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There is a clear trend, both in terms of research and anecdotally, that companies are looking to centralise their procurement functions. Is this always the right path to follow?
We have recently published our research into Procurement Operating Models (you can access the executive summary here). One of the key questions of the study relates to impulse to centralise.
Clearly, this trend can be coupled with the dramatic rise of the procurement function. Even in established global brands, a dedicated purchasing department can be a relatively new emergence. The first remit of new CPOs, it seems, is to expand spend under management. And bringing that spend into a central, oversight function seems a logical initial move.
In some companies, however, a purchasing function is not a new thing. Much of spend has been centrally allocated and, as such, all the potential savings from these structures consequently diminish.
How many times can you place category management at the central level and execute strategies under a single global contract? In each case, it will be a one trick pony. Hence the challenge for leaders is to place increasingly more categories into this single process – to sustain targeted figures, buyers must extend their reach to the remaining low-hanging fruit.
But what to do once all categories and spend items are processed in a global administration? Where do future savings come from?
These are the questions that some organisations are asking themselves now. For some, the answer is to increase decentralised buying.
Some organisations that I have spoken to have expressed an interest in this idea. The benefits of greater stakeholder alignment, faster decision-making and earlier procurement involvement are convincing theoretical arguments. The loss of central oversight can in part be addressed by dotted reporting lines of buyers based in the field to a centralised procurement function, aided by the emergence of e-technologies which facilitate more effective remote working.
So are organisations right to instinctively move to centralise spend? Perhaps it is time for the more innovate to look to more dispersed structures?