Organizational structures Purchasing and Supply Chain Management Organizational structures (Structure and Supply Chain + Purchasing structure and design)

Structure and Supply Chains Mintzberg Definition An organisation structure is the sum total of the ways in which the enterprise divides its labour into distinct tasks and achieves co-ordination among them. Control Requires: A power base – organisational, personal A control mechanism that may take the form of one of the following: Centralisation Formalisation Output control Cultural control

Structure and Supply Chains McKinsey’s 7S Model Seven interrelated factors that organisations wishing to become more customer orientated need to address Shared Values Skills Style Systems Structure Strategy Staff Breaking down of functional barriers Information flow Style or cooperation, relationships, trust, information sharing etc. Purchasing contribution to marketing, alliance, growth, diversification etc. Ways in which things are done around here

“Hasting” Seven Characteristics of New Type Organisations Structure and Supply Chains “Hasting” Seven Characteristics of New Type Organisations Radical Decentralisation Demanding Expectations Distributed Leadership Networking & Reciprocity Intense Interdependence Transparent Performance Standards Boundary Busting „Small is beautiful“ Leadership distributed among people Direct relationships and communication between individuals + multidisciplinary approaches

Structure and Supply Chains “A network structure is a series of strategic alliances that an organisation forms with suppliers, manufacturers and distributors to produce and market a product.” A network is not a world of individual and isolated transactions. Network structures allow organisations to bring resources together on a long-term basis to reduce costs. Networks relate to all aspects of the supply chain, including marketing and distribution.

Second-tier Suppliers Structure and Supply Chains Factors in Configuration Those that integrate for direct supply to the assembler or who have a significant technical influence on the assembly while supplying indirectly First-tier Suppliers Second-tier Suppliers Those that supply components to first-tier suppliers for integration into systems or provide some support service

Structure and Supply Chains

Lean Production – Key Aspects Structure and Supply Chains Lean Production – Key Aspects Target costing – work backwards to meet target 1 Use of value engineering/value analysis 2 Use of cross functional teams 3 Just-in-time pull system 4 Zero defects 5 Assembler and first-tier supplier co-operation 6

Structure and Supply Chains Enablers of Agile Manufacturing Directly collects customer requirements through on-line communications systems Electronic commerce Provides a quick response to the need for shorter product development cycles Concurrent engineering This includes CAD, CAE and CE to reduce product development times (computer-aided design, computer-aided estimates, computer engineering) Rapid prototyping tools The integration of diverse systems of participating organisations Integrated product/production systems Achievable through tools such as IT and QFD techniques (quality function development) Rapid partnership formation tools A temporary alliance of partner enterprises located all over the world Physically distributed teams & manufacturing Each Functional aspect may be performed by many different organisations using Internet Virtual enterprise

The virtual organisation structure

Structure and Supply Chains Value Stream Mapping Tools Provides overviews of a particular supply chain from an industry perspective Physical structure Identification for the purpose of improvement Quality filter mapping Identifies when products stop being made in accordance with actual demand Decision point analysis Identification of demand changes along the supply chain Demand amplification Targeting of inventory reductions Production variety funnel Reduction of lead times and inventory Supply chain response matrix Reduction of waste Process activity mapping

Structure and Supply Chains Flow of ownership Supply chains and the principal ‘flows’

Structure and Supply Chains A simplified supply chain or value stream

Structure and Supply Chains The value stream of a soft drink can

Structure and Supply Chains Convergent and divergent elements in a supply chain

Structure and Supply Chains Types of supply chain

Structure and Supply Chains Types of supply chain (Continued)

Structure and Supply Chains Types of supply chain (Continued)

Four Factors Impacting on Structure Purchasing Structure and Design Environmental Factors and Purchasing Structure Four Factors Impacting on Structure Downsizing 1 E-commerce 2 Global Sourcing 3 Partnering & Outsourcing 4 The two strategies in (4) above may in some circumstances be unrelated. Create leaner and more responsive organisation Streamlining, EDI

Characteristics Advantages Disadvantages Purchasing Structure and Design Purchasing as a Functional Department Characteristics Advantages Disadvantages Work is tasks Prime focus of the individual and his/her job Chain of command goes up the functional ladder Manager’s job to match people to tasks Physical location together in the department Specialists available High morale Ease of supervision and control Simplification of training Operational efficiency More concerned with reporting and authority Guards the big picture Prefers one-on-one problem solving Actual to budget matrices a focus Perceives goal setting to be top down

Purchasing Structure and Design Horizontal organisations and Processes - Principles and Characteristics Organise around process not task. 1 Minimise sub-division of work flows. 2 Assign ownership – of processes and process performance 3 Link performance objectives to customer satisfaction. 4 Make teams the building blocks, not individuals. 5 Combine managerial and non-managerial activities if possible. 6 Multiple competences should be the rule. 7 Train on just-in-time to perform basis. 8 Maximise customer/supplier contact. 9 Reward skill development and team performance. 10

Purchasing Structure and Design Buying unit Cross Functional Purchasing Involvement of purchasing in strategic decisions Concept of supply chain Vastly increased information available Development of, for example, ERP, MRP and JIT Purchasing needs expert advice and support with some decision making Teams outperform individuals acting alone

Purchasing Structure and Design

Purchasing Structure and Design Centralised Purchasing “Economies of Scale” Centralised Purchasing Enables Leverage of Purchasing Power because: Forecasts can be made for the whole organisation Quantity facilitates negotiation, including price/cost Suppliers compete for preferred status Suppliers can adopt a marginal costing strategy Supplier rationalisation is easy to implement Facilitates appointment of purchasing professionals

Advantages and disadvantages of decentralised purchasing Purchasing Structure and Design Advantages and disadvantages of decentralised purchasing Advantages Disadvantages Closer to users Rapid response Closer supplier relationships Support of local suppliers Profit centres have own purchasing Geographical, cultural appropriateness Reduced leverage Lack of strategic direction Reports to lower level Limited expertise Lack of standardisation Restricted careers Cost of purchasing is relatively high

Could Centralise Could Decentralise Purchasing Structure and Design Multi-plant Organisations Centralised and Decentralised Options Could Centralise Could Decentralise Determination of strategy and policy Purchase of strategic products Purchase of capital equipment Negotiation of bulk contracts Purchase research Control of group inventory Staff development Purchase of IT systems Small value orders Items that are plant specific Emergency purchases Local buying Staff purchases Those purchases offering a local community prosperity

A centralised/decentralised structure