We are going to discussed Procurement and how supply chain department has to have close interaction with other departments in company for achieving desire goals of company and cannot afford to work in isolation.
Procurement, Structure Of Supply Chain Department
Supply chain management being a critical function has to be handled by a competent person who should be part of the top management team. In view of this importance, the head of the material management function generally directly reports to the managing director like other departmental heads, viz, marketing, production, finance, personal, etc.
However, there can be little variations in organization plan depending upon the view and nature of operations of the organization.
The internal structure of the supply chain management department can be,
1.Structure based on commodities.
2. Structure based on location.
3. Structure based on functions.
Detail of each is,
Structure based on commodities.
Various items required by the organization are classified into different groups such as raw materials, spares, components, finished goods, important items, etc. The responsibility of age group is given to different individual.For example, carbide tools manufacturing company may have commodity groups for steel, carbide inserts, imported items and brought out components like shims, screws, levers, etc.
This structure avoids duplication of efforts as each commodity purchase is handled by a separate individual. Besides, the individuals are in charge of group can develop good rapport with the commodity market handled by him.
Secondly, this structure enables standardization and bulk buying in each group.
Structure based on location.
This structure is preferred when organisation has several plants spread across different location in the country.The decentralized supply chain management setup has separate materials manager at each location. This enables reduction in cost and time of procurement besides faster coordination with other departments like production, marketing etc.
An organization can also have an option of centralized supply chain management department instead of decentralized set up at each location. The advantage of this is the reduction in cost due to centralize bulk buying for requirements of all plants at different locations. Secondly it is possible to transfer material from one place to another in case of emergency or excess supplies.
Some organizations may develop system combining the advantages of centralization and decentralization. In this system, central supply chain management staff located at headquarters exercises control at policy level in terms of overall guidelines, procedures and system to be followed by decentralized departments at different plant locations.
The departments and plant are expected to report periodically to the centralised materials department and headquarters. The departments at plant level are given financial limits for the purchases by them, beyond which permission from headquarters is necessary. The items common to all plants is purchased by headquarters, which enables substantial saving due to bulk buying’s.
Structure based on the function.
In this structure the groups are formed on the basis of different functions like purchase, transport, receiving, stores, etc.
Each function is headed by a separate individual who reports directly to materials manager, example purchase activities for different plants will be looked after by one individual.
Similarly transport requirement for all plants will be looked after by another individual.
Composition of purchase department.
The composition of purchase department will depend upon requirements and the kind of activities involved in the organization. Purchase department also need support services like typing, clerical, statistical information, etc.
In large companies purchase department is supported by cost analysts, economists and legal advisers.
Relationships with other departments.
Purchase department should have continuing relations with only not only other departments in organization but also with its suppliers.
Procurement and engineering
Engineering department is responsible for preparing the technical specifications for company’s products and the materials required to produce product these products for maximizing profits.
The material specified by the engineering department must be both economical to procure and economical to fabricate and similarly these should be available from more than one supplier/ producer.
Generally, there has to be greater understanding between these two departments on their concepts of materials problems. Engineers may look for more safety, quality and performance, while purchaser may look for cost and timing and stick to closer performance requirements than higher safety.
Hence, dilemma of cost vs safety may crop up. In such circumstances, mutual understanding and willingness to give and take is necessary between purchase and engineering department to arrive at mutually satisfactory solution.
Procurement and operations/ production.
The purchase department procures the goods and materials needed for production, after receiving material requisition from them.
If production department finalizes its production schedule last minute and does not allow purchase department sufficient time then such purchases may be very costly and increase final cost of company’s products.
Such situation leaves inadequate time for selection of good supplier and negotiate, the price. As against this, sometimes production department summit production schedule/ requisition to purchase department and purchase department fails to procure the necessary goods and materials.
This may result in starvation of raw materials required for production department and production of goods, which are not in demand.
Material shortages in process industries are very serious which may result in the complete production stoppage.
A good coordination between production and purchase department may lead to selection of proper materials and reduction in final cost of production.
Purchase department should also ensure timely supply of maintenance spares and materials to maintenance department, which is responsible for ensuring uninterrupted production.
Procurement and marketing .
Marketing department relies on the efficiency of purchase and production department when it commits delivery dates and quality standards to the customer the cost of finished products also depends upon the costs going for purchase of raw materials.
Similarly purchasing production sales cycle depends upon sales forecast given by marketing department.
This forecast decides the production schedule, which is the basis for purchase schedule. Hence it is necessary that marketing department summit accurate forecast.
Any changes in sales forecast should be immediately intimate to production as well as purchase department. Similarly purchase department should immediately inform marketing department about any increases in raw material prices, which can be used by marketing department for seeking price increase from its customer.
Purchase department can also access to its sales department by serving as a practical sales laboratory.
Many manufacturers and suppliers approach purchase department for selling their goods and services.
Therefore, officers in the purchase department can act as source of information to marketing staff to develop and refined their company’s sales policies and procedures.
Procurement and finance
Success of the business depend upon goods good financial planning. Accurate sales forecast and purchasing schedule unable to plan working capital needs and the cash required at given moment. Finance department is responsible for making prompt payment to the suppliers, which creates healthy relationship between purchaser and supplier. However, to affect this purchase department must give sufficient advance notice to finance department to organize the requirement of fund. Finance department also keeps watch on purchase transaction viz.
It sees that company’s policies, rules and regulations are adhered to when purchase transaction take place. Sometimes to take advantage of low prices of materials available in market, the purchase department me make large purchases, however, before this it should consult finance department about availability of finances and excess load on these treasuries.As against this, if finance department does not make available funds for such low-price purchase opportunity, the company may have to pay higher price for same materials at a later date.
Hence, close cooperation between purchase and finance department is necessary to manage working capital and to take benefit at right buying opportunities.
Procurement and planning
Purchase department can assist planning department to draw a realistic short term and long-term plans for the company based on their knowledge of the market.Purchase department can feed planning department accurate forecast about the position of materials supplies, market and new products introduced into the market.
As against this planning department should take purchase department in full confidence about plans chalked out by company.
Procurement and legal
Purchase department being responsible for materials purchases, enters into a legal contract between them and suppliers, through purchase order.It is necessary that purchase department should understand legal implications of various clauses in purchase order.
Here, legal department can readily assist purchase department to draft and interpret correct clauses in purchase order or contract so as to protect interest of the company as well as purchase department.
Procurement and personnel department
For efficient functioning purchase department should be equipped with the right kind of staff in terms of their knowledge and skills.Personnel department can correctly assess their needs, recruit and train search stuff for purchase department.