Procurement Organisation Structures

What is it?

The key to designing an appropriate procurement structure is to make sure it is aligned to the wider organisational strategy, culture and goals. The clarity of the overall structure is important, with clear responsibilities, reporting lines and deliverables.  It should also be clear as to how procurement engages with stakeholders.

Traditionally procurement has reported either to the finance director (emphasising compliance and price) or the operations director (emphasising performance and delivery). Modern procurement functions now have their own director, reporting directly to the CEO and of equal status to other functions. This enables procurement to take a more holistic and objective view in the pursuit of value for money.

Organisations are often arranged in relation to functions. A functional structure divides the organisation into departments based on their function (procurement; finance; operations). Each is headed by a functional director and employees are grouped as per their role. This is resource efficient and ensures that employees are using their skills effectively, but may lead to difficulties in cross-functional working.  A functional structure is compatible with a centralised procurement organisation.

Another type of arrangement is the divisionalised structure, which is consistent with a devolved procurement organisation. Procurement activities are organised in relation to operating divisions. The divisions may be organised by product (pharmaceuticals, medical supplies; medical equipment) or geography (West Africa; East Africa; Southern Africa). Procurement in this arrangement reports to the divisional head, which enables focus on the division’s objectives, but replicates resources and may lead to inconsistent behaviour across the different divisions.

In order to overcome the disadvantages of the functional and divisional arrangements, matrix structures have been tried, with employees reporting to both a functional head and a divisional head. However, it is very difficult to make matrix structures work effectively. Each person has two bosses and it is not always clear how any conflicts would be resolved, as the function and division have equal status within the organisation. Most organisations have a mixed structure, comprising elements of functional and divisionalised structures, to suit the needs of the organisation.

In relation to stakeholder engagement, Booz & Company have identified three different models.[1] The model used will vary according to the type of purchase. The managed model is where the procurement team manages the process on behalf of the users. This is suitable for items which are standardised and are not critical to organisational success, conforming to ‘routine’ items in the Kraljic matrix (indirects such as stationery, travel, catering). There is a low degree of user involvement.

In the support model, on the other hand, the procurement team provides customised support to users of specific items, which are non-standard and critical to organisational success (‘strategic’ items such as branded pharmaceuticals, diagnostic and therapeutic equipment, and sterilisation goods). There is a high level of on-going stakeholder involvement, with the procurement team acting in an advisory capacity.

The facilitate model is another arrangement and sits somewhere between the other two. The procurement team facilitates effort across multiple users of items which are standardised but critical to organisational success. Healthcare examples include ‘leverage’ items such as generic medicines, laboratory and biomedical equipment, and medical consumables). There should be a joint effort between users and the procurement team.

What does it look like?

How does it work in practice?

Kenya Medical Supplies Authority (KEMSA), which is responsible for healthcare procurement in Kenya, displays a functional organisational structure. All procurement activities report to a procurement director, with separate reporting lines for finance, operations and other functional departments. The procurement director reports directly to the CEO, rather than finance or operations.

Within the procurement function, there is a mixed function- and product-based approach. Three procurement managers are responsible for the buying of pharmaceuticals, non-pharmaceuticals, and commodities respectively (product), while a fourth runs the contract management activity (function).[2] This should ensure that the specific needs of the products are catered for and critical functional skills and practices are applied consistently across the organisation.

However, the distribution and warehousing functions report to a separate functional head (the Operations Director). This may cause communication problems with these key functional areas. Pharmed Healthcare in Egypt has overcome this problem by setting up a supply chain function with distribution, planning, warehousing and purchasing management all reporting to one supply chain director. This should enable a high level of integration across all these procurement and supply activities in order to achieve effective supply chain management.

[1] https://www.procuredesk.com/building-procurement-team/, accessed November 2020

[2] Yadav, Prashant & Davidson, William; Kenya Medical Supplies Authority (KEMSA): A case study of the ongoing transition from an ungainly bureaucracy to a competitive and customer focused medical logistics organization; A study conducted for the World Bank; University of Michigan;  April 2014