Case Study

Lesson 3 = CRANK

CRANK Crank Ltd

Crank has been in business since the 1920’s and have three locations in the UK. Their Head Office and main manufacturing site is in Leicester. This site makes complex tubular assemblies for defence organisations, oil and gas and transportation. There is a site at Southampton making tubular shafts for golf clubs, and a site in Glasgow manufacturing aerospace Duct assemblies up to 8″ diameter.

The procurement organisation is currently decentralised. At Leicester, there is a Purchasing Manager, whereas at Southampton and Glasgow, each site has a Chief Buyer in charge of small procurement teams.

There is a new Chief Executive of Crank who fervently believes that he needs a new approach for the Group in the way procurement is structured. Over the past month, he has, quietly, been obtaining some salient facts.

The more important ones are :

•Each site operates as a ‘Profit Centre’ and the Site Director has to deliver a targeted Return on Capital Employed;•There are no Group purchase contracts;•Five major purchases account for 61% of total Group expenditure – they are all raw material including different specifications of tubing;•There are more than 40 suppliers for the five major purchases;•No formal tendering has taken place, on any site, for more than two years;•Capital equipment is purchased by the Group Chief Engineer;•The company has embraced modern logistics practices including JIT and OTIF (On Time In Full);•There is no savings plan for purchasing;•The purchasing teams do not liaise.

The Chief Executive intends to consider an alternative purchasing structure that can deliver benefits for the Group and each operational site. On the basis of your knowledge and the salient facts above what advice could you give him?

Tasks(a) What alternative structures could be considered? (b) What are the potential obstacles to change?(c) What business benefits could accrue from a changed purchasing structure?

Solution to Case Study

Solution to the Case StudyCrank LtdOverview Been in business since the 1920s Three manufacturing locations – Leicester, Southampton and Glasgow•Procurement is decentralised• Chief executive wants a restructured procurement function• There are common purchases across the three sites• No strategy appears to exist• No tendering has taken place for more than two years• Modern practices being used in logistics•No liaison between purchasing teams.

1. What alternative structures could be considered?•Leave as is!• Create a Corporate Head of Procurement with a central team of procurement specialists.•Create a Corporate Head of Purchasing for strategic direction only.•Create a CLAN organisation.•Outsource procurement to a specialist provider.

2. What are the potential obstacles to change?

• The Site Directors losing autonomy.• Site purchasing staff feels threatened by any proposed change.• Group Chief Engineer does not relinquish his decision making.• Existing suppliers feel threatened if tendering is introduced.• Expertise may not be in existence for the strategic challenges.• The change programme adversely impacts on performance in manufacturing.

3. What business benefits could accrue from a changed purchasing structure?

• Long-term procurement strategy can be formulated.• Overall procurement risk can be managed better.• Uniform procurement policies and processes.• Higher levels of procurement expertise can be injected.• Better knowledge of the supply market.• Learning and development for procurement staff can be implemented.• Integration with logistics will improve synergy.• Integrated systems possible including e-procurement.• Procurement becomes established as a key contributor to Group business planning.• Savings will improve Site Return on Capital.

Solution to the Case StudyCrank Ltd