Chapter 3
Organizing The Purchasing
Function
IDIS 424
Spring 2004
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Purchasing Councils
Pursuing purchasing leadership will lead to the development of an
executive purchasing council with high-level responsibilities.
Establish strategy
direction for
commodities
Establish corporate cost
savings targets
Develop common
worldwide sourcing
policies and procedures
Executive
Purchasing
Council
Search “outside the box”
for new sourcing options
and methods
Charter and staff global
sourcing strategy
development teams
Measure and report
compliance to corporate-wide
global agreements
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Integrating the Supply Chain
Competition is forcing suppliers to work closely with the purchaser/OEM to
understand end customer requirements
Suppliers
OEM/Producer
Customer
Customer Advisory Board
What is the benefit of key suppliers participating on an OEM’s customer
advisory board?
 Suppliers better understand end customer requirements
 Suppliers better understand how they fit within the OEM’s business model
 Suppliers can commit direct investment targeted to the needs of the end customer
 Suppliers better understand supply chain risks and opportunities
 Suppliers better understand demand planning data as its is developed and shared
upstream
3
Supplier Councils
Supplier councils will increasingly become part of the purchasing and
supply management organization
Supplier Council
Characteristics
Objectives
 Involves 8-12 key noncompeting suppliers
 Share future product
development plans
 Membership rotates among
suppliers
 Develop joint measures of
supply chain success
 Features executive to executive
interaction
 Create a co-destiny and trust
between supply chain members
 Meets on a regular basis
 Align long-range goals and
technology development
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Social and Workplace Changes
The need to pursue strategic sourcing will create instability within
purchasing and supply organizations
 Movement of purchasing professionals between
organizations often results in compensation
discrepancies as new hires arrive with higher pay
and benefits
 The need to elevate the level of purchasing
professional often results in “buying” talent in the
open market at a premium price
The New
Purchasing and
Supply
Management
Workplace
 New employees are increasingly demanding to
work from home or remote sites, presenting
communication, coordination, and organizational
challenges
 Professionals from other functional groups will
increasingly accepting assignments in
procurement. These professionals often arrive
from groups that historically pay more than
procurement, creating pay differentials
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Developing Organizational
Structures
Developing the right organizational structure will become “more chaotic”
because of the convergence of many factors...
 Commodity sourcing experts will
increasingly be dispersed around the
globe at business unit or geographic
buying locations (with coordination)
 Sourcing personnel will increasingly
have dual reporting relationships
 Greater use of global commodity teams
adds to organizational complexity
 Increased global sourcing requires the
coordination of worldwide purchasing
activities
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Developing Organizational
Structures
Developing the right organizational structure will become “more chaotic”
because of the convergence of many factors...
 A shared services model requires an
umbrella organization to oversee
activities across business units
 An integrated supply chain perspective
will result in new executive positions with
responsibility for overseeing and
coordinating supply chain activities
 E-procurement systems will place
purchasing authority at different levels
and locations throughout the
organization
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Key Procurement
Organizational Features
A global procurement
board or council that
oversees global activities
A chief procurement officer
who executes purchasing
council decisions
A flat, horizontal structure with
teams responsible for sourcing
strategy development
A separation of strategic
and tactical supply
management responsibilities
KEY ORGANIZATIONAL
DESIGN FEATURES
New positions to
manage operational
purchasing
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Purchasing’s Changing Role
Higher-level outsourcing will begin to shift how procurement and
supply organizes its activities and responsibilities
Component Outsourcing
Outsourcing
 Manage thousand of
component part
numbers
 Manage thousands of
component suppliers
 Manage hundreds of
basic contracts
 Employ many buyers
 Pursue traditional
relationships with
most suppliers
System Outsourcing
 Manage 100 or fewer
critical suppliers
 Manage strategic
relationships
Procurement
and Supply’s
Role
 Develop alliances and
partnerships
 Pursue cross-
organizational
integration
 Pursue value-creating
strategic sourcing
activities
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Sourcing’s New Look
 Smaller professional staff
 Minimal involvement with day-to-day operations or
transactions
 Act as an internal consultant and problem solver
 Responsible for managing alliances and other
critical relationships
 Greater responsibility for non-traditional purchasing
Sourcing’s
New Look
The design and
structure of the
sourcing group
will change
significantly
 Involvement with cross-enterprise negotiations
 Manage integrative activities with suppliers and the
rest of the organization
 Become process managers that oversee strategic
and tactical responsibilities
 Segment sourcing strategies to match requirements
with an appropriate strategy
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International Purchasing
Offices
International Purchasing Offices (IPOs) will become an important part of the
organizational structure as companies shift from regional to global sourcing
Europe
North America
Asia-Pacific
South America
Role of International Purchasing Offices
Identify potential suppliers
Manage technical concerns
Solicit quotes or proposals
Represent the buying firm to
suppliers
Expedite and trace shipments
Negotiate supply contracts
Manage countertrade
Obtain product samples
Perform supplier site visits
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Separating Purchasing Authority
A separation of purchasing activities will occur as organizations
structure themselves to pursue strategic sourcing
Strategic Sourcing
Activities...
 Manage strategic relationships
 Develop company-wide electronic systems
 Develop and manage alliances and partnerships
 Develop company-wide contracts
 Manage critical commodities
 Execute transactions with strategic suppliers
Transactional
Activities...
 Use e-systems to obtain standard or indirect
items through catalogues
 Source items that are unique to the operating
unit
 Generate and forward material releases
 Manage accounts payable and material control
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Co-Location with Internal
Customers
Procurement support personnel will increasingly co-locate with internal
customers to achieve greater understanding of requirements and integration
Operations
Engineering
 Insight into supplier
performance
 Requirements in cost,
quality, delivery, cycle
time
 Insight into capacity,
material, and service
needs
 Evolving product and
process technology
requirements
 Early insight into
Marketing
 Forecast and demand
planning requirements
 Early insight into new
product ideas
material specifications
 Support new product
teams
Procurement Support Personnel
Formally report to the procurement organization
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