Chapter 13 Organization and structure of purchasing - PowerPoint PPT Presentation

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Chapter 13 Organization and structure of purchasing


Chapter 13 Organization and structure of purchasing Program Purchasing organization structure Influencing factors of position of purchasing Levels of tasks ... – PowerPoint PPT presentation

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Title: Chapter 13 Organization and structure of purchasing

Chapter 13Organization and structure of
  • Purchasing organization structure
  • Influencing factors of position of purchasing
  • Levels of tasks, responsibilities and authority
  • Organizational structures within purchasing
  • Purchasing job profiles

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

CPO reporting line
Organizational structure 2003 2003 1995 1995 1987 1987
Organizational structure Total Total Total Total Total Total
Organizational structure
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 54 18.56
President/CEO 41 14.44 48 15.76 47 16.15
COO 21 7.39 - - - -
VP Administration 21 7.39 26 8.55 40 13.75
VP Manufacturing/Production/operations 19 6.69 48 15.79 71 24.40
Other 19 6.69 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 2 0.66 4 1.37
Total 284 100.00 304 100.00 291 100.00
Johnson and Leenders (2004)
Supply organizational structure
Organizational structure 2003 2003 1995 1995 1987 1987
Organizational structure Total Total Total Total Total Total
Organizational structure
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
Total 284 100.00 302 100.00 296 100.00
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
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
  • Purchasings share in the end-products cost
  • Financial position of the company
  • Extent to which the company is depending on the
    supply market

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
  • 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.

Tasks, responsibilities and authorities
  • Tactical purchasing decisions (medium term
  • Agreement on corporate and/or annual supplier
  • 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
  • Ordering process
  • Expediting activities related to released orders
  • Invoice verification and payment
  • Troubleshooting
  • Monitoring and evaluation of supplier performance

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
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
  • Cross-functional sourcing teams contracting is
    done centrally by a commodity team. However, all
    operational purchasing activities are

Organizational structures within purchasing
  • Centralized versus decentralized purchasing some
  • 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.
Organizational structures within purchasing
Centralized purchasing organizational structure
Organizational structures within purchasing
Decentralized purchasing organizational structure
Organizational structures within purchasing
Advantages and disadvantages of decentralised
  • Advantages
  • Direct responsibility of operating companies
  • Stronger customer orientation towards internal
  • 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
  • No uniform way of handling towards suppliers
  • Scattered supply market research
  • Limited possibilities for building up specific
    expertise on purchasing, supply markets and
  • Different commercial purchasing conditions among
    different operating companies

Organizational structures within purchasing
Centralized/decentralized purchasing
organizational structure (example)
Organizational structures within purchasing
Cross functional sourcing teams at IBM
Van Weele and Rozemeijer (1996)
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 Communication skills Broad business orientation
Category buyer New materials and components New suppliers All-round technical background Medium planning horizon Commercial skills Communication skills
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 Commercial skills
Materials planner Materials planning Order handling troubleshooting Vendor rating All round Pragmatic Customer driven Stress resistant
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

  • 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
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