PURCHASING & SUPPLY CHAIN MANAGEMENT, 4e
Purchasing and Supply
Chain Organization
Chapter 5
CENGAGE LEARNING
Monczka – Handfield – Giunipero – Patterson
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
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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?
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Factors: Purchasing’s Position
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History
Type of industry
Total value of goods and services
Other
 Founding philosophy
 Type of purchased materials
 Ability to influence company performance
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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
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Organizing the Purchasing Function
 Specialization within purchasing
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Sourcing and negotiating
Purchasing research
Operational support and order follow-up
Administration and support
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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
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Purchasing Research
 Developing long-term material
forecasts
 Conducting value analysis programs
 Assessing supplier capabilities
 Analyzing supplier cost structures
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Operational Support and Follow-up
 Supporting day-to-day operations
including expediting
 Preparation and transfer of material
releases
 Strategic vs. tactical purchasing
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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
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Purchasing Department Activities
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Buying
Expediting
Inventory control
Transportation
Managing
countertrade
arrangements
 Insourcing outsourcing
 Value analysis
 Purchasing
research
 Material forecasting
 Supply management
 Other
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Other Department Activities
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Receiving and warehousing
Managing travel expenses
Production planning and control
Commodity futures trading
Global transportation and materials
management
 Economic forecasting
 Subcontracting
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Strategic Activities
 Manage relationships with critical
suppliers
 Develop electronic purchasing systems
 Implement companywide best practices
 Negotiate companywide supply
contracts
 Manage critical commodities
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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
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Placement of Purchasing Authority
 Centralized
 Decentralized
 Hybrid combination
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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
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Factors Influencing Authority
 Organizational business strategy
 Responsiveness vs. efficiency
 Total purchase dollar expenditures
 Cost savings required
 Geographic dispersion
 Overall philosophy of management
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Strategic vs. Operational Sourcing
Strategic
Sourcing
Activities
Operational
Activities
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•
•
•
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Manage relationships with critical suppliers
Develop electronic purchasing systems
Implement companywide best practices
Negotiate companywide supply contract
Manage critical commodities
• 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
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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
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Advantages of Decentralization
 Speed and responsiveness
 Understanding unique operational
requirements
 Product development support
 Ownership
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Product Development Support
 Utilize early supplier involvement
 Evaluate long-term material
requirements
 Develop strategic plans
 Determine if substitute materials are
available
 Anticipate product requirements
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Hybrid Purchasing Structures
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Lead buying division
Regional buying groups
Global buying committees
Corporate purchasing councils
Corporate steering committees
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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
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Key Processes
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Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Sourcing
Product development/commercialization
Return channel processes
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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
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Inbound
Transportation
Manager
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Challenges of Using Teams
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Waste time and energy
Enforce lower performance norms
Create destructive conflict
Make notoriously bad decisions
Exploit, stress, and frustrate members
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Work Team Planning Guide
 Identify appropriate team assignments
 Form work team and select members
and leader
 Determine member training
requirements
 Identify resource requirements
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Work Team Planning Guide
 Determine team authority levels
 Establish team performance goals
 Determine how to measure and reward
participation and performance
 Develop team charters
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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?
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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?
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Determine Training Requirements
 Have team member training
requirements been assessed?
 Is required training available on a
timely basis?
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Identify Resource Requirements
 Are sufficient resources provided or
available to support the assigned
tasks?
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Determine Authority Levels
 Have team authority levels been
determined?
 Have team authority levels been
communicated throughout the
organization?
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Establish Team Performance Goals
 Has the team established objective and
measureable performance goals?
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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?
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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?
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Hurdles to Using Teams
 Extensive use of part-time members
 Not rewarding team member effort
 Individualistic U.S. national culture
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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
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Horizontal Organization
Marketing
Engineering
Finance
Supply Mgt
Supplier evaluation and selection
New product development
Order generation, scheduling, and
fulfillment
Integrated logistics
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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
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Horizontal Organization Features
 Open information channels
 Internet
 Intranets
 Deployment of information technology
 Rotation of managers across business
units
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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
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Co-Location with Internal Customers
Operations
Engineering
Gain insight to:
Gain insight to:
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
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