Most bid processes are multi-tiered. For similar reason of better decisions, it is common that purchasing strategic matters and sales operations are controlled by the same person.
However, no universal solution exists, as the right structure is highly company specific and dynamic over time. Therefore, this is one of the major challenges that Purchasing Management confronts within business networks. Every company can be identified by its goal and the policy for achieving this goal. The policy devises organisational setup to facilitate the activities stated in the policy. Therefore every function that performs those activities runs under a specific organizational structure.
Those structural arrangements influence the performance of the individuals in the organization as that is what determines the duties, responsibilities, and relations of the function. Thus, in business networks, interactions and processes among the actors are conditioned by the way companies, business units and departments are organized.
In order to maximize performance, a company needs to adjust its structure and management processes to the changes in the outside competitive environment and also to facilitate the necessary cooperation between various parts within the company. Therefore it has to meet both external as well as internal communication requirements.
As purchasing is a part of a company that lies in the meeting point of those environments, the issue of structural design becomes especially relevant here. The starting point for deciding upon appropriate organizational setup is to identify the requirements set for purchasing function by business strategy, external environment, and other factors.
In addition, according to contingency theory, it is crucial to recognize ongoing trends and changes in supply processes in order to increase the coherence with current business environment as well as prepare the organization for future. Purchasing needs to facilitate activities of three different characters - operational, tactical, and strategic.
According to Gadde, et al. Quayle argues that those sub-functions should not be isolated from one another. For example, it might increase efficiency through specialization to allocate expediting and strategic issues to separate persons but also, having to do the operational work can lead the buyer to select more reliable suppliers. For similar reason of better decisions, it is common that purchasing strategic matters and sales operations are controlled by the same person.
It allows better alignment of material and information flows throughout the entire organization. Further discussion on work allocation in purchasing structure will be addressed in later stages of this chapter. It is also important to consider the dynamics of supply function when designing the structure.
The trends detected in purchasing characteristics today have been previously described in Definition and trends within Purchasing Management. Therefore these are the ongoing changes and activities the four sub-functions that purchasing organization has to facilitate in modern business environment. Around that core the rest of the structure can be built. Having identified the goals and requirements for the organization, the appropriate structure for the organization can be considered.
However, despite of numerous possible solutions, only a discrete subset of different organizational configurations has been found to be adopted in practice. The main attributes differentiating organization structures are considered to be centralization and formalization. Formalization of the organization expresses the extent to which the procedures, instructions, communication patterns, etc are documented in the company and how are they followed.
Those two attributes are commonly chosen for adjustment for reasons that they are managerially easily applicable as well as they involve both the formal and informal structure of the company. Centralized purchasing organization can be found applicable in case of similarities between multiple company locations e.
It is more common to occur in companies offering the same product or service in multiple locations. Quayle, In addition, centralized control is found to be prevailing configuration also for single site and relatively small size company where there are no feasible criteria for division of control and thus decentralization would provide no benefits.
However, decentralized purchasing solution is seen beneficial when substantial differences exist between various sites of one company. In such case centralized control would be inefficient as each unit operates in its own area.
Table 1provides comparative overview of benefits and downsides of both described solutions. Table 1 - Advantages and disadvantages of different centralization configurations. It can be noted that total centralization and total decentralization are both extreme values of centralization continuum. The majority of companies lie somewhere between these two extremes to utilise advantages of both configurations. In such hybrid structures responsibilities and control between head office and local organization are divided with accordance to business environment.
Even though the exact division is highly individual among companies, the tasks often allocated to head office can include:. The issue of formalization in purchasing organization s is not much addressed in prevailing literature which implies its relatively small effect on supply performance of companies. However, its combinations with centralization decision help to describe four essentially different organization types which are also suitable for defining different purchasing function's characteristics.
Those include machine bureaucracy-, entrepreneurial-, professional, and adhocracy types. Figure 3 - Different organizational configurations. Based on Mintzberg Machine bureaucracy type organizations contain both high levels of formality as well as centralization. This results in an organisation with many formal rules, regulations, and controls where a large part of communication existing in written form. Group purchasing is used in many industries to purchase raw materials and supplies, but it is common practice in the grocery industry, health care , electronics , industrial manufacturing and agricultural industries.
As the electrical industry has started deregulating, it has also become an increasing trend there. Also, in recent years, group purchasing has begun to take root in the nonprofit community. Group purchasing amongst nonprofits is still relatively new, but is quickly becoming common place as nonprofits aim to find ways to reduce overhead expenses.
In the healthcare field, GPOs have most commonly been accessed by acute-care organizations, but non-profit Community Clinics and Health Centers throughout the U. For many decades, healthcare GPOs grew slowly in number, to only 10 in Medicare and Medicaid stimulated growth in the number of GPOs to 40 in That number tripled between and In , Congress granted GPOs in healthcare "Safe Harbor" from federal anti-kickback statutes after successful lobbying efforts.
By , there were hundreds of healthcare GPOs, "affiliates" and cooperatives in the United States that were availing themselves of substantial revenues obtained from vendors in the form of administrative fees, or "remuneration. Importantly, 97 percent of all not-for-profit, non-governmental hospitals participated in some form of group purchasing.
With healthcare costs rising sharply in the early s, the federal government revised Medicare from a system of fee-for-service FFS payments to PPS, under which hospitals receive a fixed amount for each patient with a given diagnosis. Other insurers also limited what hospitals could charge. The result was a financial squeeze on hospitals, compelling them to seek new ways to manage their costs. Congress did not specify any limit on contract administration fees, but required the United States Department of Health and Human Services HHS to monitor such fees for possible abuse — particularly with respect to fees in excess of 3.
Further examining the practices of GPOs, the Federal Trade Commission FTC clarified that "safety zone thresholds do not prevent and should not be appropriately read as preventing antitrust challenges to any of the alleged anticompetitive contracting practices A healthcare group purchasing organization GPO assists in promoting quality healthcare relief and assists diverse providers in effectively managing expenses.
To establish relationship between these levels we have to assign them to one or other in such a way that they still lie in the same hierarchy. As Company is at top level and plant is below it, so it is necessary that plant has some relation with company As plant is a sub part or smaller division of company , so plant will be assigned to company. Four basic and must assignments in standard SAP are:.
Path to reach Assignment: Plant is one level below company code. So we need to assign plant to company code. Following steps will take you through the procedure of assigning plant to company code:. Path to assign plant to company code: Purchasing organization can be at company code level i. So we need to assign this purchasing organization to company code.
Following steps will take you through the procedure of assigning purchasing organization to company code:.
Boost Your Career in Purchasing with an APS Certification. Certifications awarded by the American Purchasing Society bring significant value to professionals worldwide, while also enhancing their reputation throughout the industry. The centralized purchasing organization will accommodate the purchasing requirements for the whole company. For example, if a company has seven plants across the US, the central purchasing organization will be located in one location, and purchase items for all seven plants. In the United States, a group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.