Other Factors That Affect Organizational Structure

Other Factors That Affect Organizational Structure

 

  • Classification of Responsibilities and Activities – Work done by different people in the procurement process include:
    • Management – Management of the entire procurement process, which includes all policies, procedures, controls and operations.
    • Buying/supply management – Includes developing requirements and specifications, reviewing requisitions, analyzing bids, negotiating, and selecting suppliers.
    • Contract and relationship management – Monitors purchase orders, works with accounts payable, and at times manages procurement projects.  This area also manages supplier relationships.
    • Strategic planning and research work – This area conducts economic, industry, and supply market studies; develops buying strategies for material product or service buying; develops supply partnering plans; conducts research and value analysis, and operating and information systems analysis.
    • Follow-up and expediting – Includes supplier liaison work, which includes visiting suppliers and reviewing the status of orders.
    • Clerical activities – includes order processing, maintaining client files, and maintaining records for commodities, suppliers, prices, and so on.

 

  • Operational versus Strategic Responsibilities
    • Operational activities are tactical and more day to day, while strategic activities tend to be more broadly defined and have more of an impact on the revenue of the corporation.
    • Examples of operational responsibilities include:
      • Placement of purchase orders
      • Managing Contract and Blanket Order releases
      • Expediting inbound orders
    • Examples of strategic responsibilities include:
      • Supplier development responsibilities
      • Developing long-term contracts
      • Managing risks in the supply chain
  • Organization Authority – can be centralized or decentralized
    • Centralized authority exists when the decision-making process is the responsibility of a single person, while decentralization when personnel from other functional areas make unilateral decisions on sources of supply or negotiate with suppliers directly for major purchases
    • Centralized purchasing has the following benefits
      • Reduction of potential duplication of effort – Saves time and money by not having numerous departments doing the same thing.
      • Leveraging of volume purchases – Allows for consolidation of similar type materials and products which a firm to achieve competitive advantage in pricing
      • Consolidation – Allows for standardization and simplification.  Additional benefits are gained from value analysis and value engineering.
      • Transportation savings – Consolidation of orders can lead to lower transportation rates
      • Allowance for specialization – Develops specialists in the field, which makes them more expert in procurement.
      • Reduction of supplier costs – Centralization helps suppliers reduce expenses and costs, which makes their products more prices competitive.
      • Improved inventory control – Control and cost reduction is achieved through improved visibility into stock levels, material usage, lead times and prices.
      • Lower administrative cost – Fewer orders reduce overall admin costs.
      • Centralized control – Centralization can facilitate better control under a single department with its own manager.
      • Reduction in the costs of services – Firms can reduce their overall costs through centralization.
    • Complete centralization is not always wise.  Situations that justify decentralization are:
      • Companies that process single natural raw materials – Purchase of certain items (such as some commodities) require in-depth knowledge of products which does not allow for consolidation or centralization.
      • Technically oriented firms that are heavily involved in research – Products used in research are specialty products which are best handled by people in the specific area.
      • Operation of multisite institutional and manufacturing organizations – Span of control and the need for local adaptation does not allow for centralization.  Decentralization allows for faster response times and a better understanding of a client’s needs.
      • Purchase of non-technical odds and ends products – Credit and petty cash purchases require some form of decentralization, and can be a money saver in this regard.
    • Many companies are looking at hybrid structures (combination of both centralization and decentralization) for better decision making.  This allows a firm to maintain the control it needs while meeting the unique needs of other functions or divisions.
  • E-Commerce – Improved technology and e-commerce organizational structures can facilitate both centralized and decentralized structures.  Technology can save in ordering costs, billing and faster money exchange through electronic data interchange (EDI).  Since technology can be distributed locally, it allowed for decentralization but also allowed for centralized control through monitoring and metrics.

 

Organizational Structures – Because of the increasing importance of supply management, the move has been to consolidate these functions under one strategic manager.

 

  • The Materials Management organization – Beginning in the 1960s, firms coined the term materials management to show the integrated systems approach to the coordination of materials activities and the control of total material costs.  One individual managed the coordination of all activities (procurement, production and distribution) of getting needed materials to the firm.
  • The Supply Chain Management Structure –   Starting in the late ‘80s and early ‘90s, the concept of supply chain management (SCM) became in vogue and grew to encompass the planning and management of all activities involved in forecasting, sourcing, procurement, and logistics management.  SCM broke down functional silos into a more integrated process.
  • Organizing with Cross-Functional Teams – Cross functional teams address many supply chain issues which require management decision making.  Examples which include new product development, value analysis, value engineering, acquisitions of capital equipment, make/buy decisions and so on.
    • Benefits Resulting from Cross-Functional Teams
      • Synergy – A capable leader creates synergy through facilitating decision making among a group, which usually results in a far profitable outcome than would have occurred with a traditional sequential approach.
      • Input from all affected areas – Increases the likelihood that all issues that should be considered are addressed.
      • Time compression – Joint decision making can help save time in getting things done.
      • Overcoming Organizational Resistance – All functional areas are involved up front, which reduces organizational resistance and create ownership of the decision.
      • Enhanced Problem Resolution – This approach is far more efficient and effective at solving problem than traditional methods.
      • Negotiations – are conducted much more effectively by a well-prepared and well-coordinated cross functional team.
      • Improved Communication and Cooperation – Procurement needs are better defined by cross-functional teams.
    • Challenges and problems with the Cross-Functional Approach
      • Additional investment in scarce resources – requires more labor hours overall, so there are cost tradeoffs to consider.
      • Role conflict – a team member may have pressures in performing his/her primary job and be a member of a cross functional team.
      • Overload for Key Team Members – a firm must avoid burnout of team members who are already outstanding contributing team members.
      • Continuity – Once team members have been trained and developed and have learned to work together in a synergistic fashion, continuity of the team becomes critical.
      • Rewards – Cross-functional teams could receive rewards being a part of the team.
    • Prerequisites to Successful Cross-Functional Teams
      • Executive Sponsorship – Teams must have top management support to get things done.
      • Effective Team Leaders – Teams work with better through a leader that can build a vision, execute on the mission and objectives of the team, and do through excellent communication and people skills.
      • Qualified Team Members – Teams work better with contributing members, and not with those who try to get out of assignments.
      • Team Development and Training – Ensure team member are trained (or receive training) and are developed to conduct the team tasks which are needed.
      • Adequate time – Unrealistic deadlines can hurt the process of the cross-functional team.
      • Interfirm Teams – When buying and supplying organizations recognize the interdependence and the benefits to both parties of a collaborative or alliance relationship, firms will form interfirm teams.
    • Supply Management’s Roles on Cross Functional Teams – There are usually four principal roles for supply management professionals who are members of cross functional teams:
      • Provide process expertise for supply management in areas such as supply base research, supplier cost modeling, or negotiation.
      • Provide content knowledge of a specific supply market or commodity area that the supply management individual directs.
      • Serve as a liaison with the supply management organization to ensure that project needs obtain priorities among other staff in the corporate organization.
      • Represent the supply management point of view in considering trade-offs, setting priorities, and making decisions affecting policy.

 

Supply Management’s Relations with other Departments – Supply management is the hub of a large part of a company’s business activity.  By its nature, supply management has continuing relationships with all other department in the firm as well as with the firm’s suppliers.  Supply management operations cut across all department lines.

 

  • Supply Management and Engineering – Design engineers and supply managers play key roles in the supply chain management process, from new product design to off-spec review teams.  Supply managers and engineers get directly involved in product costing through ensuring quality of materials, fabrication, and production of the products.
  • Supply Management and Manufacturing and Operations – Supply management and production relationships cultivate in new product development and when production transmits its manufacturing schedule or materials requisitions.  Much of this will result in supply management not having enough time to procure materials, which drive up costs through the payment of premium prices.
  • Supply Management and Quality – Quality professionals are involved in supply management in new product development domestic and international sourcing, and in supplier development with the objective of minimizing quality problems throughout the supply chain.
  • Supply Management and Marketing – Supply Management and marketing work together in developing suppliers, affecting the firm’s sales, and reducing costs for products to allow room for pricing flexibility.  The sales forecast is the basis for the production schedule, which is the basis for the material schedule.  The sales budget also influences capital purchases and sales campaigns.
  • Supply Management and Finance – Because supply chain management can control up to eighty percent of a firm’s costs, supply management and finance work together to ensure that better decisions are made to optimize financial performance of the firm.  As we have learned so far, supply chain management influences many aspects of a form’s financial performance and return on investment.  SCM professionals must know how to “speak the language of finance” and communicate decisions in those terms which will have the best financial impact on the firm.
  • Supply Management and Information Technology – Supply and IT work together on statements of work and creating systems to allow for better visibility through out the supply chain, eliminating payment float, and better optimizing operations.
  • Supply Management and Logistics – Supply and logistics must have close relationship to ensure that goods are moved from the point of origin to the point of consumption. Supply and logistics work together to reduce costs and achieve value.
  • Supply Management and Accounts Payable – Supply management and account payable at times have conflicting interests and drivers in the area of timely payments to suppliers.  As we stated in week one, supply chain management has a huge impact on a firm’s cash to cash cycle.  A firm’s payment philosophies and policies can affect the cash to cash cycle, which can affect the supply chain ability to generate free cash flow for a firm.
  • Supply Management and Attorneys – Legal professionals are actively involved in contract negotiations and contract formation.

 

Supply Management in Non-Manufacturing Organizations

Supply management has as much (and sometimes more) impact on the success of nonmanufacturing organizations as it does on that of manufacturing firms.  The timely availability of reliable equipment, supplies, and services at the right total cost of ownership affects the ability of such organizations to provide timely service at a profit.

 

Supply Management in Government

 

Supply Management (called procurement in Government) has a major impact on the efficient and effective use of tax dollars at all levels of government.  Virtually all of the problems present in manufacturing and service organizations are present in government procurement.

 

Supply Management and the External Environment

 

  • Business Relationships – All phases of supply management involve relations with external suppliers: early supplier involvement in the development of requirements, strategic sourcing, price analysis (which includes cost analysis and negotiations), and post award activities.
  • Monitoring the Supply Environment – Supply chain managers must look at the external environment from a broad perspective to mitigate risk and exploit market opportunities.  Some of these perspectives include:
    • External regulatory agencies
    • Wars and other conflicts
    • Consolidation of suppliers in an industry
    • Wage rates
    • Economic slowdowns
    • Business continuity risk
    • Market risks (interest rates, currency risks)

 

Completing the Supply Chain Linkage:  Supplier Integration with the Customer

 

Supply Management has a great impact on sales as well as costs.  Supplier should be a major source of innovation, which results in profitable new products or services.  Early supplier involvement can reduce the time required to bring a new product to market, resulting in greater market share.  Supplier quality affects the quality of a firm’s products, its image in the market place, and its sales volumes.  Suppliers can help to lower costs, improve delivery, lower inventory, and improve problem-solving capabilities during the fulfillment (customer order) stage of production.  Suppliers and end users connections emerge to meet a wide variety of needs.