1. Purchasing and Supply Management Organization
Chapter 5

2. Supply Integration Defined
Professionally managing suppliers and developing close working relationships with different internal groups
To become more closely integrated with other internal and external functions in order to develop capabilities that will lead to improved competitive performance

3. Relationship Management Skills
Ability to …
Act ethically
Listen effectively
Communicate
Use creative problem-solving
Drive relationships

4. Customer Satisfaction
Customer Management
Customer Service
Product availability
Lead time performance
Service Reliability
Customer Satisfaction
Meet or exceed customer
expectations
Customer
Success
Assist customers
in meeting objectives

5. How to Achieve Integration
Cross-functional teams
Information systems
Integrated performance objectives and measures
Process-focused organizations
Co-location of suppliers and customers
Buyer or supplier councils
Steering committee

6. Communication Flows and Linkages(internal integration)
Purchasing
Quality Assurance
Operations
Accounting and Finance
Suppliers
Marketing and Sales
Legal and Environmental Safety
Engineering

7. Operations Traditional close relationship through direct support
Development of global operations strategy
Sales and operations plan (S&OP)
Often co-located

8. Quality Assurance Increasing in importance
Growing % of outsourced requirements
Supplier quality training and development
Supplier process capability studies
Joint corrective action planning

9. Engineering One of most important, yet challenging, linkages
Working together on joint product and process development activities
Co-locating buyer in engineering
Co-opting engineers to work in supply management

10. Engineering Looking for new sources of technology
Ongoing and direct communication
Identifying, assessing, and qualifying technically-capable suppliers
Dealing with quality risks in new products
Ongoing technical support and service

11. Accounting and Finance
Much communication is tactical and electronic
Highly focused on cost reduction
Inbound material requirements
Reconciliation of P.O.s, invoices, and receiving documents
Purchase of capital equipment

12. Accounting and Finance
Developing timely and accurate cost data on supplier performance
Provide total cost data
Often basis for make-or-buy decisions

13. Marketing/Sales Voice of the customer New product ideas
Sales forecasts  production plans

14. Legal Contractual issues Patent ownership of new technologies
Intellectual property issues
Product liability claims
Antitrust issues
Long term contracts with escape clauses
Supplier nonconformance issues

15. Environmental Management, Health, and Safety
Environmental management system
Supplier sustainability
ISO 14000
Hazardous waste handling and transportation
Health issues
Safety issues

16. Benefits of CFT s(Cross-functional Team)
Reduced time to complete tasks
Increased innovation
Joint ownership of decisions
Enhanced communication among functions or organizations

17. Benefits of CFTs
Realizing synergies by combining individuals and functions
Better identification and resolution of problems
Need to build internal relationships

18. Potential Drawbacks of CFTs
Use does not guarantee success
Team process loss
Negative effects on individual members
Poor team decisions
Groupthink
Artificial consensus

19. External Integration
Supply management is face of organization to its supply base
Acts as liaison on multiple fronts
Materials
New technology
Market information
Services
Suppliers, government, and local communities

20. External Integration
Supply management is face of organization to its supply base
Acts as liaison on multiple fronts
Materials
New technology
Market information
Services
Suppliers, government, and local communities

21. Suppliers Primary external linkage
Maintain open and continuous communication
Supplier selection and management
Non-supply management should not deal with suppliers without knowledge of supply management

22. Government International countertrade issues
Negotiation with foreign governments
Compliance with foreign laws regarding contracts and suppliers
Consult with appropriate agencies regarding regulatory compliance

23. Local Communities
Control of substantial budget which could affect local economies
May affect certain social goals
Sourcing from local suppliers
Awarding contracts to minority suppliers
Ethical issues

24. Collaborative Buyer-Supplier Relationships
Definition
Process by which two or more parties adopt high level of purposeful cooperation to maintain trading relationship over time
Relationship is bilateral
Mutual commitment to future
Balanced power relationship
Procedures for managing conflict

25. Advantages of Closer Relations
Trust
Not take advantage of each other
Share sensitive data
Early supplier involvement
Long-term contracts
Incentive for supplier investment in new plant and equipment
Joint development of new technology, risk-sharing, and supplier capabilities

26. Obstacles to Closer Relationships
Confidentiality
May create a direct competitor
Limited interest by suppliers
Legal barriers
Antitrust issues
Resistance to change
Traditional “arm’s-length” approach

27. P/SM Organizational Structure: Influences and Direction
Trends Driving
P/SM Structure
Strategies and Objectives
Organizational
Design
Cost containment
Risk management
Globalization
Technology
Collaboration
Customer intimacy
Increased P/SM responsibilities
Increased P/SM skills
Support organization
strategies
Manage cost/price
Supplier relationships
Supplier integration
Supplier innovation
Manage global supply base
Centralized/Center-led
Decentralized
Enablers
Business unit leaders
Global buying groups
Strategic sourcing groups
Lead division buying
Consortiums and GPOs
e-sourcing/ERP suites
Business Unit
CFTs

28. Organizational Structure
Location of formal power for purchasing decisions
Division of purchasing tasks and activities
Scope of jobs in supply management function

29. Organizational Structure
Patterns of communication and workflow
Relative job satisfaction of P/SM employees
Overall effectiveness of P/SM in meeting its goals and objectives

30. Centralization vs. Decentralization
Centralized
Chief purchasing officer has authority for majority of purchase expenditures
Center-led
Centralized approach for common items and decentralized approach for unique ones
Decentralized
Divisional, business unit, or site levels have authority for majority of purchase expenditures

31. Drivers of Organization Structure (Authority)
Firm’s overall business strategy
Responsiveness  decentralized
Efficiency  centralized
Similarity of purchases
Similar  centralized
Dissimilar  decentralized

32. Drivers of Organization Structure
Total purchase dollar expenditures
Small  decentralized
Large  centralized
Role of e-sourcing software
Overall philosophy of management
Highly controlled  centralized
Less control  decentralized

33. Advantages of Centralization
Leverage purchase volumes
Reduced duplication of supply management effort
Coordination of purchasing strategies and plans

34. Advantages of Centralization
Coordination and management of company-wide purchasing systems
Development of specialized expertise
Meet corporate goals and manage company-wide change

35. Advantages of Decentralization
Speed and responsiveness
Understanding unique operational requirements
New product development support
Ownership of decisions affecting purchases

36. Organizational Mechanisms to Enable Center-Led Structure
Center-Led Enablers
Corporate Steering Committees
Regional Buying Groups
Business Unit Leaders
Strategic Sourcing Groups
Consortiums and GPOs
Lead Division Buying
Global Sourcing Reqmts
Corporate Purchasing Councils

37. Organizational Mechanisms to Enable Center-Led Structure
Strategic sourcing groups
Often located by sourcing region
Use of a common ERP system for spend management
Lead division buying
Largest using division takes lead in contracting for common items

38. Organizational Mechanisms to Enable Center-Led Structure
Business unit leaders
Located at corporate headquarters
Interface with business unit CFTs
Provide expertise and input
Global sourcing councils
Worldwide commodity sourcing teams
Global coordination for key items

39. Organizational Mechanisms to Enable Center-Led Structure
Regional buying groups
Used when geographic concentration exists
Responsible for large volume common items
Corporate purchasing councils
Share expertise and develop common sourcing strategies

40. Organizational Mechanisms to Enable Center-Led Structure
Corporate steering committees
Tend to be more advisory in nature than corporate purchasing councils
Develop sourcing strategies
Consortiums and group purchasing organizations (GPOs)
Spend category expertise and contract management skills
Usually within single industry

41. Formal Organizational Structure
Details assignment of work along with authority that accomplishes those responsibilities
Helps define how firm communicates and integrates decision making across groups comprising organization, i.e., coordination

42. To Whom Does Purchasing/Supply Management Report?
Upper-level function reporting to executive vice president
Mid-level function reporting to executive one level below executive vice president
Lower-level function reporting at least two levels below executive vice president

43. P/SM as Upper-Level Function
President/CEO
Executive Vice President
Vice President of Marketing
Vice President of Finance
Vice President of Purchasing
Vice President of Engineering
Vice President of Manufacturing

44. P/SM as Mid-Level Function
President/CEO
Executive Vice President
Vice President of Marketing
Vice President of Finance
Vice President of Engineering
Vice President of Manufacturing
Director of Purchasing

45. P/SM as Lower-Level Function
President/CEO
Executive Vice President
Vice President of Marketing
Vice President of Finance
Vice President of Engineering
Vice President of Operations
Director of Materials Management
Purchasing Manager

46. Factors Affecting P/SM’s Position in the Organization’s Hierarchy
History
Type of industry
Total value of goods and services
Other factors
Founding philosophy
Type of purchased materials
Ability to influence company’s performance

47. Scope of P/SM Job Function
Sourcing and negotiating
Market analysis and research
Operational support and order follow-up
Administration

48. P/SM Job Tasks Buying Expediting Inventory control Transportation
Insourcing/ outsourcing
Value analysis
Purchasing research
Materials forecasting
Supply management
Other responsibilities

49. Strategic vs. Tactical Purchasing
Future-oriented
Managing total cost
Enhancing value
Minimizing risks
Tactical
Day-to-day challenges required to meet current needs

50. Sourcing Activities Strategic Operational
Manage relationships with critical suppliers
Develop electronic purchasing systems
Implement companywide best practices
Negotiate companywide supply contracts
Manage critical commodities
Operational
Manage transactions with suppliers
Use e-systems to obtain standard or indirect items through catalogs
Source items that are unique to operating unit
Generate and forward material releases
Provide supplier performance feedback

51. Future Trends in Organizational Design
Vertical focus  horizontal focus
No functional silos
Commodity focus  process focus
Cut across functional boundaries
Flatter hierarchies
Center-led structures
Rotation of management across business units and functions

52. Future Trends in Organizational Design
Co-location with internal customers
Systems capability
Flow of goods information and processes from suppliers to final customers
Open information channels
Virtual social networking

53. Future P/SM Organizations
Vertical/Functional focus
Individual decisions
Closed information loops
Company leverage
Layered hierarchies
Functional location
Physical social networks
Today
Horizontal/Process focus
Team decisions
Open information flows
Group leverage
Flatter hierarchies
Co-location
Virtual social networks
Tomorrow