1. Chapter 13 Organization and structure of purchasing

2. Program Purchasing organization structure
Influencing factors of position of purchasing
Levels of tasks, responsibilities and authority
Organizational structures within purchasing
Purchasing job profiles

3. Purchasing organization structure
Strongly depends on business characteristics and situational factors
Level of centralized or decentralized structure
Centralized
Centralized hybrid
Hybrid
Decentralized hybrid
Decentralized
Usually a mixed organizational form is chosen

4. CPO reporting line Organizational structure 2003 1995 1987 Total # %
Senior VP/Group VP 48
16.90 % 54
18.75% 6
2.06%
VP financial/CFO 46
16.20% 34
11.18% 21
7.22%
Executive VP 43
15.14% 47
15.46%
18.56%
President/CEO 41
14.44%
15.76%
16.15%
COO
7.39% -
VP Administration
7.39 % 26
8.55% 40
13.75%
VP Manufacturing/Production/operations 19
6.69 %
15.79% 71
24.40%
Other 18
5.92% 23
7.90%
VP Corporate/shared Services VP 17
5.99% 2
0.66%
VP Materials/Logistics 5
1.76% 22
7.24% 25
8.59%
VP Engineering 4
1.41%
1.37%
284
100.00%
304
291
Johnson and Leenders (2004)

5. Supply organizational structure
2003
1995
1987
Total # %
Centralized 72
25.35 % 69
22.85% 83
28.04%
Centralized Hybrid
116
40.85 % -
Hybrid 28
9.86 %
196
64.90%
175
59.12%
Decentralized Hybrid 46
16.20 %
Decentralized 22
7.75 % 37
12.25% 38
12.84%
284
100.00%
302
296
Johnson and Leenders (2004)
These figures show that over the past decades purchasing has become much more visible a the top floor of large corporations

6. Factors influencing location of purchasing
The organizational location of purchasing is very much dependent on the view management holds towards the purchasing function.
Management view is related to the following factors:
Purchasing’s share in the end-product’s cost price
Financial position of the company
Extent to which the company is depending on the supply market

7. Tasks, responsibilities and authorities
Strategic purchasing decisions (long term impact)
Development and issuing operational guidelines, procedures and task descriptions, which provide authority to the purchasing department
Development and implementation of auditing and review programs
Outsourcing of activities and/or functions
Establishing long term contracts with preferred suppliers
Adopting a supplier strategy based on multi- versus single sourcing
Major investments
Deciding on financial participation in suppliers (backward integration)
Formulating policies concerning transfer pricing and intercompany supplies
Formulating policies on reciprocal arrangements, countertrade, etc.

8. Tasks, responsibilities and authorities
Tactical purchasing decisions (medium term impact)
Agreement on corporate and/or annual supplier agreements
Preparing and developing value analysis programs
Adopting and conducting quality certification programs for suppliers
Selection and contracting of suppliers in general
Programs aimed at supply-base reduction
Operational purchasing decisions (short term impact)
Ordering process
Expediting activities related to released orders
Invoice verification and payment
Troubleshooting
Monitoring and evaluation of supplier performance

9. Tasks, responsibilities and authorities
Relationship between the three managerial levels and some management positions
Managerial level
Top
management
Logistics
manager
Purchasing
manager.
Senior
buyer
Buying
assistant
Strategic level X X X
Tactical level X X X
Operational level X X

10. Organizational structures within purchasing
Structures for multi-unit companies
Decentralized purchasing: BU purchasing is responsible for all purchasing decisions
Centralized purchasing: central purchasing department is responsible for all strategic and tactical purchasing decisions
Line/staff organization: both corporate purchasing and BU purchasing exist next to each other and divide responsibilities and activities
Hybrid structure: combination of the previous three structures aimed at combining common requirements across operating units. There are different forms of pooling: Voluntary coordination, Lead buyership and Lead design concept.
Cross-functional sourcing teams: contracting is done centrally by a commodity team. However, all operational purchasing activities are decentralized.

11. Organizational structures within purchasing
Centralized versus decentralized purchasing: some criteria
to consider:
Commonality of purchasing requirements
Geographic location
Supply market structure
Savings potential
Expertise required
Price fluctuations
Customer demands
In practice these considerations appear to be decisive when deciding on buying products centrally or otherwise.

12. Organizational structures within purchasing
Centralized purchasing organizational structure (example)

13. Organizational structures within purchasing
Decentralized purchasing organizational structure (example)

14. Organizational structures within purchasing
Advantages and disadvantages of decentralised purchasing
Advantages
Direct responsibility of operating companies
Stronger customer orientation towards internal user
Less bureaucratic purchasing procedures/higher operational flexibility
Less friction costs due to coordination
Direct communication with suppliers
Disadvantages
Dispersed purchasing power, lack of economies of scale
No uniform way of handling towards suppliers
Scattered supply market research
Limited possibilities for building up specific expertise on purchasing, supply markets and components
Different commercial purchasing conditions among different operating companies

15. Organizational structures within purchasing
Centralized/decentralized purchasing organizational structure (example)

16. Organizational structures within purchasing
Cross functional sourcing teams at IBM
Van Weele and Rozemeijer (1996)

17. Consequences for purchasing professionals
Function
Responsibilities
Skills required
Chief Procurement Officer (CPO)
Developing corporate sourcing strategies, systems and reporting
General management skills
Leadership
Communication skills
Corporate buyer
Strategic commodities
Commercial skills
Long term planning horizon
Broad business orientation
Category buyer
New materials and components
New suppliers
All-round technical background
Medium planning horizon
Project buyer
Investment goods and maintenance goods and services
Project management skills
Technical education
NPR-Buyer
General and facility goods and services
Generalist
Business administration
Materials planner
Materials planning
Order handling
troubleshooting
Vendor rating
All round
Pragmatic
Customer driven
Stress resistant

18. Consequences for purchasing professionals
Compared with ten years ago, purchasing professionals are:
Higher educated (business degree, MBA)
Responsible for more dollars
More likely to be a women
Negotiating more long term agreements
Involved in outsourcing decisions
Looking out on a global market shape
Reducing costs and the number of suppliers

19. Conclusions
Purchasing structures appear to vary to a great extent among companies. This is due to the different views which top-managers hold towards purchasing and supply.
When analysing the scope, tasks, responsibilities and authority of the purchasing function, we differentiated between the strategic level, the tactical level and the operational level.
Purchasing structures appear to be highly volatile: a period of centralized purchasing is often followed by a change to the other way around.