Introduction and Background

Companies look out for both top line and bottom-line growth. Tough time, like recession, has forced enterprises to look for bottom line improvement. Now bottom line improvement can come from improving cost of operation, procurement, and overhead. Factories are becoming automated increasingly keeping little room for improvement in cost of operation. Procurement represents a major cost for companies and fortunately also a lot of improvement can still be done in this front. With globalization firms have found new opportunities in sourcing components from all around the world at a discount. Multinational companies have centralized their sourcing process to have better bargaining power. Purchasing activities of firm should be synchronised with overall strategic goal of company. So global sourcing is integration of activities. Integration means the extent to which worldwide units are mutually supportive and unity of effort is accomplished to achieve firm s objective. Integration is sourcing is easier said than done. Multinational companies have establishments in different countries with different sourcing needs regarding materials, local standards, set ups, and available manpower. There are three major global sourcing organization structures. First is centralized structure which is preferable when several geographical units buy similar categories. Second is decentralized structure applicable when each unit prod uced unique products. Third is hybrid structure originated to manage the trade -off between centralized and decentralized structure and is most popular. The challenge hybrid structure faces is to distinguishbetween different types of categories, identifying the oneswith synergy potential and determining their appropriateform of integration across geographical units. Integration can be at two levels categorical level and organizational level. Categorical level is related to integrating product categories as mentioned and organization level is binding organizational activities. The present paper tries to use theory to device research method enabling easyunderstanding of integration concepts in organization and then subsequently extending to global sourcing. The theory used is Information Processing Framework (IPF) on integration, and to elaborate the IPF authors collect data from 12 business cases of three MNCs. The present paper devises a research methodology and works with primary data. So it gives an opportunity to critically evaluate their model, data collection process, and data analysis. Both strength and weakness of the process can be explored. In effective organizations, there is a fit between theinformation processing requirements and the informationprocessing capacity. When the requirements for informationprocessing are high, numerous complex lateralmechanisms are needed, but when the informationprocessing requirements are low, the organization can dowell with vertical mechanisms like centralization. Furthermore,due to the costs of integration mechanisms,increasing the information processing capacity excessivelywould not be rational. Instead, the goal is to achieve thementioned fit of information processing capacity to theextent required.

Subunit Task Characteristics

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Task Complexity Task Interdependence

Subunit Task Environment

Uncertainty Facing Subunit

Information Processing Requirement

Inter-unit Task Interdependence

Scope
In order to relate theory with practical observations the author uses IPF to relate it to uncertainty in purchasing function. Uncertainty leads to different organizational design like lateral, for more uncertain environment, and centralized for less uncertain purchases. Uncertainty in purchase has been classified into five contingencies as below I. II. III. IV. V. Purchase Novelty-Experience in purchase and could be new product, straight rebuy, or modified rebuy. Product complexity-Standardized or customized product Purchase Importance- Degree and size of risk in purchase size and volume Demand volatility- Change in demand across time Supply market characteristics-Supply side uncertainty

Case study method was used to verify the relation between information requirement and uncertainty in environment. Three different companies were taken from gas, pharmaceutical, and auto sectors. Different purchasing functions, with respect to product type and category, were taken to include variety of procedures followed during procurement and uncertainties associated with them. Product types taken were raw materials, capex, services, and MRO. Different categories were covered ranging from gas, IT hardware, management consulting to robot, steel etc. Data collection was done in both primary and secondary mode. Secondary route was taken first for better understanding of companies and products before actual primary process. In primary data collection first senior supply chain manager is interviewed in depth, for one to two hour, then group meeting was conducted to gain deeper understandings and also to double checks facts coming out of in depth interviews. The findings were analysed into three groups based on motives for global research. Three groups were Economies of scale, economies of information, and economies of process.Propositions were obtained after analysis of data grouped as above. Followings were propositions

Proposition 1. For global sourcing categories with higheconomies of scale potential, the main contingency factoraffecting uncertainty is reciprocal interdependence amongpurchasing units. Proposition 2a. For global sourcing categories with higheconomies of scale potential, companies use verticalintegration mechanisms for uncertainty reduction ininterdependent units as reflected in formal purchasingprocesses and global systems. Proposition 2b. For global sourcing categories with higheconomies of scale potential, companies use lateralintegration mechanisms for uncertainty reduction asreflected in the use of cross-locational teams, categorymanagers and integrators. Proposition 3. For global sourcing categories with higheconom of information and learning ies potential, the main contingency factors affecting uncertaintyare category characteristics, sup ply environment andreciprocal interdependence among purchasing units. Proposition 4. For global sourcing categories with higheconomies of information and learning potential,companies use mainly lateral integration mechanisms,reflected in the paramount role of the category manager Proposition 5. For global sourcing categories with higheconomies of process potential, the main contingencyfactors affecting uncertainty are category characteristics,supply environment and pooled interdependence amongpurchasing units. Proposition 6. For global sourcing categories with higheconomies of process potential, companies use mainlyvertical integration mechanisms, reflected in purchasingprocess formalization. Authors came to three conclusions as below Conclusion 1: The higher the uncertainty induced bycategory characteristics, the higher the need for integrationmechanisms with high information processingcapacity. Conclusion 2. The higher the uncertainty induced bysupply environment characteristics, the higher the needfor integration mechanisms with high information processingcapacity. Conclusion 3. The higher the reciprocal interdependenceof purchasing units, the higher the need for integrationmechanisms with higher information processingcapacity

Advantages
Authors took a novel approach in applying theory to explain the fit between information requirement and information capacity. The former has bene explained with theory while the latter has been modeled by industry practice.Extensive literature research work was done both in finding theory to explain concepts and relate them and designing appropriate methodology ofresearch The . data collection process meets the standard way of doing secondary research followed by primary research. In primary research unstructured in depth interview was conducted to model the uniqueness of each case. Focus group discussion reinforces the fact as well.The sourcing strategy varies across firms and categories. Wide choice of categories has effectively represented all different purchasing procedures.

Strutured analysis had been demonstrated by careful segmentation business cases in three groups taking cue from existing literature. The propositions are drawn from the finding rather making hypothesis as existing theory was not adequate in forming hypothesis. Propositions establishes common intutions as well as throw newlight into purchasing uncertainty and global sourcing integration. In first group of purchasing economies of scale is the main benefit and product specifications are relatively stable so the challenge is to make a global strategy to bring down purchasing cost and overhead cost. Centralization reduces overhead cost due to decreased headcount and increased bargaining power due to increased volume of purchase. Though the products are standardized there could be variation of standards in different geographies. For example when procuring steel beam there could be beams of different cross section available according to local market standards. A beam standard in European market will be different from that in Indian one (IS standard). So it is essential to find comparable products. That calls for separate horizontal groups in integrating (proposition 2b). Products and services that fall into second category of economies of information are marked by their high complexity in specification as well as uniqueness. These kind of purchases will be marked by low availability of vendors( thus reducing bargaining power) and matching requirement to available market supply. High complexity implies the increasing role of information integration rather than on scale integration. The same has been reflected by authors research that horizantal coordination and integration is important and category manager who is responsible for product specifications assumes a very important role (proposition 4) Last category denotes regular proces spurchases such that office supplies and othe products characterized by high volume and low citicality. Procurement for these products are generally done locally and little scope of improvement is available due to centralization. The key challenge remains in predicting demand for these prodcuts. Centralization gives benefit in this regard that it poolsdemand form various subunits and so reduces uncertainty in demand fluctuation. Other benefits obtained is minimizing transaction cost associated in placing orders as well as cost associated with shipments. Two propositions drawn fot these products reflect the underlieng characterisitcs well. Proposition five talks about pooled interdependence among products so to reap benefits of pooling as discussed above. Next proposition elaborates the need for formalization ofpurchase for low value high volume products belonging to this category.

Shortcomings
External Environment
The authors have not considered external environment and its impact in sourcing decisions. While both business and competitive environment plays deciding role. For example sourcing strategy will be different during economic boom and recession.
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During recession time more man hour is available for bottom line improvement while during boom period the focus is top line growth. The information uncertainty is not analysed in changing economic sceraios.

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Regulation can also change the purchasing landscape increasing uncertainty in deci ion s making. Tax structure is an important example. In countries like India complex tax structure many times determine whether to source nationally or locally. Consumer choices are also important. In certain western countries people may not like goods sourced from third world countries even if they come cheap. Such factors needs to be addressed Legal structure is different across countries. Bribery is common in third world countries. So sourcing decision will affect due to that Competitive environment is another important factor. Concentration of suppliers or buyers affects the information availability.

Sample Size
The research has considered only few companies while it is important to takemore companies to have a broader view. Only three company can skew the information and cast doubt on propositions.

Geography
Though firms considered are global in nature the procurement decisions vary significantly among western multinational companies and those based in energing countries or Japenese companies . It is seen often that emerging country MNCs makesmarter purchasing decisions following different model. The paper does not investigate that. Altogether different model with information reqirement and capacity could be at work in those MNCs.

Financial perspective
Procurement decision is often influenced by credit periods available. For exampe if it is a global sourcing then payment couldbe in the form of letter of credit but in domestic sourcing often payment is maid by cheques. In the latter case working capital requirement increases.