Chapter 3
Supply
Organization
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved.
3-2
Traditional View of
Supply Objectives
Obtain the right materials (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.
3-3
Nine Goals of Supply
1.
2.
3.
4.
5.
6.
7.
8.
9.
Improve the organization’s competitive position
Provide an uninterrupted flow of materials, supplies and services
required to operate the organization
Keep inventory investment and loss at a minimum
Maintain and improve quality
Find or develop best-in-class suppliers
Standardize, where possible, the items and services bought and
the processes used to procure them
Purchase required items and services at lowest total cost of
ownership
Achieve harmonious, productive internal relationships
Accomplish supply objectives at the lowest possible operating
costs
3-4
Structure Options for
Large Organizations
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Centralized: Authority and responsibility for most supply-related
functions are assigned to a central organization .
Hybrid: Authority and responsibility are shared between a central
supply organization and business units, divisions, or operating plants.
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May lean more heavily toward centralized or decentralized depending
division of decision-making authority.
One type is a “center-led” organization in which strategic direction is
centralized and execution is decentralized.
Decentralized: Authority and responsibility for supply-related functions
are dispersed throughout the organization.
3-5
Potential Advantages and
Disadvantages of Centralization
Disadvantages
Advantages
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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
strategic focus
cost of purchasing low
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narrow specification and job boredom
lack of job flexibility
corporate staff appears excessive
tendency to minimize legitimate differences in
requirements
lack of recognition of unique 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
lack of business unit focus
high visibility of purchasing costs
3-6
Potential Advantages and
Disadvantages of Decentralization
Advantages
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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
hide cost of supply
Disadvantages
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more 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
3-7
Advantages and Disadvantages of
Hybrid, Centralized and
Decentralized Structures
Centralized
Disadvantages
Decentralized
Advantages
Advantages
Hybrid
structure
Disadvantages
3-8
CPO Trends
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Increasing education levels
CPOs tend to report hire in the organization than they did in the 1980s
and 1990s
CPOs are increasingly being hired from outside the organization rather
than promoted from within
CPOs are increasingly being hired from functional areas other than
supply
When a new CPO replaces a current CPO, the current CPO is
promoted or leaves the company for a similar position in another firm
CPO reporting lines change every 2.5 years on average, which means
that the typical CPO will have at least two different bosses during his
or her tenure in the role
The CPO role is still new in many organizations
3-9
Supply can have Key Roles and
Responsibilities in Four Areas
1.
What is acquired
2.
Supply chain responsibilities
3.
Type of involvement in “what is acquired” and
“supply chain responsibilities
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4.
no involvement, documentary, professional and
meaningful involvement
Involvement in corporate activities
3 - 10
Purchasing Activities
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Purchasing/buying
Purchasing research
Inventory control
Transportation
Environmental and investment recovery/disposal
Forecasting and planning
Outsourcing and subcontracting
Nonproduction/nontraditional purchases
Supply chain management
3 - 11
Purchasing and Supply Teams
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Cross-functional teams
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sourcing, new product development/service development,
commodity management
Teams with suppliers
Teams with customers
Teams with suppliers and customers
Supplier councils - key suppliers
Purchasing councils - purchasing personnel only
Commodity management teams
Consortia