Purchasing Organization Chapter 5 Purchasing Organization Chapter 4

Organizational Structure Why important Tier 1 Reporting Tier 2 Reporting Tier 3 Reporting

Tier 1 or 2 or 3 CEO

A typical “materials” structure

Factors effecting purchasing’s position in the organization hierarchy The nature of the firm, products, and services The material/sales ratio The importance of the supply management function to senior management The talent of purchasing staff and the extent to which they market their value-adding contributions The overriding consideration in a progressive firm is the ability of purchasing to influence market and financial performance.

Organizing the purchasing function into four major areas: Sourcing and Negotiation Operational support and follow-up Administrative Support Purchasing Research (Analysis to support better purchasing)

Purchasing organization with four major areas

In Smaller organizations Purchasing usually has two functional areas Buyers Administrative support Is there an advantage to a buyer doing her own follow-up?

Getting the Strategic Stuff done—the Long-term responsibilities Small organizations: Dichotomize Larger organizations: Dichotomize + a formal “Purchasing Research” branch

Centralization vs. Decentralization Reasons to centralize Reasons to decentralize

Tendency today is toward a Hybrid Structure Corporate Level Develop Corporate-wide policies and buying practices Develop purchasing strategies to support overal strategic planning within the firm Purchasing research Set-up e-procurement systems Recruiting and Training Maintain pool of expert negotiators Establishing contracts for corporate-wide requirements Manage relationships with critical suppliers International sourcing

Tendency today is toward a Hybrid Structure Division (Operating) Level Manage all sourcing unique to that division Issue order releases against company-wide contracts Follow-up, expediting, managing the supplier base and all other activities in support of value-adding purchasing at the division level

When Purchasing is Decentralized Purchasing Councils are a good idea

Organizing the Buying Activity By Commodity or Commodity Group By End Item

Supply Management by Commodity Groups

Supply Management by Project or End Item

Advantages if the sourcing and negotiation group is organized . . . by Commodity by End item

Organization of the Future  Authority and Control In a Hierarchy Sharing information Trust Teams “First” names Flattened hierarchy Co-locations “Titles” Vertical Focus

Teams Critically important

Co-locations Suppliers within the firm Buyers with operations Requirements Supplier performance Buyers with engineering Material specifications New product requirements Buyers with marketing Promotions New product ideas

The Future: Horizontal focus and teams

Let’s move on