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

2. Purchasing & Supply Chain Management, 4e
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 & Supply Chain Management, 4e
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. Purchasing & Supply Chain Management, 4e
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
Sourcing 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
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. Purchasing & Supply Chain Management, 4e
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
President
Vice President of SCM
Director of Strategic Sourcing
Director of Production Planning
Director of Logistics
Director of Operations
Director of Customer Service
Director of Materials
Receiving and Storage Manager
Inventory Control Manager
Inbound Transportation Manager
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. Purchasing & Supply Chain Management, 4e
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. Purchasing & Supply Chain Management, 4e
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
Supplier evaluation and selection
New product development
Order generation, scheduling, and fulfillment
Integrated logistics

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
Operations
Engineering
Marketing
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 & Supply Chain Management, 4e