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

1. 2-1
Chapter 2
Organizational Issues

2. 2-2
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

3. 2-3
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

4. 2-4
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

5. 2-5
Factors affecting organizational structure
Operational Activities Strategic Activities
Placing Purchase Orders Supplier Development
Responsibilities
Managing Contracts/Blanket
Order Releases
Coordinating the
Procurement System
Expediting Inbound Orders Developing 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

6. 2-6
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.

7. 2-7
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

8. 2-8
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.

9. 2-9
Organizational Structures
• The Materials Management Organization
Materials
Manager
Production
Control
Inventory
Control
Purchasing Transportation Warehousing

10. 2-10
Organizational Structures
• The Supply Chain Management Structure
• Organizing with Cross-Functional Teams

11. 2-11
Concluding Remarks
• Appropriate organizational structure
critical to effective supply chain
management.