Chapter 3
Supply Organization
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Key Questions Addressed in
Chapter 3
• What are the objectives of supply?
• How might supply be organized to achieve
these objectives effectively and efficiently?
• What are the activities and responsibilities of
supply management?
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Traditional View of Supply
Objectives
Obtain the right materials/services
(meeting quality requirements),
in the right quantity,
for delivery at the right time and right place,
from the right source
(a supplier who is reliable and will meet its
commitments in a timely fashion),
with the right service (both before and after the
sale),
and at the right price in the short and long term.
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Nine Goals of Supply
1. Improve the organization’s competitive position
2. Provide an uninterrupted flow of materials, supplies and
services required to operate the organization
3. Keep inventory investment and loss at a minimum
4. Maintain and improve quality
5. Find or develop best-in-class suppliers
6. Standardize, where possible, the items and services
bought and the processes used to procure them
7. Purchase required items and services at lowest total cost
of ownership
8. Achieve harmonious, productive internal relationships
9. Accomplish supply objectives at the lowest possible
operating costs
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Potential Advantages and
Disadvantages of Centralization
Advantages
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Strategic focus
Greater buying specialization
Ability to pay for talent
Consolidation of requirements - clout
Coordination of policies and procedures
Effective planning and research
Common suppliers
Proximity to major organizational decision
makers
Critical mass
Firm brand recognition and stature
Reporting line - power
Cost of purchasing low
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Disadvantages
Lack of business unit focus
Narrow specification and job boredom
Corporate staff appears excessive
Tendency to minimize legitimate differences
in requirements
Lack of recognition of unique business unit
needs
Focus on corporate requirements, not on
business unit strategic requirements
Even common suppliers behave differently in
geographic and market segments
Distance from users
Tendency to create organizational silos
Customer segments require adaptability to
unique situations
Top management not able to spend time on
suppliers
High visibility of purchasing costs
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Potential Advantages and
Disadvantages of Decentralization
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Advantages
Easier coordination/communication with
operating department
Speed of response
Effective use of local sources
Business unit autonomy
Reporting line simplicity
Undivided authority and responsibility
Suits purchasing personnel preference
Broad job definition
Geographical, cultural, political,
environmental, social, language, currency
appropriateness
Hides cost of supply
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Disadvantages
Difficult to communicate among business units
Encourages users not to plan ahead
Operational versus strategic focus
Too much focus on local sources - ignores better
supply opportunities
No critical mass in organization for visibility/
effectiveness - “whole person syndrome”
Lacks clout
Suboptimization
Business unit preferences not congruent with
corporate preferences
Small differences magnified
Reporting at low level in organization
Limits functional advancement opportunities
Ignores larger organizational considerations
Limited expertise for requirements
Lack of standardization
Cost of supply relatively high
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Advantages and Disadvantages of Hybrid,
Centralized, and Decentralized Structures
Centralized
Disadvantages
Decentralized
Advantages
Advantages
Disadvantages
Hybrid
structure
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Categories of Supply’s Roles and
Responsibilities
1. What is acquired
2. Supply chain responsibilities
3. Type of involvement in “what is acquired”
and “supply chain responsibilities”
– no involvement, documentary, professional and
meaningful involvement
4. Involvement in corporate activities
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