Structure of the Purchasing Function in Complex Organisation

responsibility to the general manager. The purchasing manager may also be a member of the board of directors. Thus, the management organisation might be shown at Figure 18. The position of the purchasing manager within the organisation hierarchy is an important determinant of the impact that the department can have. A high position and high status enables an effective, progressive approach to purchasing work to be implemented. Support from the general manager helps to increase recognition for the function and to encourage good horizontal relationships with other departments. In the 21st century we should have more purchasing managers at board level. In the last analysis, however, it is successful performance that earns the respect of others in the organisation.

Structure of the Purchasing Function in Complex Organisation

The emergence of large multiproduct, multisite organisations, and marketing strategies that can alter product as they seek growth. They have, therefore, moved away from the relatively simple situation of operating one production site to manufacture one product line. Thus, some have diversified into other product areas on one or more sites and others have duplicated production facilities by opening establishments in different geographical locations. Policy decisions that have brought about these transformations have also influenced the development and adoption of different organisational structures to cope with the added complexity. We have also seen the emergence of huge multinational conglomerates, in which international differences magnify the problems of geographical dispersion. One of the major organisational innovations of the 20th century has been the introduction of the multidivisional structure In the simple organisation, the basic breakdown of tasks was achieved by splitting work up according to the main functional activities in the multidivisional organisation function tasks are grouped around different product lines. Thus, several quasi-independent organisations are created and each has a reporting relationship to a central headquarters organisation. Each product organisation might be a separate limited company, with as headquarters a holding company. In others, each division and the head office may all be part of the same legal entity. At both divisional and head office level, further divisions of work can be made on a functional basis (see Figure 19). Each division may have a management structure, and the same functions may be present at head office level to act in a coordinating capacity. However, the extent

Figure 19. Division of work by product

Head office

Product division A Product division B Product division C

of head office activities of the divisions tends to vary. Some multilevel organisations are relatively centralised and head office personnel play a detailed part in the activities of the divisions. Other decentralised arrangements, however, give more autonomous powers to the divisions. These are established as separate profit centres, with minimal interference from headquarters, and the relationship between the division and the headquarters is mainly a financial one. The division is responsible for achieving satisfactory profit figures and must apply for approval of corporate plans and investment finance. It can be argued that, the more unrelated in terms of technology, materials requirements, and markets the divisions are, the more decentralised should be the method of control. There is little scope for central coordination as each division operates in an entirely different sphere. The opportunities for central coordination are greater in situations when organisations are manufacturing the same product or offering the same service at multiple locations. Production technology, marketing problems, and purchasing problems are similar and there is potential for more centralised control of operations. In this multilevel situation, therefore, more power and more activity will be located at headquarters. Indeed, some of the functions can be located solely at head office.

Alternative Structures for the Purchasing Function in Complex companies

There are three possible solutions to the problem of organising the purchasing function in complex organisations. Each will be examined in turn to establish the advantages and disadvantages inherent in each solution. The three solutions are as follows:

• Complete centralisation — one central purchasing department controls the purchasing of all supplies for various scattered units or factories.

• Complete decentralisation — each separate unit or factory has its own purchasing department and is responsible for obtaining its own requirements. • Multilevel structure — each unit has its own purchasing department, but a central purchasing department has some powers to coordinate the activities of the local departments.

Advantages of Centralisation

The advantages to be gained from the establishment of one central purchasing department are as follows:

• Economies of bulk buying of items commonly used at each unit. The central department can negotiate cheaper prices on the basis of total consumption throughout the company. • Avoidance of “competitive” buying by individual departments of materials in short supply. • Opportunities for development of greater knowledge about products because buyers can specialise in a narrower range of commodities which can be handled more expertly (i.e., buyers place orders for the whole company for a small range of products), whereas local buyers have to handle a more general range of local requirements. • Savings in operating costs. Fewer, but larger orders are placed and hence a reduction in administrative costs can be made. • Development of common procedures, forms, standards, and specifications. • Simpler relationship with suppliers as a result of single, direct contact. • Investigations of new products and materials can benefit all units in the company. • Centralisation of stock control can reduce overall stock levels through greater flexibility and establishment of strategic reserves (i.e., flow of stocks between factories to meet shortages). • Development of improved support services made possible (e.g., purchasing research and statistical information services). • Enhanced importance of the supplies department and higher position of the supplies manager in management hierarchy. • More scope for purchasing strategy and contribution to corporate plans. • More scope for manpower planning in the function and development of training programmes.