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Operating the Purchasing & Supply Function
within the Organisation
How purchasing & supply fits within
the rest of the organisation
Purchasing & supply processes
Structure and positioning
Organisation
Resourcing
ITC

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...
2-1

Linking processes and functions
Functions
Function 1

ITC

Processes

Figure 6
...
2-1a

The purchasing & supply process
...
is a group of related activities
it consists of:
• Processes
• Sub-processes
• Intermediary outputs

it is about:
Producing optimum
value with a minimum
use of time, effort
and resources
ITC

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...
g
...
2-4

Action Point

6
...

Processes
Functions

Marketing
and sales

Order
fulfilment

Purchasing
& supply

3

Production

2

6

Quality
assurance
Sales

Finance and
accounting
ITC

4

7
8

1

Distribution
Customer
services

Suppliers

9
11

10

5

Customers
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2-6

Action Point

6
...
2-7

Specifying
requirements
& supply
planning

Analysing
supply
markets

Preparing
the
contract

Developing
supply
strategies

Managing
the contract
&
supplier
relationships

Appraising
&
shortlisting
suppliers

Obtaining
& selecting
offers

Managing
inbound
logistics

Managing
inventory

Negotiating

Measuring
Performance

Each of the activities is made up of further sub-processes
...
g
...


Main internal customers =
• the production function (manufacturing)
• sale/distribution staff (commercial)
• staff providing services (non-trade & public sector)
ITC

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2-9

Action Point

Your purchasing & supply process:

6
...
Process:
2
...
Is there a clear process owner? Who?
4
...
Is the process efficient?
6
...
2-10

 Should be undertaken by cross-functional teams
 Should have a clear “process owner”

with authority & interest to move it
forward

 Should

involve the minimum number of people

Staff-reward systems should
...
and not on how busy
the person has been

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2-4

Improving processes that interface with suppliers
How?

What competitive advantages would these improvements
give to your company?

ITC

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...
should aim to implement the organisation’s processes as
efficiently and effectively as possible, and facilitate the working
relationships amongst functions
…should balance the need for order and control with creativity
…should allocate to each department as much as possible of the
processes with which it is primarily concerned
…should balance the number of links needed amongst
departments and the size of these departments
ITC

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...
Web structure
Chief Executive
Sales & Marketing
department
Materials
Management

Purchasing

Stores

Production
department
Production
Control

Finance
department
Etc
...
Hierarchical structure

Logistics

3
...
Galaxy of stars structure

ITC

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3-3

Hierarchical structure
Chief Executive
Sales & Marketing
department
Materials
Management

Purchasing

Stores

Production
department
Production
Control

Human Resources
department

Etc
...
3-4

Matrix structure
Head of
Design
Function

Functional head =
technical expert
Project
Manager

Can be difficult to
determine which
Project
projects are high priorityManager
and agree on use of
resources
Project
Manager

Head of
Engineering
Function

Head of
Purchasing
Function

Head of
Construction
Function

PROJECT
TEAM

PROJECT
TEAM

PROJECT
TEAM

Organisation by project
teams

ITC

Project managers are the
key decision-makers

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...
g
...
3-6

Action Point

6
...
3-7

Type of Culture

ITC

Type of Structure

Independency

Web

Task

Hierarchical

Power

Matrix

Role

Galaxy of stars
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decentralised structures
Question: Maintain decision-making at a central point… or delegate
authority and responsibility to individual operating units???
Advantages of centralisation:
Consistency, standardisation, and
advantages of larger scale
No duplication of effort
Opportunities for increased leverage
Centralisation will be appropriate where there is a high degree
of similarity amongst operating units & products or services are
standardised

ITC

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decentralised
structures
Disadvantages of centralisation:
The central office may be out of touch with local
requirements
Managers of operating units may feel frustrated due to low
involvement
Tendency to create a large bureaucracy
De-centralisation often works well where
innovation and a flexible response to local
customer demands are important

ITC

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ITC

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customer
orientation of
work

ITC

Nature of
activities: routine
vs
...
4-2

Organising your purchasing & supply
department
No easy answers
The scope, position, structure and staffing must
reflect the nature of the function and of the
processes in which it is involved
Not something static and unchanging
Need for a capacity to regularly rethink its
organisation

ITC

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Product design and
innovation
Ensuring quality
Avoiding disruptions in
production
Bringing down costs
ITC

Reducing lead-times for
flexible production & quick
response to market changes
Acquisition of equipment,
services and supplies for
projects
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...
This
depends on the importance of the P&S function



In manufacturing firms, purchases of inputs = 50 - 60% of total
turnover
...


The importance of the P&S function
depends on:

Share of total costs
Level of risks involved
Strategic vs
...
10 $0
...
15
Materials
$0
...
4-5

Position of the P&S function
Likely position of the purchasing & supply function
based on the organisation’s external expenditure
Expenditure on purchase
of goods and services as
a percentage of total
turnover

Example of
organisation

Position of the purchasing &
supply function

50% +

Manufacturing industry

Reports to Chief Executive Officer,
or equivalent

35 – 50%

Primary industry – e
...
,
in petroleum or mining

Reports to deputy Chief Executive
Officer, or equivalent

25 – 35%

Health service provider

Reports to senior manager

Less than 25%

Consultancy firm

Junior role, possibly as part of
another department

If the P&S function is not given the responsibilities, position and staffing
that match its importance to the organisation, its potential contribution to
enhancing cost-effectiveness and competitive advantage will be lost
...
4-6

Action Point

6
...
% of total cost accounted for by purchases
2
...
Do suppliers possess key expertise?
4
...
What can be done to raise the profile of your
purchasing & supply function?
ITC

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4-8

Centralisation vs
...
Within a small enterprise (or an operating unit of larger firm)

A centralised approach:
larger purchasing department & a more complex structure
purchases managed by experts
leverage opportunities
inflexible & slow
Excessive centralisation can be very inefficient
...
4-9

Centralisation vs
...
Within a small enterprise (or an operating unit of larger firm)

A de-centralised approach:
departments/users manage their own purchases
leverage opportunities may be missed
insufficient specialist purchasing knowledge & expertise
flexible & quick to respond to users’ needs
A user department may be able to raise a purchase order
immediately once a requirement is identified, whereas the
purchasing & supply department may take a few days to do
so
...
4-10

Centralisation vs
...
Within a small enterprise (or an operating unit of larger firm)

The combined approach
= Purchasing & supply negotiates supply contacts,
but delegates the implementation of these
contracts to users
The result is a rather small purchasing department,
but with high-level purchasing expertise combined
with the flexibility needed by users
A growing trend is to delegate responsibility for low
value purchases to users and to use purchasing
cards
...
4-11

6
...
If your purchases are decentralised, do those who purchase have
sufficient expertise?
2
...
4-12

Centralisation vs
...
Across multiple operating units in larger organisations
Centralised purchasing = one department carries out all
purchases
...

Most organisations with multiple operating units employ a
mixture of centralisation and de-centralisation where
...

sets policy and procedures and act as internal consultants &
form project teams
verifies the qualifications of the purchasing staff & staff training
ITC

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g
...
4-14

The relations of the P&S function
with other departments
If the purchasing department is located at a high
level, its relations with other departments will
also be at a higher level (e
...
, representation on
working groups, teams, etc)
If the purchasing department is located lower
down, its tasks will be more operational, and the
types of staff qualifications needed will be
different
The involvement of the P&S function should focus
entirely on whether or not it is adding value to the
process
ITC

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4-16

Nature of the processes & culture
Routine activities are suited to
a role culture
If the process involves
responding to crises, a power
culture is more appropriate
Risk for
misunderstandings &
frustration when
different cultures
meet
...
strategic
purchases
Purchasing & Supply
Department
Strategic
Purchases

Routine
Purchases
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4-3

Relations with other departments
Culture
Department

ITC

of the
department

Purchasing &
Nature of
supply processes
processes (routine
that interrelate with
/ strategic)
the department

No
...
4-18

Action Point

6
...
Does the culture of the purchasing department match the processes
and the cultures of the other departments with which it must work?

2
...
Opportunities to reduce the number of P & S staff involved in
processes by re-defining their work roles?

ITC

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4-20

Generalists by customer groups
Buyers focus on serving a
particular customer
group, a product-line or a
project
Each buyer buys all items
Internal customers often
prefer this single point of
contact
Buyers will not develop as
much in-depth expertise
on supply markets

Generalists by customer groups
Materials

Components

Product-line
A

Buyer 1

Product-line
B

Buyer 2

Product-line
C

Buyer 3

Project
X

Buyer 4

Project
Y

Buyer 5

Capital
equipment

Services

Leverage opportunities
may be missed
ITC

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4-22

The hybrid approach
Purchasing & Supply
Department
Product Portfolio
Management

Operational
Purchases

The product portfolio
management unit is
strategic in nature
Framework arrangements
call-off/blanket
contracts are being used
Operational purchasing
places orders & deals
with with customers
supply problems

A task culture is more appropriate for the product portfolio
management unit
Operational purchasing should ideally combine task and role
cultures
...

ITC

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4-4

Focus of the purchasing department in your organisation
• Which is the focus of your purchasing & supply
department?

• Is the existing focus the best option for your
organisation?

ITC

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ITC

Software may be either
tailor-made or standard offthe-shelf
Software applications are reviewed
by some national purchasing & supply
management associations (PSMAs)
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5-1

What kinds of people a purchasing & supply department needs
• Title and/or main responsibilities:

• Qualifications/attitudes:

ITC

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The traditional role
 P&S operating mostly as a clerical function

 Informal/ad hoc buying process
 Buyers only respond to requests/requisitions (reactive role)
 P&S not involved in developing specifications, supplier
appraisal or evaluation
 Buyers passively receive information from suppliers
and don’t carry out supply market research
 Buyers’ role limited to placing orders
 Focus on price only
 Limited interaction between P&S and other departments
 P&S staff have received no specialised training
 P&S function not linked to corporate objectives and strategy

ITC

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The new role (I)
 The strategic impact of P&S on overall competitiveness

is recognised

 Optimal buying processes are in place with IT support
 Focus on total cost as opposed to price
 Focus on the entire supply chain rather than placing orders
 P&S interacts frequently with other functions of the enterprise
 Buyers are proactive, seek information, undertake supply market
analysis propose improvements and have a two-way communication
with suppliers
 Buyers play a key role in negotiations with suppliers
ITC

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The new role (II)
 P&S is actively involved in developing specifications as well as in
appraising suppliers, developing supply strategies, evaluating
performance and value/cost analysis
 Buyers are responsible for developing and managing supplier
relationships (e
...
strategic partnerships)
 P&S is represented at senior management level and is involved
in the corporate strategy-setting process
 P&S staff have received specialised training and their knowledge
and skills are continuously being upgraded

ITC

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 Good understanding of the business of the enterprise
 People management and leadership skills
...

 Persuasion and negotiation skills
...

 Good technical knowledge of the products and services purchased
 Knowledge of English and other foreign languages
 Knowledge of contracting and commercial law
...

 Knowledge of all relevant operational areas of the supply chain

Also need to be:

Service and client-orientated, creative problem-solvers, well organised,
efficient
continuous training of staff is critical

ITC

M1:U6:6

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