Written by Susan Avery
The following guest post is provided by Susan Avery, Editor in Chief of MyPurchasingCenter.com, a website designed to provide the essential information required by purchasing and procurement management professionals to keep their companies competitive in a dynamic global marketplace.
While industry watchers see procurement organizations going back and forth over the years from centralized to decentralized operating models, they seem to agree global competition and pressure to hold down spending are trends that encourage companies to opt for consolidated leadership and purchasing decision-making.
Centralizing procurement can lead to lower costs. Pooling a company’s purchases across an organization, whether direct materials and/or indirect goods and services gives it more negotiating power with suppliers. It streamlines processes. But centralized procurement isn’t without its detractors. Buyers at locations in other areas of the country or the world sometimes feel left out of decisions made at headquarters and prefer to do their own sourcing from local suppliers.
Turning to a decentralized procurement model isn’t a right answer either. Some companies choose the best of both central and decentralized models by operating under a hybrid procurement structure that allows for consolidated sourcing for some buys, especially of materials and services used by all facilities such as travel or technology, and regional sourcing for more local buys such as maintenance services.
One hybrid operating model that seems to be getting attention from procurement leaders is “regional central procurement” which Jimmy Anklesaria at the Anklesaria Group describes in a recent article. “With this model, procurement decisions are centralized in the region where most of the operations and suppliers are located, not at the company’s headquarters,” he writes.
For companies growing and establishing offices in other regions or acquiring and merging with smaller businesses, deciding on a procurement operating model can be, as Peter O’Reilly, Chairperson of the Services Group at the Institute for Supply Management in 2002, puts it in a white paper, a “dilemma.” Yet this dilemma can be resolved with “much thought and hard work.” As O’Reilly sees it, there are several “actions that may contribute to a unified and effective procurement function.” To paraphrase him, these include:
- Understand business and corporate cultures involved.
- Identify external and internal factors that could work for or against the effort.
- Determine annual spend numbers.
- Ascertain the percentage of spend currently under contract or obtained through strategic sourcing.
- Calculate savings potential from a new procurement organization.
- Establish personal and team credibility.
- Include customers in all aspects of the new organization’s development.
- Survey all existing procurement related systems.
- Create a business case.
Indeed, procurement can accomplish all these these tasks and make a wise choice with information that a tool like Tamr for Sourcing Analytics provides. The tool connects to hundreds of sources at multiple business units and prepares data using machine learning that automatically refreshes. It can generate master supplier lists, identify discrepancies and provide scorecards with valuable data on suppliers and spend categories.
So, rather than go back and forth between centralizing and decentralizing–or make a decision that doesn’t sit well with buyers at locations in other regions or new acquisitions–having access to a clear real time view across the organization can help leaders select the model that’s right for procurement and ensure the company’s continued success in an increasingly competitive global environment.