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Chapter 3Supply Organization

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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),

and at the right price in the short and long term.

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Nine Goals of Supply

1. Improve the organization’s competitive position2. Provide an uninterrupted flow of materials, supplies and services

required to operate the organization3. Keep inventory investment and loss at a minimum4. Maintain and improve quality5. Find or develop best-in-class suppliers6. Standardize, where possible, the items and services bought and the

processes used to procure them7. Purchase required items and services at lowest total cost of

ownership8. Achieve harmonious, productive internal relationships9. Accomplish supply objectives at the lowest possible operating costs

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Potential Advantages and Disadvantages of Centralization

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 purchasing 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

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

Hybridstructure

Centralized Decentralized

Disadvantages DisadvantagesAdvantages Advantages

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Categories of Supply’s Roles and Responsibilities

1. What is acquired

2. Supply chain responsibilities

3. Type of involvement in “what is acquired” and “supply chain responsibilities”– no involvement, documentary, professional and

meaningful involvement

4. Involvement in corporate activities