Global Industries, the parent company of Marsden Manufacturing, a pump maker sup

Question

Global Industries, the parent company of Marsden Manufacturing, a pump maker supplying the aircraft and automotive industry, has recently implemented an ERP system and not too long ago tied in the last of its six subsidiaries. Marsden, the second to complete its final phase of the cut-over, has been operating on the new platform for several months. John Roberts, the company’s Sourcing Manager, has been wrestling with the concept of jointly contracting with some of the other subsidiaries for commonly used products and services. Since three of the others are serving the same industries, Roberts felt this would be a no-brainer.

While the other Sourcing and Procurement Managers agreed in principle to centralize some of their purchases with Marsden, gathering the actual data for an analysis has proven elusive. The previous manual system required considerable time and effort to conduct supplier analysis and selection, and little data existed on spending patterns at any of the companies. Data would be gathered manually on potential suppliers’ past performance, including their prices, their ability to meet delivery dates, and their history on quality but that information was widely dispersed in stored records and on disparate legacy systems. Sampling showed that they could expect that very little nomenclature or part numbers could be matched from one company to the next. There was no summary of the amount of spending by part or service at any of the companies.

The team of managers agreed that in order to compile this historical data, the staff must manually combine separate reports from supply management and finance. This effort appeared daunting since none of the firms had an excess of personnel. Roberts was tasked to lead this effort as best he could and develop a plan to consolidate spending for the next year. He was to report back to the team in six weeks.

Using the Executive Summary format that covers the following aspects.

Discuss potential benefits and barriers of implementing centralized purchasing and sourcing.

Outline the approach you believe Roberts should take to solve the existing problem and address the plan for the following year.

Given the current situation, how practical is it for the companies to consider centralization?

Explanation / Answer

Centralized purchasing and sourcing is indeed regarded as one having central point responsible for purchasing requirements for the whole organization. The aim is to obtain cost reduction in material management and easy handling of materials eventually involving integration of various departments like material management, procurement, and warehousing or store department.

Centralized purchasing structure is indeed described as procurement controlled at one central location for the entire firm. Furthermore it may be described as a situation where a central purchasing department operating on the strategic and tactical level is established at corporate level. It is responsible for product specification, supplier selection, contract negotiations and coordination of activities.

Centralization of purchasing and sourcing makes it possible of effective controlling of resources used and activities performed at one centralized level of the organization. Furthermore effective implementation of centralized procurement process necessitates application of effective sourcing strategies such as global or multiple sourcing and supplier development procedure.

However various research studies on effects of organizational structure and performance indeed facilitated to effectively establish that there is a relationship between centralized purchasing and organizational performance. Furthermore necessitates effective implementation and execution of internal controls in purchasing system and stock management.

Furthermore study eventually facilitated to effectively enumerate the impact of centralization in an organization which is mostly embarked on the problem of inadequate funds, long procurement procedure, inadequate qualified personnel and insufficient stock control procedures as the main drawback factors characterized with centralized procurement.

Effective proliferation and compilation of historical data pertaining to supply chain and financial management eventually aimed towards reporting and multidimensional analytics had indeed to great extent benefited organizations of varied sizes. Furthermore it had facilitated towards promoting business agility and operational efficiency leaping from retrospective analysis of historical data to proactive actions based on predictive analysis of business data and embed intelligent, fact-based decision making into business processes.

However the key to accomplishing this is to effectively utilize powerful data mining algorithms analyzing historical data information’s, comparing latest statistics with historical facts and behavior, identifying classifications and relationships between business entities and attributes and delivering accurate predictive insights into all of the systems and users who make business decisions.

Effective validation of historical data pertaining to supply chain and finance eventually necessitates adopting varied measures pertaining to accuracy, reliability and usefulness of the prediction models. Furthermore accuracy enumerates how well the model correlates the results with the attributes in the data set wherein reliability elucidates how effective the model is with different data sets.

The goal of supply chain performance management is to help decision makers better administer, plan, recognize and leverage their performance. Furthermore it includes monitoring, measurement and analysis of various performance data involved in collaborative decision making and synchronization process.

However it is indeed regarded as critical towards ultimate success of complex business systems such as supply chain and finance management. Key performance indicators are used to effectively measure supply chain and finance performance at strategic, tactical and operational level of an organization.

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