©McGraw-Hill Education. All rights reserved. Chapter 3 Supply Organization ©McGraw-Hill Education. All rights reserved.

Key Questions Addressed in Chapter 3 What are the objectives of supply? How might supply be organized to achieve these objectives effectively and efficiently? What are the activities and responsibilities of supply management? ©McGraw-Hill Education. All rights reserved.

Traditional View of Supply Objectives Obtain the right materials/services (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. ©McGraw-Hill Education. All rights reserved.

©McGraw-Hill Education. All rights reserved. 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 ©McGraw-Hill Education. All rights reserved.

Potential Advantages and Disadvantages of Centralization Lack of business unit focus Narrow specification and job boredom Corporate staff appears excessive Tendency to minimize legitimate differences in requirements Lack of recognition of unique business unit 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 High visibility of purchasing costs Advantages Strategic focus 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 Cost of purchasing low ©McGraw-Hill Education. All rights reserved.

Potential Advantages and Disadvantages of Decentralization 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 Hides cost of supply Disadvantages 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 ©McGraw-Hill Education. All rights reserved.

©McGraw-Hill Education. All rights reserved. Advantages and Disadvantages of Hybrid, Centralized, and Decentralized Structures Hybrid structure Centralized Decentralized Disadvantages Advantages ©McGraw-Hill Education. All rights reserved.

Categories of Supply’s Roles and Responsibilities 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 ©McGraw-Hill Education. All rights reserved.