The Purchasing Organization

Dec 20, 2023 10:21 AM

"The Purchasing Organization: Structure and Strategy"

In the realm of procurement, organization and alignment with the company's overall strategy are crucial for success. The course "The Purchasing Organization" delves into how companies structure their purchasing departments, aligning them with their broader business strategies and adapting to changing market conditions.

  1. Aligning with Corporate Strategy: A purchasing organization should be in harmony with the company's overall business strategy. Key considerations include how the company controls costs, its stance on risk management, and whether its focus is global expansion or local operations. These strategies influence the structure of the purchasing function, affecting decision-making processes and defining the roles within the department.
  2. Types of Purchasing Structures: Generally, there are three types of purchasing structures:
    • Centralized Purchasing: Here, most decisions are made at the corporate level, often using global or large regional suppliers. This structure allows for uniformity in purchasing across all levels of the company and can lead to significant economies of scale.
    • Decentralized Purchasing: In contrast, decentralized purchasing empowers individual divisions, factories, or offices to make their own purchasing decisions, often focusing on local suppliers. This structure offers more flexibility and responsiveness to local needs.
    • Hybrid Purchasing Organization: Most companies employ a hybrid structure, combining the benefits of both centralized and decentralized approaches. This flexibility allows companies to centralize the purchase of high-volume or expensive items while decentralizing routine and local purchases.
  3. Example of a Hybrid Approach: An example of a hybrid approach is seen in companies like General Mills, where corporate headquarters might centrally purchase bulk items like flour, issuing large orders to suppliers. Individual factories then request releases from these orders as needed, reducing inventory costs and ensuring timely delivery.
  4. Reducing Costs with Local Suppliers: By using local suppliers for routine factory and office items, companies can reduce administrative costs and embrace a just-in-time approach. This decentralized aspect allows divisions or factories to develop specialized knowledge of local suppliers’ capabilities.
  5. Purchasing Jobs and Roles: Within a purchasing organization, roles are often divided into two main groups:
    • Strategic Sourcing: This group involves teams managing critical items and long-term supplier relationships. They are responsible for analyzing risks, developing purchasing systems, and placing centralized purchase orders for critical supplies.
    • Operational Purchasing: This group handles less critical items, managing day-to-day supplier relationships and addressing local purchasing issues. Their focus is more tactical and routine.
  6. Adaptability and Change: The structure of a purchasing organization is not static; it must evolve with changes in customer demands, market conditions, technologies, and corporate strategies. An effective purchasing professional recognizes these dynamics and adapts the purchasing strategy accordingly, shifting between more centralized and decentralized approaches as needed.

In this course, "The Purchasing Organization," we explore the intricacies of structuring a purchasing department in alignment with a company's broader strategy. We examine the benefits and challenges of different purchasing structures and the importance of adaptability in an ever-changing business environment. This understanding is critical for purchasing professionals to ensure their departments effectively support and enhance the company's overall strategic goals.