Centralized vs. Decentralized Procurement: No Debate Necessary

More sophisticated procurement organizations, and the consultants that work with them, are fully aware that the centralization vs. decentralization argument in procurement is more of a myth than anything else – at least for companies that are further along the bell curve. Indeed, there is not a “singular path to centralization or decentralization” that top performers follow. Rather, there are periods of both centralization trending and devolution that ultimately lead to a hybrid structure that should, theoretically, bring the best elements of both structures to the table.

Still, having made this point, it is critical to first understand the arguments in favor of centralization and decentralization before getting to hybrid scenarios – as well as the underlying skills, processes, governance structure and technology that can support different approaches. Earlier this year, my colleague, Peter Smith, penned a very thoughtful paper exploring the age-old concept of centralization and decentralization with a modern twist and set of observations and recommendations: Centralise or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models.

In the coming weeks on Spend Matters, we’ll take a look at some of the highlights and observations that Peter makes in his work, starting first today with what he aims to achieve with his effort. We’ll also include additional observations and commentary as we explore some of the elements of his analysis in detail.

Framing the Issue

To get started, Peter frames his argument: “[T]his briefing paper [considers] … some fundamental issues for procurement … The first relates to how the procurement function is structured; in particular, the balance between centralised and de-centralised organisational models. The second and related issue is whether the procurement function devolves power, or tries to hold it within the function.”

Peter then suggests that, “These issues are connected because the whole reason for centralising procurement is usually in order to concentrate power and authority within the function. On the other hand, more structurally decentralised procurement organisations generally tend also to devolve power, whether that is to procurement staff operating at that devolved level, or to other users.”

Whether you spell centralization with a “z” or an “s,” we can all agree it’s a great topic to explore. Join us as our analysis of Peter’s work begins. And by all means, download the full work, Centralise or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models, if you’re interested in the topic!

Next up: The benefits (and challenges) of centralization.

First Voice

  1. Mark Kinsey:

    Great discussion points. In my opinion, the procurement function in any organization must have “Guiding Procurement Laws (or Principles), clearly defined spend categories between centralized procurement and decentralized procurement, and finally, communication (and preferably the same or complimentary systems that communicate with each other) between the two groups. Depending on the organization mission and needs, I have found the blended procurement function will be successful if the three points above are addressed. If not properly addressed, “wildcat spending” is the result.

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