Purchasing: Cost and Executive Management Team Essay
Name: Ying-Tsung Cheng, Corey Hutchins, Hsuan-Tzu Yu, Ting-Yu Lin, Kai-Hsiang Ho
Date: September 22, 2011
SITUATION Scott McBride, director of purchasing at Iowa Elevators, prepared for a meeting with the executive management team to present a five-year plan for the purchasing department. Iowa was a large grain-handling company in the U.S. with annual revenues of $2.3 billion and more than 2,500 employees. Its two business units were the grain-handling and marketing division and the farm supplies division. The grain-handling and marketing division operated approximately 300 grain elevators in Midwest and represented approximately 75% of total company revenues which has declined by 20%. …show more content…
Adopt centralization Strategic focus, buying power increased through consolidation of requirements. Cost of purchasing low. Fewer, better managed supplier relationships. Move to hybrid structure Capture the benefits of both centralized and decentralized structures One possibility: strategic direction is centralized and execution is decentralized. Establish and enforce approved supplier and procurement regulations.
Consolidate number of suppliers Establish procedure for more centralized purchasing 20 suppliers account for 45% of total spend, so centralizing the purchasing will drastically reduce the necessary number of suppliers (down from 1500)
Switch to less inventory and more shipments Will result in reduced holding costs and obsolescence, meaning greater savings
We recommend switching to centralized purchasing. This would allow divisions to request certain suppliers and specify their requirements, but needs and suppliers would be consolidated. To mollify any feelings of resistance, the divisions and managers would be asked to evaluate and recommend which suppliers to keep based on previous performance. We can reduce redundant suppliers, minimize ordering costs by grouping shipments and ordering more from individual suppliers, and