2-1 McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2-2 Chapter 2 Organizational Issues

2-3 Key Concepts Purchasing Place within the Organization »Where is Purchasing on the Organizational Chart? How it affects their performance. Tactical vs. Strategic Responsibilities »Where is the focus? Centralized vs. Decentralized »Who has the authority to make the buy decisions? A Materials Management Structure Use of Cross-functional Teams

2-4 Placement of Supply Management within the Organization Why does it matter ? What determines how important supply management is in a firm? »Availability of materials and services »Absolute dollar volume of purchases »Percent of product cost represented by materials and services »Type of materials and services purchased

2-5 Factors affecting organizational structure Classification of responsibilities and activities »Management »Buying/Supply Management »Contract and Relationship Management »Strategic Planning and Research Work »Follow-up and Expediting »Clerical Activities

2-6 Factors affecting organizational structure Operational ActivitiesStrategic Activities Placing Purchase OrdersSupplier Development Responsibilities Managing Contracts/Blanket Order Releases Coordinating the Procurement System Expediting Inbound OrdersDeveloping Long-Term Contracts Continuity of Supply to Production Lines Developing and Integrating Supply Strategy Managing Supplier Relationships Managing Risks in Supply Chain Transactionally Focused Activities Strategically Focused Activities

2-7 Organizational Authority Centralized Authority – decision making responsibility in hands of one individual or one location. Decentralization of Purchasing Authority- decision making responsibility delegated to cross functional areas or divisions.

2-8 Benefits of Centralized Authority Reduction of duplication of effort Leveraging of volume purchases Consolidation of requirements Transportation savings Individual specialization Reduction of suppliers’ costs Improved inventory control Lower administration costs Centralized control Reduction in costs of services

2-9 Benefits of Decentralization Specialty buyers can evolve Faster response time for multiple locations Better understanding of location’s requirements. More efficient buying of low dollar, odd buys.

2-10 Organizational Structures The Materials Management Organization Materials Manager Production Control Inventory Control Purchasing Transportation Warehousing

2-11 Organizational Structures The Supply Chain Management Structure Organizing with Cross-Functional Teams

2-12 Concluding Remarks Appropriate organizational structure critical to effective supply chain management.