Centralized vs. Decentralized Procurement: The Origins of Centralization Theory

The analysis and debate over procurement centralization goes back many years. In the paper, Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models, my colleague Peter Smith introduces one of the original contributors to the subject Dr. Richard Russill, who “came up with the CLAN organizational concept – the Centre Led Action Network” over 20 years ago (back when Peter still had dreams of getting out of procurement and becoming a rock star rather than just a serious music enthusiast). In his work, Russill attempted “to answer the particular dilemmas around the centralization paradox,” Peter observes.

Specifically, in his work, Russil attempted to “define an organizational model and procurement strategy that would cope with the growth of large, devolved business organizations. The idea was to have a small procurement center, leading
a network of organizations (business units, regional factories or offices, etc.). Those would have their own procurement staff, full or part time, with reporting lines into their respective business unit. They would also act as a network, with designated buyers taking the lead on certain spend categories across the network.”

Academically, this might have sounded at the time as an ideal concept from an organizational design perspective. But as Peter notes, “Practical experience highlighted some issues with CLAN. For instance, the idea that staff in devolved business units would put wider interests first as ‘lead buyers’ for the whole organization came up against the realities of their daily, local priorities. And the small ‘procurement center,’ with only the loosest of controls, and often lacking real data or information about what was going on around the network, did not always stand up to the rigors of corporate life.”

The irony of this statement, of course, is that in the world we are living in two decades later, it is now possible to more easily understand at least what is happening in a network itself. This is thanks to the rise of social and collaborative tools within the organization – not to mention the adoption of better procurement analytics that provide rapid access to spend, supplier, risk and other related and overlapping information sets.

This argument I just put forth will form one of the basis of Peter’s arguments as well as we continue to consider the centralization vs. decentralization debate.

This analysis is based on Peter Smith’s paper, Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models. Spend Matters readers can download the full analysis via the previous link. Up next in our analysis: taking the “CLAN” thinking a step further with Peter’s own concept. 

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