Crank Ltd

Crank has been inbusiness since the 1920’s and have three locations in the UK. TheirHead Office and main manufacturing site is in Leicester. This sitemakes complex tubular assemblies for defence organisations, oil andgas and transportation. There is a site at Southampton makingtubular shafts for golf clubs, and a site in Glasgow manufacturingaerospace Duct assemblies up to 8″ diameter.

The procurementorganisation is currently decentralised. At Leicester, there is aPurchasing Manager, whereas at Southampton and Glasgow, each sitehas a Chief Buyer in charge of small procurement teams. There is anew Chief Executive of Crank who fervently believes that he needs anew approach for the Group in the way procurement is structured.Over the past month, he has, quietly, been obtaining some salientfacts.

The more importantones are

• Each site operatesas a ‘Profit Centre’ and the Site Director has to deliver atargeted Return on Capital Employed;

• There are no Grouppurchase contracts;

• Five major purchasesaccount for 61% of total Group expenditure – they are all rawmaterial including different specifications of tubing;

• There are more than40 suppliers for the five major purchases;

• No formal tenderinghas taken place, on any site, for more than two years;

• Capital equipment ispurchased by the Group Chief Engineer;

• The company hasembraced modern logistics practices including JIT and OTIF (On TimeIn Full);

• There is no savingsplan for purchasing;

• The purchasing teamsdo not liaise.

The Chief Executiveintends to consider an alternative purchasing structure that candeliver benefits for the Group and each operational site. On thebasis of your knowledge and the salient facts above what advicecould you give him?

Tasks

(c) What alternativestructures could be considered?

(d) What are thepotential obstacles to change?

(e) What businessbenefits could accrue from a changed purchasing structure?