Your Quick Guide to Centralized Procurement
Wondering what the difference is between centralized and decentralized procurement?
We’ve put together a quick reference guide that defines the concepts, explores the pros and cons of both options, and shows how agroup purchasing organization(GPO) can help implement the best strategy for your business.
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What is Centralized Procurement?
Centralized procurement is a system where a single team or department manages all purchasing and procurement activities for an organization.
All goods and services for the company are purchased at the headquarters level.
For example, a company decides to standardize its cleaning services across 20 different office locations. The centralized procurement team scopes out the project, approaches the market, evaluatessuppliers, negotiates a volume discount, and awards the contract to a single supplier.
However, this approach means local SMEs at different locations miss out on consideration and implements a one-size-fits-all solution despite some of the offices having different maintenance needs.
Pros & Cons of Centralized Procurement
Pros
More control
Standardized purchasing processes
Greater transparency leads to more accurate spend data
Higher purchasing volume equates to better discounts
Better communication and relationships with suppliers
Enables tail spend auditing to prevent savings leakage
Straightforward commodity price tracking
Less time spent researching and negotiating with suppliers
A central location for purchase orders, invoices, and spend reports
Simpler inventory management
Minimizedmaverick spend
Procurement specialists do the purchasing
Provides an opportunity to implementstrategic sourcingfor all locations
Improved supplier risk management
Cons
Centralized workload can cause bottlenecks and delays
Inability to leverage local discounts, impacting supplier diversity
Centralized processes can become too complex and costly to maintain
Regional/business unit managers will have less autonomy, which can cause frustration
One-size-fits-all solutions won’t meet each location’s unique needs
Longer delivery and turnaround times
What is Decentralized Procurement?
Decentralized procurement is a business model where purchasing decisions are made by local branches, sites, departments, or other specialized teams, rather than a centralized unit.
For example, an office manager is tasked with organizing catering for an important event with international partners. Using her knowledge of the types of food her team enjoys, she approaches aminority-owned supplierin the area who can offer local cuisine that will impress their guests.
The event is a success, although the catering was a one-off purchase that failed to leverage any sort of volume discount.
Pros & Cons of Centralized Procurement
Pros
Increased involvement and engagement among decentralized teams
Increased supplier diversity
More local knowledge
Better fit for local requirements
Faster decision making
Shorter turnaround times and fewer bottlenecks
Cons
More suppliers
Missing out on volume discounts
Lack of strategic category management
Increased maverick spend and non-compliance
Duplication of effort
Multiple contact points for suppliers
Higher risk exposure
More RFPs, more contracts, more workload
Siloed and invisible spend data
What is Center-Led Procurement?
In acenter-led structure, the core team manages strategic purchases while decentralized teams manage tactical purchasing needs. Some organizations use spend thresholds and risk assessments to determine what is managed by the central team and what can be decentralized.
The core team may set upprocurement software, guidelines and processes for decentralized teams to use.
How Can a GPO Help?
There’s no one-size-fits-all answer to the centralized vs decentralized vs center-led question. It depends on your organization’s size, its current needs, and the dynamics between headquarters and regions.
Bypartnering with Una, companies can unlock buying power and access similar volume discounts across dozens of categories.
With the help of agroup purchasing organization, procurement teams can supercharge their volume purchasing strategy to levels that are well beyond the reach of any individual company.
Contact Una today to learn how we enable astronomically higher cost savings than those created through centralized spend management.
