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

1)Advice to the Chief Executive officer

For any company to be successful in procurement management, centralized procurement is the best option. Moreover from the facts given in the question ,it is clear that no professional approach has been applied to the procurement till date. This might have incurred huge loss to the company ,but nobody might have looked into that due to the lack centralized procurement management system .So I would advice the Chief Executive officer to execute his plan of changing the procurement structure.

c)Alternative structure to the present procurement

Centralized procurement system would be the best alternative system .The Head of this team would be able to focus more effectively on the Procurement Management, hence all the drawbacks mentioned in the salient facts such as absence of liaising, absence of tendering ,absence of savings plan etc., would be taken care.

d)Potential obstacles to change

a)The existing team is one of the potential obstacle to change the system. This is because they are adopted to the current work culture, hence making them understand and changing the system would be difficult

b)Site Directors may deny to this change, as this change may temporarily affect the smooth supply of materials till the new systems functions effectively.

e)Business benefit that would accrue due to the change in the system

1)More profit to the organization

2)Professional and ethical working environment will be created

3)No delay in delivering the materials

4)Effective vendor database will be formed