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Chapter 5

Chapter 5 . Purchasing Organization. Organizational Structure. Why important Tier 1 Reporting Tier 2 Reporting Tier 3 Reporting. Tier 1 or 2 or 3. CEO. A typical “materials” structure. Factors effecting purchasing’s position in the organization hierarchy.

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Chapter 5

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  1. Chapter 5 Purchasing Organization

  2. Organizational Structure • Why important • Tier 1 Reporting • Tier 2 Reporting • Tier 3 Reporting

  3. Tier 1 or 2 or 3 CEO

  4. A typical “materials” structure

  5. Factors effecting purchasing’s position in the organization hierarchy • The nature of the firm, products, and services • The material/sales ratio • The importance of the supply management function to senior management • The talent of purchasing staff and the extent to which they market their value-adding contributions The overriding consideration in a progressive firm is the ability of purchasing to influence market and financial performance.

  6. Organizing the purchasing function into four major areas: • Sourcing and Negotiation • Operational support and follow-up • Administrative Support • Purchasing Research (Analysis to support better purchasing)

  7. Purchasing organization with four major areas

  8. In Smaller organizations • Purchasing usually has two functional areas • Buyers • Administrative support Is there an advantage to a buyer doing her own follow-up?

  9. Getting the Strategic Stuff done—the Long-term responsibilities Small organizations: Dichotomize Larger organizations: Dichotomize + a formal “Purchasing Research” branch

  10. Centralization vs. Decentralization • Reasons to centralize • Reasons to decentralize

  11. Tendency today is toward aHybrid Structure • Corporate Level • Develop Corporate-wide policies and buying practices • Develop purchasing strategies to support overal strategic planning within the firm • Purchasing research • Set-up e-procurement systems • Recruiting and Training • Maintain pool of expert negotiators • Establishing contracts for corporate-wide requirements • Manage relationships with critical suppliers • International sourcing

  12. Tendency today is toward aHybrid Structure • Division (Operating) Level • Manage all sourcing unique to that division • Issue order releases against company-wide contracts • Follow-up, expediting, managing the supplier base and all other activities in support of value-adding purchasing at the division level

  13. When Purchasing is Decentralized • Purchasing Councils are a good idea

  14. Organizing the Buying Activity • By Commodity or Commodity Group • By End Item

  15. Supply Management byCommodity Groups

  16. Supply Management byProject or End Item

  17. Advantages if the sourcing and negotiation group is organized . . . • by Commodity • by End item

  18. Organization of the Future  Authority and Control In a Hierarchy • Sharing information • Trust • Teams • “First” names • Flattened hierarchy • Co-locations • “Titles” • Vertical Focus

  19. Teams • Critically important

  20. Co-locations • Suppliers within the firm • Buyers with operations • Requirements • Supplier performance • Buyers with engineering • Material specifications • New product requirements • Buyers with marketing • Promotions • New product ideas

  21. The Future:Horizontal focus and teams

  22. Let’s move on

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