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					Purchasing & Storage

     Abdel Fatah Afifi
      MA&T, MBA, PCT, ACPA
      2nd Semester 09/10
 Purchasing and Supply
   Chain Management:
  Strategies and Realities

    Michael Quayle
   University of Glamorgan, UK
Chapter 3

Policy Issues
   Purchasing and Procurement policy,
   Definition and structure,
   Centralization vs. Decentralization,
   Consortia and associated issues,
   Possible departmental structures,
   Benchmarking.
   Reciprocal trade,
   Intracompany,
   Purchasing ethics
    Reciprocal Trade

   Reciprocity involves a two-way
    flow of trade between companies
    so that each is both a seller and a
   A potential reciprocal trading situation
    is one that can cause conflict within the
    company between the purchasing
    department and the selling department.
    Intracompany Trading
   The growth of multi product
    companies has increased the
    opportunities for internal trading
    between different parts of the
    same company.
   A policy decision is needed to state
    how such possibilities should be
    Question for discussion:

Would you please:

    compare the cost of using an
    internal source with the costs of
    using an independent supplier?
    Selecting Overall Policy
  The ability of the organization to develop and
   apply effective purchasing policy will be
   conditioned by several factors, and there are
   roles for a purchasing manager that relate to
   the development of policy.
Among these are:
1. Generating alternative solutions to procurement
2. Protecting the cost structure of the
3. Minimizing purchasing costs,
4. Assuring long-range sources of supply, and
5. Maintaining good relationships with suppliers.
Structure of Purchasing Organization
    The ability of the organization to develop and apply
     effective purchasing policy depends partly on the
     perceptions of managers at all levels.
    The manager charged with the development of a
     policy should recognize that these perceptions are
     affected by:
1.   The existing company structure,
2.   The quality of its internal communication system,
3.   The past experience of the company and its
4.   The resources available.
roles for a purchasing manager that
relate to the development of policy

1.   Generating alternative solutions to
     procurement problems.
2.   Protecting the cost structure of the
3.   Minimizing purchasing costs.
4.   Assuring long-range sources of
5.   Maintaining good relationships with
Structure of Purchasing Organization
   1.   Purchasing manager should pay close attention
        to the development of the organizational
        structure for the purchasing function.
   2.   Organization is concerned with the division of
        work and the delegation of authority and
        responsibility in such a way that the objectives of
        the organization can be achieved.
   3.   It also involves defining the duties of personnel
        and the relationships between them.
Activities in the Purchasing Function

 A wide variety of arrangements can be found
    concerning the activities that should be
    included under the control of the
    purchasing manager.
 1. Categories of goods purchased.
 2. Progressing or expediting.
 3. Purchasing in distributive
 4. Stores and stock control, including
    goods receiving.
    Division of Work amongst Buying
Negotiating Links
 It is worth remembering that there are many links in the
  negotiation chain. These include:
     1.   Bidding,
     2.   Bargaining, and
     3.   Agreement;
   They include:
     1.   Introductions,
     2.   Negotiation research, and
     3.   Planning.
   The information flow may be complex, partnerships may
    be under consideration (or existing), and there is a need
    for continuous improvement allied to value for money.
Give your Opinion on the coming

   Buyers may be appointed to handle
    purchases for a particular product
    line or manufacturing division.
   In addition, workloads can be divided
    up according to geographical
     Answer and Comments:
1.   The division of work between buying groups and
     buyers should be made on a logical basis.
2.   In single product, single-site organizations the
     major principle adopted is to divide purchasing
     work according to commodities.
3.   Each section and each buyer would be given
     responsibilities for particular groups of products.
4.   Thus, Buying Group 1 might be authorized to
     purchase all the industrial materials, Group 2
     might be responsible for industrial equipment, and
     Group 3 might be given industrial supplies and
5.   Individual buyers would then be given narrower
     ranges within each section.
The Position of Purchasing
Management in the Organization
1.   The position of the purchasing manager within the
     organization hierarchy is an important determinant of
     the impact that the department can have.
2.   A high position and high status enables an effective,
     progressive approach to purchasing work to be
3.   Support from the general manager helps to increase
     recognition for the function and to encourage good
     horizontal relationships with other departments.
4.   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
Division of work by product
Alternative Structures for the Purchasing
Function in Complex companies

   There are three possible solutions to
     the problem of organizing the
     purchasing function in complex
   1.   Complete centralization
   2.   Complete decentralization
   3.   Multilevel structure
 1- Complete centralization

One central purchasing department
 controls the purchasing of all
 supplies for various scattered
 units or factories.
2- Complete decentralization

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 Centralization
1.    Economies of bulk buying of items commonly used at each unit.
2.    Avoidance of “competitive” buying by individual departments of
      materials in short supply.
3.    Opportunities for development of greater knowledge about products
4.    Savings in operating costs.
5.    Development of common procedures, forms, standards, and
6.    Simpler relationship with suppliers.
7.    Investigations of new products and materials
8.    Centralization of stock control.
9.    Development of improved support services made possible
10.   Enhanced importance of the supplies department
11.   More scope for purchasing strategy
12.   More scope for manpower planning in the function
Advantages of Decentralization
1.   Closer coordination with local
     organization and buyers.
2.   Buyer is in direct touch with the
3.   Local buyers are better informed
     about local markets.
4.   Clear responsibility of buyers to local
5.   Local plants may need a different
     range of products.
A Multilevel Structure for
Purchasing Management
1.   The multilevel approach attempts to
     obtain the advantages of both the
     previous models.
2.   The division of duties between the
     two levels which is designed to
     achieve this are as follows:
     1.   Central Office
     2.   Local Offices
     3.   Sourcing Form
Factors resulting in sourcing form

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