The future of procurement will be decentralised

The future of procurement is decentralisation

Over recent decades, centralisation has been the dominant trend in procurement operating models. Through this, procurement has looked to drive compliance, leverage scale and, wherever possible, regulate processes into a single standardised template.

 

By and large, that has been a successful strategy. CPOs have managed to exert a greater degree of control over spend, better analyse it and know more about their businesses’ supply chains.

 

They also have more control over spend decisions. The function has removed buying decision-making abilities and personnel from local levels and consolidated that in a centralised – or even globalised – hub.

 

Although these moves have generated significant savings, the question is whether companies have exhausted the value of these moves. The cost of centralisation has been reduced speed and the creation of geographical barriers between internal stakeholders and procurement service providers.

 

As such, many procurement chiefs are now exploring whether they can reclaim these benefits by decentralising aspects of procurement. Three factors are helping them do that:

  • Technology: New technologies are enabling procurement executives to manage dispersed teams more easily.
  • Agile decision-making: New management trends are further devolving decisions down the organisational hierarchy.
  • Operating environment: The current trade environment is reducing the drive towards globalisation and encouraging more companies to shorten their supply chains.

Technologies are changing the way we work. Today, the norm for most buyers is to travel to supplier sites and work remotely. However, the imperative to locate a group within one office is no longer such an absolute as it once was. Virtual teams are able to collaborate remotely using a variety of tools and can easily coordinate activities across geographies without the need for centralised control.

 

Second, the move towards agile project management methodologies has empowered a greater number of procurement professionals to assume more responsibilities. In discussions with CPOs, many are clearly excited by the potential of agile approaches and highlight how their local teams are taking greater responsibility to pioneer strategic initiatives within countries.

 

"Leaders need to create an environment to enable and power to try new things. We must accept that people will fail," said one Singapore-based procurement executive recently.

 

The structure of these models pushes as many decisions down the chain as possible. Approval thresholds are expanded, onboarding requirements are localised and lead-site buying are all encouraged. Once we embrace the possibility that individuals at the local level can fail – and are held accountable for this – they can and will assume greater responsibilities.

 

Third, strategic thinking is increasingly shaped by the current state of international relations. ‘Trump tariffs’ may not be permanent, but they will certainly have a lasting impact on global business. Organisations are looking to shorten supply chains and design production systems that can better serve local consumer markets.

 

Harley Davidson, for example, has courted public controversy and the ire of the US president by shortening its own supply chains in the face of such tariffs. The motorcycle manufacturer has recently shifted manufacturing for its Chinese markets away from the US in favour of Thailand while it is also considering new distribution channels for its European operations. Whereas globalisation has been the predominant movement for international supply chains for decades, this trend was founded on a benign trading environment. Raising tariffs will likely provide the catalyst to shift the trend towards decentralisation.

 

This is not to say procurement teams will reverse decades of centralisation overnight. History underlines the benefits of modern procurement. Commodified spend items must be leveraged for scale, buying processes much be standardised and simple to transact and all spend decisions must be visible and analysable. Ultimately, a centralised team of professionals can equip the function with the tools it needs to execute but – if we are looking for speed to market and innovation – procurement organisations will increasingly execute at a local level.

 

This article is a piece of independent writing by a member of Procurement Leaders’ content team.

 

It originally appeared in the Q3 edition of PLQ, Procurement Leaders’ new digital magazine. To find out more contact editor@procurementleaders.com