CHAPTER TWO

1. 2-1

2. CHAPTER TWO Objectives and Organization for Effective Purchasing and Supply Management

3. 2-3 Goals of the Purchasing Function 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 competent suppliers Standardize, where possible, the items bought Purchase required items and services at lowest cost

4. 2-4 Goals of the Purchasing Function Achieve harmonious, productive working relationships with other functional areas within the organization Accomplish the purchasing objectives at the lowest possible level of administrative costs Improve the organization�s competitive position

5. 2-5 Purchasing�s Prime Decision Authority Select the supplier Use whichever pricing method is appropriate Question the specifications Monitor contacts with potential suppliers

6. 2-6 Various Titles of the Chief Purchasing Officer Director of Purchasing VP of Purchasing Manager of Purchasing VP of Materials Management Materials Manager

7. 2-7 Purchasing Reporting Relationships

8. 2-8 Functions that Report to Purchasing: CAPS Study

9. 2-9 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

10. 2-10 Typical Purchasing Organization Structure - Medium Sized Company

11. 2-11 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

12. 2-12 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

13. 2-13 Potential Advantages of the Hybrid Structure

14. 2-14 Purchasing and Supply Teams Cross-functional teams Teams with suppliers Teams with customers Teams with suppliers and customers Supplier councils - key suppliers Purchasing councils - purchasing personnel only Commodity management teams Consortiums

15. 2-15 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

16. 2-16 Team Leader Responsibilities 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

17. 2-17 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

18. 2-18 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