Purchasing Departments are responsible for the three critical functions:
- Management of Spending
- Supporting of Operations
- Protection of the organization from Risk
Therefore, Purchasing Management is the effective Planning, Organization, Leading, and Control of the purchasing function.
There are 5 major Purchase Management Department structures:
1. Centralized: In a totally centralized purchasing environment, the only people who place purchase orders are the staff of the purchasing department. Anyone who needs a product or service for their department must submit a requisition to the purchasing department, where a buyer will create a purchase order. Those organizations that choose a totally centralized structure do so for two reasons: control and total leveraging of spend. With a totally centralized purchasing department, you can ensure that all spending is channeled with the proper suppliers, thereby maximizing your volume with those suppliers as well as your maximizing your discount.
2. De-Centralized: In a totally decentralized environment, there is no central purchasing department. Each area is responsible for their own purchasing. While this may be favorable in terms of the cycle time involved in placing an order as well as keeping the decision making within the area possessing the expertise about the purchased product or service, it is very unfavorable in terms of control and cost containment. With totally decentralized purchasing, the opportunity for fraud is very high. And, without combining the enterprise-wide spend, the organization is not able to take advantage of its volume and maximize its discounts.
3. Lead Divisional Buying: Some organizations have multiple divisions, often in multiple locations. Some of these divisions buy the same things as other divisions while others buy things that only their division buys. To keep decisions in the area possessing the expertise about the purchased product or service while also doing a better job of leveraging the organization's volume for discounts, some organizations adopt the lead divisional buying approach. In lead divisional buying, the division who purchases the highest volume of a product or service is responsible for sourcing that product or service not only for their own division, but for all other divisions. The "lead division" will establish the contract with the supplier and all other divisions will be able to buy from that contract.
4. Center-Led: The prevailing structure in today's purchasing world is the center-led model. In this model, the purchasing department places very few orders. Instead, the purchasing department's role is to establish contracts with suppliers and develop efficient, controlled processes for end users to place their own orders directly. This structure ensures that Purchasing's labor is spent on strategic activities, rather than tactical activities like placing orders.
5. Hybrid: The larger the organization, the more difficult it is to make a single one-size-fits-all structure work. So, in those organizations, it is very common to find a hybrid of the aforementioned structures. Some items, such as raw materials, may be totally centralized, with only Purchasing placing the orders. Other items, such as office supplies, may follow a center-led structure while specialized categories, like telecommunications equipment, may be totally decentralized to the one department in the company that handles such categories.
For more info: https://www.nextlevelpurchasing.com/procurement-certification/spsm
