Chapter 3

1. Chapter 3 Supply Organization

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. Nine Goals of Supply 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

4. Typical Supply Organization Structure - Medium Sized Company Director of Purchasing Commodity Manager Commodity Manager Manager Administration and Processes Materials Manager Stores/ Warehouse Manager Buyer Manager e-Purchasing Buyer Manager p-cards Buyer Buyer Receiving Inspection Manager Manager Purchasing Research Manager Transportation

5. Structure Options for Large Organizations 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. Hybrid structures may lean more heavily toward centralized or decentralized depending division of decision-making authority. One type of hybrid supply structure 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.

6. Potential Advantages and Disadvantages of Centralization Advantages 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 • Disadvantages • 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

7. Potential Advantages and Disadvantages of Decentralization 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 hide cost of supply • Disadvantages • 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

8. Advantages and Disadvantages of Hybrid, Centralized and Decentralized Structures Centralized Decentralized Disadvantages Advantages Advantages Disadvantages Hybridstructure

9. Various Titles of the Chief Purchasing Officer VP of Supply VP of Purchasing VP of Strategic Sourcing VP Supply Chain Management Director, Global Procurement General Manager, Supply

10. CPO Trends 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

11. Most Common CPO Reporting Lines CEO Executive Vice President Vice President of Finance/CFO Group Vice President Senior Vice President

12. Supply can have Key Roles and Responsibilities in Four Areas What is acquired Supply chain responsibilities Type of involvement in “what is acquired” and “supply chain responsibilities no involvement, documentary, professional and meaningful involvement Involvement in corporate activities

13. Purchasing Activities Purchasing/buying Purchasing research Inventory control Transportation Environmental and investment recovery/disposal Forecasting and planning Outsourcing and subcontracting Nonproduction/nontraditional purchases Supply chain management

14. Purchasing and Supply Teams Cross-functional teams 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

15. Key Success Factors for Successful Teams Supportive organizational culture, structure, and systems. A common compelling purpose, measurable goals, and feedback for individual and team. Organized for customer satisfaction rather than individual functional success. All functional areas involved in up-front planning, shared leadership roles, and role flexibility.

16. Key Success Factors for Successful Teams The right people (right qualifications), in the right place (on a team that needed their skills), at the right time (when those skills were needed). A common, agreed-upon work approach and investment in a high level of communication. Dedication to performance and implementation with decisions delegated to the appropriate level. Integration of all relevant functional areas and various teams throughout the project life cycle.

17. Team Leader Responsibilities Work with the team to establish and commit to performance goals Secure individual member involvement and commitment Manage internal team conflict Help maintain team focus and direction Secure required organizational resources Prevent team domination by a member or function Deal with internal and external obstacles confronting the team Coordinate multiple tasks and manage the status of team assignments Clarify and help define each team member’s role Provide performance feedback to members

18. Keys for Successful Consortiums Reducing total costs for the consortium members Through lower prices, higher quality and better services Eliminating and avoiding all real and perceived violations of anti-trust regulations Installing sufficient safeguards to avoid real and perceived threats concerning disclosure of confidential and proprietary information

19. Keys for Successful Consortiums Mutual and equitable sharing of risks, costs and benefits to all stakeholders, including buying firms/members, suppliers and customers Maintaining a high degree of trust and professionalism Maintaining a strong similarity among consortium members and compatibility of needs, capabilities, philosophies and corporate cultures