PROCUREMENT (PURCHASING) ORGANISATION

earning Objectives

To understand:
 the importance of organisational design in relations to procurement and supply chain
activities
 the design features that business organisations use to achieve their procurement and
supply chain objectives
 the differences between centralised and devolved purchasing authority
 the role of cross-functional teams as a means of enhancing the integration of business
operations
 the advantages of and impediments to effective inter-organisational teaming in the
context of purchasing and supply chain management
 the emergent trends in procurement organisation and management.
3.1 Introduction

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The last Topic noted that one conceptual envelope for understanding the strategic role
procurement can play in modern business lies in the idea and application of functional
integration. To fully appreciate the nature and implications of functional integration, it is
necessary to take a closer look at organisational design as it applies to the place and role of
procurement (purchasing) within the organizational structure and how procurement and SCM
might themselves be organized. This Topic draws largely on MHGP (chs. 4-5) and L&F (chs.
4-5).

More specifically the Topic considers:

 organisational design and procurement
 the position of the procurement function in the organizational structure
 organising the procurement function
 centralized vs. decentralized procurement
 internal organization for external SCM
 teams – cross-functional and otherwise.
3.2 Organisational Design and Procurement

“Organisational design refers to the process of assessing and selecting the structure and
formal system of communication, division of labour, coordination, control, authority and
responsibility required to achieve organisational goals and objectives, including supply
management objectives” (MHGP: 161).
1
In relation to procurement, analysis from the perspective of organizational design is relevant
to establish the status and influence of the procurement function relative to others within the
organization and for understanding how purchasing might be organized to yield maximum
potential for generating competitive advantage – thereby supporting the main goals of the
business. For example, a commercial organisation may decide to make “value for money”
(cost effectiveness) the dominant feature in the design of its procurement structure.

3.3 Positioning Procurement within the Organisational Structure

The place of procurement in the organizational hierarchy can vary from upper-level to
second-tier to lower-level (see MHGP: Exhibit 5.5: 172). Taking a cross-section of firms
across the economy, the visibility or level of direct representation of procurement within the
organization depends on:

 the importance of goods and service purchases within the organization – reflected in
the value of purchases as a fraction of all costs or sales – and the maturity of the
industry in which the firm operates (Why?)

 the extent to which technological innovation is occurring in supplier industries
(Why?)

 perceived potential for creating competitive advantage through SCM and
procurement.

Notice a trend: In the US, an increasing proportion of firms are organized so that the highestlevel
procurement
executive
reports
to a senior
vice-president……………………………………………………………..