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88 CHAPTER 4 The Procurement Process

that is responsible for purchasing materials for that plant. As in the case
of the cross-plant model, in this scenario the purchasing organization is
assigned to both the plant and its company code.

Figure 4-5: Plant-level purchasing organization

Reference Purchasing Organization
Each purchasing organization model has its advantages and disadvantages.
A highly centralized model enables an enterprise to negotiate favorable
agreements because it purchases materials in large volumes. However, the
enterprise may not be able to take advantage of local practices and rela-
tionships with which it is not familiar. In addition, it may not be able to
react quickly to changes in local conditions. Conversely, a highly decentral-
ized model is preferred when vendors primarily serve a local geographic
area and knowledge of local practices and conditions enables the enterprise
to make favorable agreements. Ultimately, enterprises frequently adopt a
hybrid model that consists of one centralized purchasing organization that
can evaluate needs and opportunities for the entire enterprise and nego-
tiate global contracts, which purchasing organizations then use across the
enterprise. Such a purchasing organization is called a reference purchasing
organization.
GBI has adopted a hybrid model to include a single global reference
purchasing organization (GL00), as indicated in Figure 4-3, plus multiple com-
pany-code-specifi c purchasing organizations, as indicated in Figure 4-4. In the
United States, the purchasing organization (US00) is physically located in
the Miami facilities, and in Germany the purchasing organization (DE00) is
physically located in the Heidelberg facilities.

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