Question

Crank Ltd Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter. The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams. There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are

• Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;

• There are no Group purchase contracts;

• Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;

• There are more than 40 suppliers for the five major purchases; • No formal tendering has taken place, on any site, for more than two years;

• Capital equipment is purchased by the Group Chief Engineer;

• The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);

• There is no savings plan for purchasing;

• The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks

(c) What alternative structures could be considered?

(d) What are the potential obstacles to change?

(e) What business benefits could accrue from a changed purchasing structure?

Answer 1

Answer:

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of our knowledge and the salient facts above, we could advice them such that they can form a single centralized purchasing structure such that this single4centralized purchasing structure will be responsible for the complete purchase for the entire organization irrespective of their multiple plant locations. The centralized purchasing structure will help in having common buying process, negotiation on volume, improved delivery at each plants and reduced resources working for the purchasing organization. This structure will overcome all the salient points as mentioned in the given case study.

(c) The alternative structures could be considered is the common centralized purchasing structure so that entire organization purchase requirement can be fulfilled by the common centralized purchasing organization.

(d) The potential obstacles to change is that the purchasing structure need to be changed and all the resources needs to be aligned under one structure and their roles and responsibilities will get revised to some extents, suppliers will be reduced etc. Thus the existing employee will show resistance and will oppose the change as it will impact their comfort working in the organization. Each plant will resist as they will required to work out of their comfort zone and need to follow longer procedure for procurements. Psychological and mindset issues will be opposing this change.

(e) The business benefits could accrue from a changed purchasing structure will be such that it will result in great saving for the purchasing organization, as they will get bigger discount on larger volumes for single procurement for entire business. Reduced resources will be required for managing the purchasing requirements for the business. Common single procurement process instead of multiple process of each plant. Common procurement approach at entire business by centralized department. Improved effectiveness and efficiency due to centralized procurement structure.