Case Questions

1. Compare and contrast Purchasing set-ups in Optics & Precision vs Automobile Industry.

a.

2. Identify the potential gaps and problems in

Purchasing at Schott Zeiss.

Potential gaps and problems Since the operating units do not deliver long term production plans, there was no possibility for long term purchasing planning. Buyers were limited to selecting suitable sources of supply The wide range of highly specialized products leads to a huge number of specialized needs in high quality and small volumes which led to a limited purchasing power. Role of purchasing was to find sources of supply with the highest quality rather than the lowest cost There was no clear separation between operational and strategic purchasing tasks. The purchase function is seen as a middleman rather than being accepted as an important management function.

 No concepts like purchasing partnerships with suppliers Suppliers who were dropped from a preferred list due to poor performance at one location, received new orders from another plant

3.

Discuss the key issues in Schott Zeiss which threaten the consolidation (for Purchasing) making it less favorable .

The company always was highly research and engineering driven. A standard material classification that could be used to identify synergies could not be materialized. The computer-systems of the sites were incompatible, and could not communicate with each other. The organization of Schott did not provide a framework for working together in cross-functional teams, leading to problems of allocating cost and time budgets. There were no consolidation synergies because demand is too heterogeneous, or consolidation effort was way above what the managers were willing to invest into the project. Conflicts between business unit managers, who had complete profit responsibility, and central purchasing arose.

4.

How will you assess and derive priorities for various material groups?

Strategic Items Exploit purchasing power Form partnerships

Non-Critical Items Ensure efficient processing

Bottleneck Items Assure supply

5.

Distinguish between centralized and decentralized purchasing functions?

Centralized purchasing is where a single purchasing department, usually located at the firm's corporate office, makes all the purchasing decisions, including order quantity, pricing policy, contracting, negotiations, and supplier selection and evaluation. Decentralized purchasing is where individual, local purchasing departments, such as at the plant or field-office level, make their own purchasing decisions.

Advantages of Centralization 1. Concentrated volume 2. Avoid duplication 3. Specialization 4. Lower transportation costs 5.No competition within units

Advantages of Decentralization 1. Closer knowledge of requirements: 2. Local sourcing: 3. Less bureaucracy: Decentralization allows quicker response.

While centralized purchasing may result in lower costs and better negotiating power, the centralized system may also be too rigid and even infeasible for large, multiunit organizations consisting of several unrelated business operations. For these reasons, a hybrid purchasing organization may be preferred. Organizations may use a decentralized-centralized purchasing structure to decentralize purchasing at the corporate level, but centralize the procurement function at the business unit level. Conversely, a firm may utilize a centralizeddecentralized purchasing structure.

6.

Suggest Alternate purchasing set-ups Discuss the possible organizational settings, and an evaluation of the alternatives for quick hits.

The alternate approach would be to let somebody else do the consolidation and joint negotiations, these purchasing solution providers offer their customers a complete supplier network of capable, supra-regional suppliers. The savings they promise to the client would stem from three sources: 1) Reduced material costs due to an increased purchasing power resulting from high purchasing volume created by the consolidation process, 2) Reduced inventories costs due to reliable lead times and direct supply, 3) Reduced process costs. These purchasing service providers act as commercial agents on behalf of their clients. They negotiate basic agreements with the suppliers Delivery of the goods takes place directly between the supplier and the customer on behalf and on account of the client.

 Encourage suppliers to implement lean manufacturing and set-up reduction projects. Make the buying companys technical support and knowhow available to the suppliers. Expand the range of product groups under consideration, and also plan to implement a central department responsible for the coordination of the groups purchasing activities Strategic (very long range) and tactical (day-to-day) activities should separated within the organization. Understand the internal application of goods and services purchased. Promote standardization and simplification of components and products. Conduct or take part in make-versus-buy studies. Evaluate consolidation of shipments