University of Twente Student Theses

A trade-off between Centralized and Decentralized Purchasing : How can a corporation maintain flexibility in supplier- and product-choices and benefit from the advantages of centralized purchasing at the same time?

Gersmann, Y (2022) A trade-off between Centralized and Decentralized Purchasing : How can a corporation maintain flexibility in supplier- and product-choices and benefit from the advantages of centralized purchasing at the same time?

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Abstract:	The Heutink Group, a supplier of educational material, is looking for ways to develop their strategic purchasing and solve the problems that they encounter in their purchasing departments. The Heutink Group is a corporate group and consists of two major organizations, Heutink and Reinders. Despite a product overlap of around 85%, Heutink and Reinders have separate purchasing processes and make little use of economies of scale. Another problem is the capacity and efficiency of the warehouses. As a result, out of stocks happen too often and Heutink and Reinders often transfer small inventory between their two warehouses in urgent cases, which is a very costly and inefficient problem. This study is focused on centralized purchasing as a way of solving the current problems of the Heutink Group. However, a disadvantage of centralized purchasing is losing supply flexibility in supplier- and product-choices. Supply flexibility is very important for the Heutink Group, as they want to maintain a wide and flexible product portfolio for their customers. Therefore, the following research question is drawn up: ‘How can a corporation maintain flexibility in supplier- and product-choices and benefit from the advantages of centralized purchasing at the same time?’. To answer this question, semi-structured interviews are executed with the CPO and purchasers of Heutink and Reinders. The results from this thesis provided new insights into how a corporation can improve their flexibility in supplier- and product-choices in combination with centralized purchasing. Firstly, the Heutink Group can achieve a trade-off between the advantages of centralized purchasing and flexibility in supplier-choices by selecting preferred suppliers and backup suppliers to their articles. The preferred suppliers can provide the Heutink Group with the desired cost advantages of centralized purchasing, while the backup suppliers can provide the Heutink Group with the desired flexibility in supplier-choices. By selecting backup suppliers on delivery speed and a wide product range (in addition to quality), the backup suppliers can improve the certainty and flexibility of deliveries, and the total number of suppliers can be minimized to lower the supplier management costs. Backup suppliers can be used when a customer wants to receive an article quickly or when problems occur that would otherwise lead to backorders. In this way, backup suppliers can solve the current problem of too many backorders, which offers potential cost-savings and improves the customer satisfaction. Secondly, the Heutink Group can achieve a trade-off between the advantages of centralized purchasing and flexibility in product-choices by a combination of component commonality and backup suppliers. The Heutink Group can use component commonality by 3 focusing on (functionally) identical articles, and substituting the less valuable articles by the most valuable articles in the eyes of the customer. Thereby, component commonality increases opportunities for centralized purchasing. The way in which customers accept the alternatives is important in component commonality, and can be increased by an effective marketing strategy. For the customers that still have an insufficient alternative acceptance, supplier backups can be assigned to provide the desired flexibility in product-choices. Selecting backup suppliers on a wide product range makes it possible to minimize the total number of suppliers, which can save supplier management costs, and offer the customers more product-choices at the same time. In this way, component commonality will lead to more opportunities for centralized purchasing, and backup suppliers will avoid unsatisfied customers. This combination between component commonality and backup suppliers could offer the potential for cost savings without losing customer satisfaction. Therefore, while the literature indicated that losing supply flexibility is a disadvantage of centralized purchasing, this study provided new insights into how a corporation can maintain their flexibility in supplier- and product-choices and benefit from the advantages of centralized purchasing at the same time. In doing so, the results of this study showed how the Heutink Group can improve the problems related to their purchasing departments.
Item Type:	Essay (Master)
Faculty:	BMS: Behavioural, Management and Social Sciences
Subject:	85 business administration, organizational science
Programme:	Business Administration MSc (60644)
Link to this item:	https://purl.utwente.nl/essays/89490
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