational structures within purchasingPurchasing job profiles
3 Purchasing organization structure Strongly depends on business characteristics and situational factorsLevel of centralized or decentralized structureCentralizedCentralized hybridHybridDecentralized hybridDecentralizedUsually a mixed organizational form is chosen
4 CPO reporting line Organizational structure 2003 1995 1987 Total # % Senior VP/Group VP4816.90 %5418.75%62.06%VP financial/CFO4616.20%3411.18%217.22%Executive VP4315.14%4715.46%18.56%President/CEO4114.44%15.76%16.15%COO7.39%-VP Administration7.39 %268.55%4013.75%VP Manufacturing/Production/operations196.69 %15.79%7124.40%Other185.92%237.90%VP Corporate/shared Services VP175.99%20.66%VP Materials/Logistics51.76%227.24%258.59%VP Engineering41.41%1.37%284100.00%304291Johnson and Leenders (2004)
5 Supply organizational structure 200319951987Total#%Centralized7225.35 %6922.85%8328.04%Centralized Hybrid11640.85 %-Hybrid289.86 %19664.90%17559.12%Decentralized Hybrid4616.20 %Decentralized227.75 %3712.25%3812.84%284100.00%302296Johnson and Leenders (2004)These figures show that over the past decades purchasing has become much more visible a the top floor of large corporations
6 Factors influencing location of purchasing The organizational location of purchasing is very much dependent on the view management holds towards the purchasing function.Management view is related to the following factors:Purchasing’s share in the end-product’s cost priceFinancial position of the companyExtent to which the company is depending on the supply market
7 Tasks, responsibilities and authorities Strategic purchasing decisions (long term impact)Development and issuing operational guidelines, procedures and task descriptions, which provide authority to the purchasing departmentDevelopment and implementation of auditing and review programsOutsourcing of activities and/or functionsEstablishing long term contracts with preferred suppliersAdopting a supplier strategy based on multi- versus single sourcingMajor investmentsDeciding on financial participation in suppliers (backward integration)Formulating policies concerning transfer pricing and intercompany suppliesFormulating policies on reciprocal arrangements, countertrade, etc.
8 Tasks, responsibilities and authorities Tactical purchasing decisions (medium term impact)Agreement on corporate and/or annual supplier agreementsPreparing and developing value analysis programsAdopting and conducting quality certification programs for suppliersSelection and contracting of suppliers in generalPrograms aimed at supply-base reductionOperational purchasing decisions (short term impact)Ordering processExpediting activities related to released ordersInvoice verification and paymentTroubleshootingMonitoring and evaluation of supplier performance
9 Tasks, responsibilities and authorities Relationship between the three managerial levels and some management positionsManagerial levelTopmanagementLogisticsmanagerPurchasingmanager.SeniorbuyerBuyingassistantStrategic level X X XTactical level X X XOperational level X X
10 Organizational structures within purchasing Structures for multi-unit companiesDecentralized purchasing: BU purchasing is responsible for all purchasing decisionsCentralized purchasing: central purchasing department is responsible for all strategic and tactical purchasing decisionsLine/staff organization: both corporate purchasing and BU purchasing exist next to each other and divide responsibilities and activitiesHybrid structure: combination of the previous three structures aimed at combining common requirements across operating units. There are different forms of pooling: Voluntary coordination, Lead buyership and Lead design concept.Cross-functional sourcing teams: contracting is done centrally by a commodity team. However, all operational purchasing activities are decentralized.
11 Organizational structures within purchasing Centralized versus decentralized purchasing: some criteriato consider:Commonality of purchasing requirementsGeographic locationSupply market structureSavings potentialExpertise requiredPrice fluctuationsCustomer demandsIn practice these considerations appear to be decisive when deciding on buying products centrally or otherwise.
12 Organizational structures within purchasing Centralized purchasing organizational structure (example)
13 Organizational structures within purchasing Decentralized purchasing organizational structure (example)
14 Organizational structures within purchasing Advantages and disadvantages of decentralised purchasingAdvantagesDirect responsibility of operating companiesStronger customer orientation towards internal userLess bureaucratic purchasing procedures/higher operational flexibilityLess friction costs due to coordinationDirect communication with suppliersDisadvantagesDispersed purchasing power, lack of economies of scaleNo uniform way of handling towards suppliersScattered supply market researchLimited possibilities for building up specific expertise on purchasing, supply markets and componentsDifferent commercial purchasing conditions among different operating companies
15 Organizational structures within purchasing Centralized/decentralized purchasing organizational structure (example)
16 Organizational structures within purchasing Cross functional sourcing teams at IBMVan Weele and Rozemeijer (1996)
17 Consequences for purchasing professionals FunctionResponsibilitiesSkills requiredChief Procurement Officer (CPO)Developing corporate sourcing strategies, systems and reportingGeneral management skillsLeadershipCommunication skillsCorporate buyerStrategic commoditiesCommercial skillsLong term planning horizonBroad business orientationCategory buyerNew materials and componentsNew suppliersAll-round technical backgroundMedium planning horizonProject buyerInvestment goods and maintenance goods and servicesProject management skillsTechnical educationNPR-BuyerGeneral and facility goods and servicesGeneralistBusiness administrationMaterials plannerMaterials planningOrder handlingtroubleshootingVendor ratingAll roundPragmaticCustomer drivenStress resistant
18 Consequences for purchasing professionals Compared with ten years ago, purchasing professionals are:Higher educated (business degree, MBA)Responsible for more dollarsMore likely to be a womenNegotiating more long term agreementsInvolved in outsourcing decisionsLooking out on a global market shapeReducing costs and the number of suppliers
19 ConclusionsPurchasing structures appear to vary to a great extent among companies. This is due to the different views which top-managers hold towards purchasing and supply.When analysing the scope, tasks, responsibilities and authority of the purchasing function, we differentiated between the strategic level, the tactical level and the operational level.Purchasing structures appear to be highly volatile: a period of centralized purchasing is often followed by a change to the other way around.