Location of the Procurement department
A firm’s organisational structure reflects the management’s basic attitudes toward the major activities involved in its operation. Where should the Procurement function fit into a firm’s organisational structure? A study funded by the National Association of Purchasing Management (NAPM) among the Fortune 1000 firms reveals the reporting relationships shown below:
|Percent of firms||Procurement function reporting to|
|34%||President or Executive Vice President|
|25%||Vice-President or Manufacturing|
|29%||Other Functional Vice-President|
Table 2.1 Reporting relationships survey
The two most commonly found alternatives are shown schematically in Figure 2.2 and Figure 2.3.
Figure 2.2 Skeleton organisation for a medium-sized firm, with Procurement function as a top-level function
Figure 2.3 Skeleton organisation for a medium-sized firm, with Procurement function as a second-level function
In a given firm, how does one tell whether Procurement function is a top-level function that should report to a general management executive, as do Marketing and Finance, or a sub-function that should report to one of the top functional executives? This is just one of the several questions that must be answered when organising a Procurement department. We will next explore the various key influencing factors.