Issues in Sourcing Organisation Design. PhD candidate Mervi Vuori

Transcription

1 Issues in Sourcing Organisation Design PhD candidate Mervi Vuori

2 Design of organizations In general, design of organizations involve two main issues: 1. Division of tasks 2. Coordination and integration of activities

3 Basic sourcing organisation designs Centralized structure Corporate level function Centralized decision making on product specifications, supplier selection, contracting and negotiation Decentralized structure Hybrid structures Autonomous business units responsible for sourcing and procurement activities Coordination through corporate-level purchasing department Cooperation among the regions/business units Van Weele, 2005

4 Thinking break Pros and cons of Centralized sourcing organisation Decentralised sourcing organisation

5 Synergy is about two or more business units in the same corporation working together Key issue: how to best manage the supply needs of multiple business within a firm? Increasing number of firms are recognising the importance of pooling common material and service requirements and implementing co-ordinated sourcing strategies Synergy (Greek: synergos) = working together Synergy in purchasing brings benefits including: Cost savings A stronger position vis-à-vis suppliers Gains in productivity and lead times Better relationships with suppliers Better use of suppliers knowledge (e.g. in innovation) Purchasing synergy can be a source of competitive advantage Rozemeijer et al, 2003

6 There needs to be a fit between corporate coherence, purchasing maturity and the organisational design High Purchasing Maturity Low Low Corporate Coherence High Rozemeijer et al, 2003

7 Changes in competitive environment drive changes in corporate coherence and purchasing maturity Coherence: extent to which different parts of the organisation operate and are managed as one entity Low coherence: major differences across business units in management style, vision, strategy, culture and structure integration of purchasing function will be a challenge Purchasing maturity: role and organisational status of the purchasing function, availability of information systems, skill level of people, level of collaboration with suppliers High maturity the more advanced approach to managing purchasing synergy Alternatives for organisational designs: Low-low: decentralised purchasing, voluntary efforts to share information and best practises High-high: center-led structure Medium values: hybrid, with both central purchasing and voluntary working groups Federal (local-led): small central staff supporting local business units Central: most strategic commodities are contracted from corporate purchasing department Rozemeijer et al, 2003

8 Companies balance between alternate designs Centralized purchasing structure Decentralized purchasing structure o Several units buy the same or similar goods which are of strategic importance o Each unit produces products that are unique or markedly different from those of other units o o Suppliers have strong negotiation power Volume and scale advantage plays a substantial role in that industry o o Customer plays a large role in company s procurement related decisions Units have strong negotiation power on their own Most companies organise purchasing and sourcing activities in some centralization / decentralization hybrid (Englyst et al, 2008

9 Achieving fit is the most important issue Purchasing Maturity The essential part is fit between company situation and purchasing management High Most typical is medium value on both axis -> hybrid structure Hybrid structure: Some central purchasing Voluntary coordinating activities Low Low Corporate Coherence High How to achieve sustainable and successful organisational design for sourcing? Aligning strategies Harmonisation and standardisation Involving business early! Plan and monitor savings showing the impact of co-ordinated actions Rozemeijer et al, 2003

10 Establishing Global Sourcing function: Case Paper Manufacturer Starting point: decentralised sourcing organisation, mills responsible for their own sourcing and procurement needs No volume bundling, no knowledge of total spend or spend items Suppliers dominated Sub-optimisation (local suppliers) led to poor results No common processes for sourcing or supplier management No common IT systems Turnaround: corporate-wide sourcing efficiency project with clear goals and target During 2 years, over 50 category teams were established and challenged with savings target Each team had to make a sourcing strategy for their specific commodity in 4 months time Spend identification, supplier market analysis, TCO and supplier idea generation meetings critical phases Each team presented their spend reduction ideas to top mgt; achievements were reported and followed up Establisment of cross-functional teams and common sourcing process were key issues The original savings target was met and exceeded: superior results from some categories due to efficient use of RFQ and idea generation with suppliers. The strategic approach to sourcing remained an essential element in the new Global Sourcing Organisation

11 Category teams are main vehicles for synergies in global sourcing context Category teams among the most common ways of organising in medium-large firms Centrally co-ordinated team that develop and creates and implements company-wide sourcing strategy for a given product / service Bringing together knowledge and resources to co-ordinate purchasing activities among geographically dispersed units Some level of basic standard, market or material homogeneity to enable pooling and negotiation across business units Team structure is usually virtual and invisible in most organization charts Typical assignments of commodity teams (Guinipero & Vogt, 1997): Establish and pursue cost-reduction strategies Evaluate and select suppliers Support sourcing for selected items Teams consists of purchasing professionals and business unit / function resources including R&D, product design, marketing, product distribution, finance; members usually part-time Heikkilä & Kaipia, 2009; Englyst et al 2008

12 Challenges for sourcing function in the future Managing sourcing organisation globally : harmonised processes, ways of working and co-ordinated strategies; common processes, tools and metrics across the organisation Physical vs. virtual sourcing organisation, e.g. virtual service centres Sourcing proving its value add to R&D, marketing... Increase in complex categories e.g. different services Challenge of low-cost-country sourcing The innovation challenge: motivating and mobilising suppliers to bring in innovation Attracting and retaining talent within sourcing function Sustainability challenge