purchasing and supply management organization
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Purchasing and Supply Management Organization. Chapter 5. Supply Integration Defined. Professionally managing suppliers and developing close working relationships with different internal groups - PowerPoint PPT PresentationTRANSCRIPT
Purchasing and Supply Purchasing and Supply Management OrganizationManagement Organization
Chapter 5Chapter 5
Supply Integration Defined
Professionally managing suppliers and Professionally managing suppliers and developing close working relationships developing close working relationships with different internal groupswith different internal groups To become more closely integrated with To become more closely integrated with
other internal and external functions in other internal and external functions in order to develop capabilities that will lead order to develop capabilities that will lead to improved competitive performanceto improved competitive performance
22
Relationship Management Skills
Ability to …Ability to … Act ethicallyAct ethically Listen effectivelyListen effectively CommunicateCommunicate Use creative problem-solvingUse creative problem-solving Drive relationshipsDrive relationships
33
Customer Management
Customer ServiceProduct availability
Lead time performanceService Reliability
Customer SatisfactionMeet or exceed customer
expectations
CustomerSuccess
Assist customersin meeting objectives
How to Achieve Integration
Cross-functional teamsCross-functional teams Information systemsInformation systems Integrated performance objectives and Integrated performance objectives and
measuresmeasures Process-focused organizationsProcess-focused organizations Co-location of suppliers and customersCo-location of suppliers and customers Buyer or supplier councilsBuyer or supplier councils Steering committeeSteering committee
55
Communication Flows and Linkages(internal integration)
66
Operations
Traditional close relationship through Traditional close relationship through direct supportdirect support
Development of global operations Development of global operations strategystrategy
Sales and operations plan (S&OP)Sales and operations plan (S&OP) Often co-locatedOften co-located
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Quality Assurance
Increasing in importanceIncreasing in importance Growing % of outsourced requirementsGrowing % of outsourced requirements Supplier quality training and Supplier quality training and
developmentdevelopment Supplier process capability studiesSupplier process capability studies Joint corrective action planningJoint corrective action planning
88
Engineering
One of most important, yet challenging, One of most important, yet challenging, linkageslinkages
Working together on joint product and Working together on joint product and process development activitiesprocess development activities
Co-locating buyer in engineeringCo-locating buyer in engineering Co-opting engineers to work in supply Co-opting engineers to work in supply
managementmanagement
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Engineering
Looking for new sources of technologyLooking for new sources of technology Ongoing and direct communicationOngoing and direct communication Identifying, assessing, and qualifying Identifying, assessing, and qualifying
technically-capable supplierstechnically-capable suppliers Dealing with quality risks in new Dealing with quality risks in new
productsproducts Ongoing technical support and serviceOngoing technical support and service
1010
Accounting and Finance
Much communication is tactical and Much communication is tactical and electronicelectronic
Highly focused on cost reductionHighly focused on cost reduction Inbound material requirementsInbound material requirements Reconciliation of P.O.s, invoices, and Reconciliation of P.O.s, invoices, and
receiving documentsreceiving documents Purchase of capital equipmentPurchase of capital equipment
1111
Accounting and Finance
Developing timely and accurate cost Developing timely and accurate cost data on supplier performancedata on supplier performance
Provide total cost dataProvide total cost data Often basis for make-or-buy decisionsOften basis for make-or-buy decisions
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Marketing/Sales
Voice of the customerVoice of the customer New product ideasNew product ideas Sales forecasts Sales forecasts production plans production plans
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Legal
Contractual issuesContractual issues Patent ownership of new technologiesPatent ownership of new technologies Intellectual property issuesIntellectual property issues Product liability claimsProduct liability claims Antitrust issuesAntitrust issues Long term contracts with escape Long term contracts with escape
clausesclauses Supplier nonconformance issuesSupplier nonconformance issues
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Environmental Management,Health, and Safety
Environmental management systemEnvironmental management system Supplier sustainabilitySupplier sustainability ISO 14000ISO 14000 Hazardous waste handling and Hazardous waste handling and
transportationtransportation
Health issuesHealth issues Safety issuesSafety issues
1515
Benefits of CFT s(Cross-functional Team)
Reduced time to complete tasksReduced time to complete tasks Increased innovationIncreased innovation Joint ownership of decisionsJoint ownership of decisions Enhanced communication among Enhanced communication among
functions or organizationsfunctions or organizations
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Benefits of CFTs
Realizing synergies by combining Realizing synergies by combining individuals and functionsindividuals and functions
Better identification and resolution of Better identification and resolution of problemsproblems
Need to build internal relationshipsNeed to build internal relationships
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Potential Drawbacks of CFTs
Use does not guarantee successUse does not guarantee success Team process lossTeam process loss Negative effects on individual membersNegative effects on individual members Poor team decisionsPoor team decisions
GroupthinkGroupthink Artificial consensusArtificial consensus
1818
External Integration
Supply management is face of Supply management is face of organization to its supply baseorganization to its supply base
Acts as liaison on multiple frontsActs as liaison on multiple fronts MaterialsMaterials New technologyNew technology Market informationMarket information ServicesServices
Suppliers, government, and local Suppliers, government, and local communitiescommunities
1919
External Integration
Supply management is face of Supply management is face of organization to its supply baseorganization to its supply base
Acts as liaison on multiple frontsActs as liaison on multiple fronts MaterialsMaterials New technologyNew technology Market informationMarket information ServicesServices
Suppliers, government, and local Suppliers, government, and local communitiescommunities
2020
Suppliers
Primary external linkagePrimary external linkage Maintain open and continuous Maintain open and continuous
communicationcommunication Supplier selection and managementSupplier selection and management Non-supply management should not Non-supply management should not
deal with suppliers without knowledge deal with suppliers without knowledge of supply managementof supply management
2121
Government
International countertrade issuesInternational countertrade issues Negotiation with foreign governmentsNegotiation with foreign governments Compliance with foreign laws regarding Compliance with foreign laws regarding
contracts and supplierscontracts and suppliers Negotiation with foreign governmentsNegotiation with foreign governments Consult with appropriate agencies Consult with appropriate agencies
regarding regulatory complianceregarding regulatory compliance
2222
Local Communities
Control of substantial budget which Control of substantial budget which could affect local economiescould affect local economies
May affect certain social goalsMay affect certain social goals Sourcing from local suppliersSourcing from local suppliers Awarding contracts to minority suppliersAwarding contracts to minority suppliers Ethical issuesEthical issues
2323
Collaborative Buyer-Supplier Relationships
DefinitionDefinition Process by which two or more parties Process by which two or more parties
adopt high level of purposeful cooperation adopt high level of purposeful cooperation to maintain trading relationship over timeto maintain trading relationship over time
Relationship is bilateralRelationship is bilateral Mutual commitment to futureMutual commitment to future Balanced power relationshipBalanced power relationship Procedures for managing conflictProcedures for managing conflict
2424
Advantages of Closer Relations
TrustTrust Not take advantage of each otherNot take advantage of each other Share sensitive dataShare sensitive data Early supplier involvementEarly supplier involvement
Long-term contractsLong-term contracts Incentive for supplier investment in new Incentive for supplier investment in new
plant and equipmentplant and equipment Joint development of new technology, risk-Joint development of new technology, risk-
sharing, and supplier capabilitiessharing, and supplier capabilities
2525
Obstacles to Closer Relationships
ConfidentialityConfidentiality May create a direct competitorMay create a direct competitor
Limited interest by suppliersLimited interest by suppliers Legal barriersLegal barriers
Antitrust issuesAntitrust issues
Resistance to changeResistance to change Traditional “arm’s-length” approachTraditional “arm’s-length” approach
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P/SM Organizational Structure:Influences and Direction
2727
Trends DrivingTrends DrivingP/SM StructureP/SM Structure
Strategies and Strategies and ObjectivesObjectives
OrganizationalOrganizationalDesignDesign
• 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
OrganizationalOrganizationalEnablersEnablers
•Business unit leaders•Global buying groups•Strategic sourcing groups•Lead division buying•Consortiums and GPOs•e-sourcing/ERP suites
Business UnitBusiness UnitEnablersEnablers
•CFTs•e-sourcing/ERP suites
Organizational Structure
Location of formal power for Location of formal power for purchasing decisionspurchasing decisions
Division of purchasing tasks and Division of purchasing tasks and activitiesactivities
Scope of jobs in supply management Scope of jobs in supply management functionfunction
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Organizational Structure
Patterns of communication and Patterns of communication and workflowworkflow
Relative job satisfaction of P/SM Relative job satisfaction of P/SM employeesemployees
Overall effectiveness of P/SM in Overall effectiveness of P/SM in meeting its goals and objectivesmeeting its goals and objectives
2929
Centralization vs. Decentralization
CentralizedCentralized Chief purchasing officer has authority for Chief purchasing officer has authority for
majority of purchase expendituresmajority of purchase expenditures
Center-ledCenter-led Centralized approach for common items and Centralized approach for common items and
decentralized approach for unique onesdecentralized approach for unique ones
DecentralizedDecentralized Divisional, business unit, or site levels have Divisional, business unit, or site levels have
authority for majority of purchase authority for majority of purchase expendituresexpenditures
3030
Drivers of Organization Structure (Authority)
Firm’s overall business strategyFirm’s overall business strategy Responsiveness Responsiveness decentralized decentralized Efficiency Efficiency centralized centralized
Similarity of purchasesSimilarity of purchases Similar Similar centralized centralized Dissimilar Dissimilar decentralized decentralized
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Drivers of Organization Structure
Total purchase dollar expendituresTotal purchase dollar expenditures Small Small decentralized decentralized Large Large centralized centralized Role of e-sourcing softwareRole of e-sourcing software
Overall philosophy of managementOverall philosophy of management Highly controlled Highly controlled centralized centralized Less control Less control decentralized decentralized
3232
Advantages of Centralization
Leverage purchase volumesLeverage purchase volumes Reduced duplication of supply Reduced duplication of supply
management effortmanagement effort Coordination of purchasing strategies Coordination of purchasing strategies
and plansand plans
3333
Advantages of Centralization
Coordination and management of Coordination and management of company-wide purchasing systemscompany-wide purchasing systems
Development of specialized expertiseDevelopment of specialized expertise Meet corporate goals and manage Meet corporate goals and manage
company-wide changecompany-wide change
3434
Advantages of Decentralization
Speed and responsivenessSpeed and responsiveness Understanding unique operational Understanding unique operational
requirementsrequirements New product development supportNew product development support Ownership of decisions affecting Ownership of decisions affecting
purchasespurchases
3535
Organizational Mechanisms to Enable Center-Led Structure
3636
Organizational Mechanisms to Enable Center-Led Structure
Strategic sourcing groupsStrategic sourcing groups Often located by sourcing regionOften located by sourcing region Use of a common ERP system for spend Use of a common ERP system for spend
managementmanagement
Lead division buyingLead division buying Largest using division takes lead in Largest using division takes lead in
contracting for common itemscontracting for common items
3737
Organizational Mechanisms to Enable Center-Led Structure
Business unit leadersBusiness unit leaders Located at corporate headquartersLocated at corporate headquarters Interface with business unit CFTsInterface with business unit CFTs Provide expertise and inputProvide expertise and input
Global sourcing councilsGlobal sourcing councils Worldwide commodity sourcing teamsWorldwide commodity sourcing teams Global coordination for key itemsGlobal coordination for key items
3838
Organizational Mechanisms to Enable Center-Led Structure
Regional buying groupsRegional buying groups Used when geographic concentration Used when geographic concentration
existsexists Responsible for large volume common Responsible for large volume common
itemsitems
Corporate purchasing councilsCorporate purchasing councils Share expertise and develop common Share expertise and develop common
sourcing strategiessourcing strategies
3939
Organizational Mechanisms to Enable Center-Led Structure
Corporate steering committeesCorporate steering committees Tend to be more advisory in nature than Tend to be more advisory in nature than
corporate purchasing councilscorporate purchasing councils Develop sourcing strategiesDevelop sourcing strategies
Consortiums and group purchasing Consortiums and group purchasing organizations (GPOs)organizations (GPOs) Spend category expertise and contract Spend category expertise and contract
management skillsmanagement skills Usually within single industryUsually within single industry
4040
Formal Organizational Structure
Details assignment of work along with Details assignment of work along with authority that accomplishes those authority that accomplishes those responsibilitiesresponsibilities
Helps define how firm communicates Helps define how firm communicates and integrates decision making across and integrates decision making across groups comprising organization, i.e., groups comprising organization, i.e., coordinationcoordination
4141
To Whom Does Purchasing/Supply Management Report?
Upper-level function reporting to Upper-level function reporting to executive vice presidentexecutive vice president
Mid-level function reporting to Mid-level function reporting to executive one level below executive executive one level below executive vice presidentvice president
Lower-level function reporting at least Lower-level function reporting at least two levels below executive vice two levels below executive vice presidentpresident
4242
P/SM as Upper-Level Function
4343
P/SM as Mid-Level Function
4444
P/SM as Lower-Level Function
4545
Factors Affecting P/SM’s Position in the Organization’s Hierarchy
HistoryHistory Type of industryType of industry Total value of goods and servicesTotal value of goods and services Other factorsOther factors
Founding philosophyFounding philosophy Type of purchased materialsType of purchased materials Ability to influence company’s Ability to influence company’s
performanceperformance
4646
Scope of P/SM Job Function
Sourcing and negotiatingSourcing and negotiating Market analysis and researchMarket analysis and research Operational support and order follow-Operational support and order follow-
upup AdministrationAdministration
4747
P/SM Job Tasks
BuyingBuying ExpeditingExpediting Inventory controlInventory control TransportationTransportation Insourcing/ Insourcing/
outsourcingoutsourcing Value analysisValue analysis
Purchasing Purchasing researchresearch
Materials Materials forecastingforecasting
Supply managementSupply management Other Other
responsibilitiesresponsibilities
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Strategic vs. Tactical Purchasing
StrategicStrategic Future-orientedFuture-oriented Managing total costManaging total cost Enhancing valueEnhancing value Minimizing risksMinimizing risks
TacticalTactical Day-to-day challenges required to meet Day-to-day challenges required to meet
current needscurrent needs
4949
Sourcing Activities
StrategicStrategic
• Manage relationships with critical suppliers• Develop electronic purchasing systems• Implement companywide best practices• Negotiate companywide supply contracts• Manage critical commodities
OperationalOperational
• 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
5050
Future Trends inOrganizational Design
Vertical focus Vertical focus horizontal focus horizontal focus No functional silosNo functional silos
Commodity focus Commodity focus process focus process focus Cut across functional boundariesCut across functional boundaries
Flatter hierarchiesFlatter hierarchies Center-led structuresCenter-led structures Rotation of management across Rotation of management across
business units and functionsbusiness units and functions5151
Future Trends inOrganizational Design
Co-location with internal customersCo-location with internal customers Systems capabilitySystems capability
Flow of goods information and processes Flow of goods information and processes from suppliers to final customersfrom suppliers to final customers
Open information channelsOpen information channels Virtual social networkingVirtual social networking
5252
Future P/SM Organizations
5353