Purchasing & Storage Management Instructor Abdel Fatah Afifi MA&T, MBA, PCT, ACPA 2 nd Semester 09/10

Textbook Purchasing and Supply Chain Management: Strategies and Realities Michael Quayle University of Glamorgan, UK 2006

Chapter 3 Purchasing Policy

Policy Issues  Purchasing and Procurement policy,  Definition and structure,  Centralization vs. Decentralization,  Consortia and associated issues,  Possible departmental structures,  Benchmarking.  Reciprocal trade,  Intracompany,  Purchasing ethics

Reciprocal Trade  Reciprocity involves a two-way flow of trade between companies so that each is both a seller and a buyer.  A potential reciprocal trading situation is one that can cause conflict within the company between the purchasing department and the selling department.

Intracompany Trading  The growth of multi product companies has increased the opportunities for internal trading between different parts of the same company.  A policy decision is needed to state how such possibilities should be handled.

Question for discussion: Would you please:  compare the cost of using an internal source with the costs of using an independent supplier?

Selecting Overall Policy  The ability of the organization to develop and apply effective purchasing policy will be conditioned by several factors, and there are roles for a purchasing manager that relate to the development of policy. Among these are: 1. Generating alternative solutions to procurement problems, 2. Protecting the cost structure of the organization, 3. Minimizing purchasing costs, 4. Assuring long-range sources of supply, and 5. Maintaining good relationships with suppliers.

Structure of Purchasing Organization  The ability of the organization to develop and apply effective purchasing policy depends partly on the perceptions of managers at all levels.  The manager charged with the development of a policy should recognize that these perceptions are affected by: 1. The existing company structure, 2. The quality of its internal communication system, 3. The past experience of the company and its managers, 4. The resources available.

roles for a purchasing manager that relate to the development of policy 1. Generating alternative solutions to procurement problems. 2. Protecting the cost structure of the organization. 3. Minimizing purchasing costs. 4. Assuring long-range sources of supply. 5. Maintaining good relationships with suppliers.

Structure of Purchasing Organization 1. Purchasing manager should pay close attention to the development of the organizational structure for the purchasing function. 2. Organization is concerned with the division of work and the delegation of authority and responsibility in such a way that the objectives of the organization can be achieved. 3. It also involves defining the duties of personnel and the relationships between them.

Activities in the Purchasing Function A wide variety of arrangements can be found concerning the activities that should be included under the control of the purchasing manager. 1. Categories of goods purchased. 2. Progressing or expediting. 3. Purchasing in distributive organizations. 4. Stores and stock control, including goods receiving.

Division of Work amongst Buying Groups Negotiating Links  It is worth remembering that there are many links in the negotiation chain. These include: 1. Bidding, 2. Bargaining, and 3. Agreement;  They include: 1. Introductions, 2. Negotiation research, and 3. Planning.  The information flow may be complex, partnerships may be under consideration (or existing), and there is a need for continuous improvement allied to value for money.

Give your Opinion on the coming statements?  Buyers may be appointed to handle purchases for a particular product line or manufacturing division.  In addition, workloads can be divided up according to geographical

Answer and Comments: 1. The division of work between buying groups and buyers should be made on a logical basis. 2. In single product, single-site organizations the major principle adopted is to divide purchasing work according to commodities. 3. Each section and each buyer would be given responsibilities for particular groups of products. 4. Thus, Buying Group 1 might be authorized to purchase all the industrial materials, Group 2 might be responsible for industrial equipment, and Group 3 might be given industrial supplies and services. 5. Individual buyers would then be given narrower ranges within each section.

The Position of Purchasing Management in the Organization 1. The position of the purchasing manager within the organization hierarchy is an important determinant of the impact that the department can have. 2. A high position and high status enables an effective, progressive approach to purchasing work to be implemented. 3. Support from the general manager helps to increase recognition for the function and to encourage good horizontal relationships with other departments. 4. In the 21st century we should have more purchasing managers at board level. In the last analysis, however, it is successful performance that earns the respect of others in the organization.

Division of work by product

Alternative Structures for the Purchasing Function in Complex companies There are three possible solutions to the problem of organizing the purchasing function in complex organizations. 1. Complete centralization 2. Complete decentralization 3. Multilevel structure

1- Complete centralization One central purchasing department controls the purchasing of all supplies for various scattered units or factories.

2- Complete decentralization each separate unit or factory has its own purchasing department and is responsible for obtaining its own requirements.

Multilevel structure Each unit has its own purchasing department, but a central purchasing department has some powers to coordinate the activities of the local departments.

Advantages of Centralization 1. Economies of bulk buying of items commonly used at each unit. 2. Avoidance of “competitive” buying by individual departments of materials in short supply. 3. Opportunities for development of greater knowledge about products 4. Savings in operating costs. 5. Development of common procedures, forms, standards, and specifications. 6. Simpler relationship with suppliers. 7. Investigations of new products and materials 8. Centralization of stock control. 9. Development of improved support services made possible 10. Enhanced importance of the supplies department 11. More scope for purchasing strategy 12. More scope for manpower planning in the function

Advantages of Decentralization 1. Closer coordination with local organization and buyers. 2. Buyer is in direct touch with the problems. 3. Local buyers are better informed about local markets. 4. Clear responsibility of buyers to local management. 5. Local plants may need a different range of products.

A Multilevel Structure for Purchasing Management 1. The multilevel approach attempts to obtain the advantages of both the previous models. 2. The division of duties between the two levels which is designed to achieve this are as follows: 1. Central Office 2. Local Offices 3. Sourcing Form

Factors resulting in sourcing form