Purchasing Organization

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Chapter 5

• Purchasing Organization

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Organizational Structure

• Why important
• Tier 1 Reporting
• Tier 2 Reporting
• Tier 3 Reporting

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Tier 1 or 2 or 3
CEO
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A typical materials structure
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Factors effecting purchasings 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.
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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)
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Purchasing organization with four major areas
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In Smaller organizations

• Purchasing usually has two functional areas
• Buyers
• Administrative support

Is there an advantage to a buyer doing her own
follow-up?
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Getting the Strategic Stuff donethe Long-term
responsibilities
Small organizations Dichotomize
Larger organizations Dichotomize a formal
Purchasing Research branch
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Centralization vs. Decentralization

• Reasons to centralize
• Reasons to decentralize

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Tendency today is toward aHybrid 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

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Tendency today is toward aHybrid 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

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When Purchasing is Decentralized

• Purchasing Councils are a good idea

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Organizing the Buying Activity

• By Commodity or Commodity Group
• By End Item

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Supply Management byCommodity Groups
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Supply Management byProject or End Item
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Advantages if the sourcing and negotiation group
is organized . . .

• by Commodity
• by End item

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Organization of the Future
?
Authority and Control In a Hierarchy

• Sharing information
• Trust
• Teams

• First names
• Flattened hierarchy
• Co-locations

• Titles
• Vertical Focus

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Teams

• Critically important

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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

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The FutureHorizontal focus and teams
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Lets move on