Pierre Mitchell and I have spent a good bit of time dissecting a 2013 study KPMG published that is based on a survey conducted with Procurement Leaders. Titled High Impact Procurement Operating Models – A Survey of Global CPOs, the research explores the impact of different procurement operating models on overall structure and performance. It considers decentralized, center-led, centralized, and hybrid operating models for the function. But regardless of structure, underlying each operating model are key attributes and measurements designed that come together as part of each structuring and approach. According to the study, these three areas are:
- Governance (spend under management by procurement, structure for direct spend, structure for indirect spend, CPO reporting)
- Commercial model (spend under category management, structures for determining strategies, structures for category spending)
- Geographical structure (procurement staff reporting line, geographic location of procurement staff)
During the study, respondents were asked to report their own operating structure, which was subsequently verified by additional underlying questions. The authors found that “the actual operating models in use … did reflect the names ascribed to them.” Yet a significant variation did occur between respondents (e.g., in terms of how staff are assigned within the various models).
KPMG suggests that the key takeaway from this is that “the attributes of real world operating models match the title by which they are referred, but most implementations actually incorporate a blend of operating models.” Subtle variations are almost the rule. As the authors observe, “the differences between the operating models are often more nuanced than you might expect. We found, for instance, that even decentralized organizations still have many staff sited in a central location.”
In other words, even though a procurement organization might describe itself as “center-led” or “centralized,” it is likely that its operating model contains elements of other models (decentralized, for instance). One key finding, however, is that centralization tends to correlate with higher-level reporting relationships between the CPO and executive staff. Specifically, “the majority of both center-led and centralized organizations had their CPOs report directly to the CEO.”
In further exploration of KPMG’s analysis, we’ll continue to probe on the relationship of reporting line and overall organization in the context of procurement maturity and transformation.