




Purchasing organization structure
Influencing factors of position of purchasing
Levels of tasks, responsibilities and authority
Organizational structures within purchasing
Purchasing job profiles



 Centralized
 Centralized hybrid
 Hybrid
 Decentralized hybrid
 Decentralized


Organizational structure
Senior VP/Group VP
VP financial/CFO
Executive VP
President/CEO
COO
VP Administration
VP Manufacturing/Production/operations
Other
VP Corporate/shared Services VP
VP Materials/Logistics
VP Engineering
Total
5
4
19
17
284
#
21
21
19
48
46
43
41
2003
Total
%
16.90 %
16.20%
15.14%
14.44%
7.39%
7.39 %
6.69 %
6.69 %
5.99%
1.76%
1.41%
100.00%
18
2
22
2
304
#
-
26
48
54
34
47
48
1995
Total
%
18.75%
11.18%
15.46%
15.76%
-
8.55%
15.79%
#
-
40
71
6
21
54
47
1987
Total
%
2.06%
7.22%
18.56%
16.15%
-
13.75%
24.40%
5.92%
0.66%
7.24%
0.66%
100.00%
23
-
25
4
291
Johnson and Leenders (2004)
7.90%
-
8.59%
1.37%
100.00%

Organizational structure
Centralized
Centralized Hybrid
Hybrid
Decentralized Hybrid
Decentralized
Total
2003
#
72
Total
%
25.35 %
116
28
40.85 %
9.86 %
-
196
46
22
16.20 %
7.75 %
-
37
284 100.00% 302
1995
#
69
Total
%
22.85%
-
64.90%
#
83
-
175
1987
Total
%
28.04%
-
59.12%
-
12.25%
-
38
-
12.84%
100.00% 296 100.00%
Johnson and Leenders (2004)
These figures show that over the past decades purchasing has become much more visible a the top floor of large corporations

Factors influencing location of purchasing


The organizational location of purchasing is very much dependent on the view management holds towards the purchasing function.
Management view is related to the following factors:

Purchasing’s share in the endproduct’s cost price
 Financial position of the company
 Extent to which the company is depending on the supply market
Purchasing reports to
Purchasing turnover ratio
High
Low
Technical complexity
High
Low
Logistics complexity
High
Low
Strategic impact
High
Low x x x
General management
Production management
Logistics management
Financial management x x x x x x x x x x x x x

Strategic purchasing decisions (long term impact)









Development and issuing operational guidelines, procedures and task descriptions, which provide authority to the purchasing department
Development and implementation of auditing and review programs
Outsourcing of activities and/or functions
Establishing long term contracts with preferred suppliers
Adopting a supplier strategy based on multi- versus single sourcing
Major investments
Deciding on financial participation in suppliers (backward integration)
Formulating policies concerning transfer pricing and intercompany supplies
Formulating policies on reciprocal arrangements, countertrade, etc.

Tactical purchasing decisions (medium term impact)





Agreement on corporate and/or annual supplier agreements
Preparing and developing value analysis programs
Adopting and conducting quality certification programs for suppliers
Selection and contracting of suppliers in general
Programs aimed at supply-base reduction
Operational purchasing decisions (short term impact)





Ordering process
Expediting activities related to released orders
Invoice verification and payment
Troubleshooting
Monitoring and evaluation of supplier performance

 Relationship between the three managerial levels and some management positions
Strategic level
Tactical level
Operational level
Top management
X
Managerial level
Logistics manager
Purchasing manager.
Senior buyer
X X
X X X
X
Buying assistant
X

Organizational structures within purchasing
 Structures for multi-unit companies





Decentralized purchasing: BU purchasing is responsible for all purchasing decisions
Centralized purchasing: central purchasing department is responsible for all strategic and tactical purchasing decisions
Line/staff organization: both corporate purchasing and BU purchasing exist next to each other and divide responsibilities and activities
Hybrid structure: combination of the previous three structures aimed at combining common requirements across operating units. There are different forms of pooling: Voluntary coordination , Lead buyership and
Lead design concept .
Cross-functional sourcing teams: contracting is done centrally by a commodity team. However, all operational purchasing activities are decentralized.

Organizational structures within purchasing
Centralized versus decentralized purchasing: some criteria to consider:
 Commonality of purchasing requirements
 Geographic location
 Supply market structure
 Savings potential
 Expertise required
 Price fluctuations
 Customer demands
In practice these considerations appear to be decisive when deciding on buying products centrally or otherwise.

Organizational structures within purchasing
Centralized purchasing organizational structure (example)

Organizational structures within purchasing
Decentralized purchasing organizational structure (example)

Organizational structures within purchasing
Advantages and disadvantages of decentralised purchasing
Advantages
 Direct responsibility of operating companies




Stronger customer orientation towards internal user
Less bureaucratic purchasing procedures/higher operational flexibility
Less friction costs due to coordination
Direct communication with suppliers
Disadvantages





Dispersed purchasing power, lack of economies of scale
No uniform way of handling towards suppliers
Scattered supply market research
Limited possibilities for building up specific expertise on purchasing, supply markets and components
Different commercial purchasing conditions among different operating companies

Organizational structures within purchasing
Centralized/decentralized purchasing organizational structure (example)

Organizational structures within purchasing
Cross functional sourcing teams at IBM
Van Weele and Rozemeijer (1996)

Consequences for purchasing professionals
Function
Chief Procurement
Officer (CPO)
Corporate buyer
Category buyer
Project buyer
NPR-Buyer
Materials planner
Responsibilities
Developing corporate sourcing strategies, systems and reporting
Strategic commodities
New materials and components
New suppliers
Investment goods and maintenance goods and services
General and facility goods and services
Materials planning
Order handling troubleshooting
Vendor rating
Skills required
General management skills
Leadership
Communication skills
Commercial skills
Long term planning horizon
Communication skills
Broad business orientation
All-round technical background
Medium planning horizon
Commercial skills
Communication skills
Project management skills
Technical education
Generalist
Business administration
Commercial skills
All round
Pragmatic
Customer driven
Stress resistant

Consequences for purchasing professionals

 Higher educated (business degree, MBA)
 Responsible for more dollars
 More likely to be a women
 Negotiating more long term agreements
 Involved in outsourcing decisions
 Looking out on a global market shape
 Reducing costs and the number of suppliers




Purchasing structures appear to vary to a great extent among companies. This is due to the different views which top-managers hold towards purchasing and supply.
When analysing the scope, tasks, responsibilities and authority of the purchasing function, we differentiated between the strategic level, the tactical level and the operational level.
Purchasing structures appear to be highly volatile: a period of centralized purchasing is often followed by a change to the other way around.