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MGT533Chapter03.pptxChapter 3
Supply Organization
©2020 McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
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Key Questions Addressed in Chapter 3
What are the objectives of supply?
How might supply be organized to achieve these objectives effectively and efficiently?
What are the activities and responsibilities of supply management?
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Traditional View of Supply Objectives
Obtain the right materials/services
Meeting quality requirements
In the right quantity
For delivery at the right time and right place
From the right source (a supplier who is reliable and will meet its commitments in a timely fashion)
With the right service (both before and after the sale)
At the right price in the short and long term.
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Nine Goals of Supply
Improve the organization’s competitive position
Provide an uninterrupted flow of materials, supplies and services required to operate the organization
Keep inventory investment and loss at a minimum
Maintain and improve quality
Find or develop best-in-class suppliers
Standardize, where possible, the items and services bought and the processes used to procure them
Purchase required items and services at lowest total cost of ownership
Achieve harmonious, productive internal relationships
Accomplish supply objectives at the lowest possible operating costs
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Typical Supply Organization Structure—Medium Sized Company, Single Location
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Structure Options for Large Organizations
Centralized: Authority and responsibility for most supply-related functions assigned to a central organization
Hybrid: Authority and responsibility shared between a central supply organization and business units, divisions, or operating plants
May lean toward centralized or decentralized depending on division of decision-making authority
Example: “center-led” organization in which strategic direction is centralized and execution is decentralized
Decentralized: Authority and responsibility for supply-related functions dispersed throughout the organization
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Potential Advantages and Disadvantages of Centralization
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Advantages
Strategic focus
Greater buying specialization
Ability to pay for talent
Consolidation of requirements - clout
Coordination of policies and procedures
Effective planning and research
Common suppliers
Proximity to major organizational decision makers
Critical mass
Firm brand recognition and stature
Reporting line - power
Cost of supply relatively low
Disadvantages
Lack of business unit focus
Narrow specification and job boredom
Corporate staff appears excessive
Tendency to minimize legitimate differences in requirements
Lack of recognition of unique business unit needs
Focus on corporate requirements, not on business unit strategic requirements
Even common suppliers behave differently in geographic and market segments
Distance from users
Tendency to create organizational silos
Customer segments require adaptability to unique situations
Top management not able to spend time on suppliers
High visibility of purchasing costs
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Potential Advantages and Disadvantages of Decentralization
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Advantages
Easier coordination/communication with operating department
Speed of response
Effective use of local sources
Business unit autonomy
Reporting line simplicity
Undivided authority and responsibility
Suits purchasing personnel preference
Broad job definition
Geographical, cultural, political, environmental, social, language, currency appropriateness
Hides cost of supply
Disadvantages
Difficult to communicate among business units
Encourages users not to plan ahead
Operational versus strategic focus
Too much focus on local sources - ignores better supply opportunities
No critical mass in organization for visibility/ effectiveness - “whole person syndrome”
Lacks clout
Suboptimization
Business unit preferences not congruent with corporate preferences
Small differences magnified
Reporting at low level in organization
Limits functional advancement opportunities
Ignores larger organizational considerations
Limited expertise for requirements
Lack of standardization
Cost of supply relatively high
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Advantages and Disadvantages of Hybrid, Centralized, and Decentralized Structures
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Hybrid structure
Centralized
Decentralized
Disadvantages
Disadvantages
Advantages
Advantages
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Four Areas of Specialization in Supply
Sourcing and commodity management
Materials management
Administration
Supply research
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The chief purchasing officer (CPO) can have many difference title
V.P. of Supply
V.P. of Purchasing
V.P. of Strategic Sourcing
V.P. Supply Chain Management
Director, Global Procurement
General Manager, Supply
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CPO Trends
Increasing education levels
CPOs tend to report higher in the organization than they did in the 1980s and 1990s
CPOs are increasingly hired from outside the organization rather than promoted from within
CPOs are increasingly hired from functional areas other than supply
When a new CPO replaces a current CPO, the current CPO is promoted or leaves the company for a similar position in another firm
CPO reporting lines change every 2.5 years on average (the typical CPO will have at least two different bosses during tenure in the role)
The CPO role is still new in many organizations
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Most Common CPO Reporting Lines
CEO
Executive Vice President
Vice President of Finance/CFO
Group Vice President
Senior Vice President
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Factors that Influence Reporting Level
The amount of purchased material and services as a percentage of total costs or total income
The nature of the products or services acquired
The extent to which supply and suppliers can provide competitive advantage
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Categories of Supply’s Roles and Responsibilities
What is acquired
Supply chain activities
Type of involvement in “what is acquired” and “supply chain activities”
no involvement, documentary, professional and meaningful involvement
Involvement in corporate activities
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Examples of Supply Chain Activities
Purchasing/buying
Purchasing research
Inventory control
Transportation
Investment recovery/disposal
Forecasting and planning
Outsourcing and subcontracting
Nonproduction/nontraditional purchases
Supply chain management
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Supply Teams
Cross-functional teams
sourcing, new product development/service development, commodity management
Teams with suppliers
Teams with customers
Teams with suppliers and customers
Supplier councils - key suppliers
Purchasing councils - purchasing personnel only
Commodity management teams
Consortia
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Key Success Factors for Teams
Supportive organizational culture, structure, and systems
A common compelling purpose, measurable goals, and feedback for individuals and the team
Organized for customer satisfaction rather than individual functional success
All functional areas involved in up-front planning, shared leadership roles, and role flexibility
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Key Success Factors for Teams (cont’d)
The right people (right qualifications), in the right place (on a team that needs their skills), at the right time (when those skills are needed)
A common, agreed-upon work approach and investment in a high level of communication
Dedication to performance and implementation with decisions delegated to the appropriate level
Integration of all relevant functional areas and various teams throughout the project life cycle
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Team Leader Responsibilities
Work with team to establish and commit to performance goals
Secure individual member involvement and commitment
Manage internal team conflict
Help maintain team focus and direction
Secure required organizational resources
Prevent team domination by a member or function
Deal with internal and external obstacles confronting the team
Coordinate multiple tasks and manage assignment status
Clarify and help define each team member’s role
Provide performance feedback to members
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Purchasing Consortia
A form of collaborative purchasing
Used by public and private-sector organizations
Goal:
To deliver a wider range of services at a lower total costs through price reductions through higher volume of spend, administrative efficiencies, product and service standardization, improved supplier management capabilities, specialization of staff, and better customer service
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http://www.ecommerce-digest.com/industrial-consortia.html
https://www.bestvalueschools.com/lists/5-examples-of-college-consortiums/
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Keys for Successful Consortia
Reduce total costs for the consortium members
lower prices, higher quality and better services
Eliminate and avoid real and perceived violations of anti-trust regulations
Install sufficient safeguards to avoid real and perceived threats concerning disclosure of confidential and proprietary information
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Keys for Successful Consortia (cont’d)
Mutual and equitable sharing of risks, costs and benefits to all stakeholders, including buying firms/members, suppliers and customers
Maintaining a high degree of trust and professionalism
Maintaining a strong similarity among consortium members and compatibility of needs, capabilities, philosophies and corporate cultures
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Director of
Procurement
Commodity
Manager
Buyer
Buyer
Commodity
Manager
Buyer
Buyer
Purchasing and
Materials Analyst
Manager
Administration
and Processes
Manager
Scheduling and
Planning
Inventory Control
Coordinator
Shipping/
Receiving
Manager
Transportation/
Customs Manager
Logistics Manager
