When Procurement Goes the Hub and Spoke Way

Spend Matters welcomes this guest post from Diptarup Chakraborti, AVP Marketing at Zycus

While organizations today are keen to implement an effective procurement strategy by streamlining key elements in the source-to-pay process, many of them face roadblocks because of the complexity involved in integrating different processes into the supply value chain.

One of the major reasons for complexities in procurement is the failure to implement a cross-functional strategy across different departments that are part of the procurement process. The procurement team also works in conjunction with other aspects of logistics and functions within an organization, such as sales, marketing, finance, administration, warehousing, engineering, etc. That is why the entire process requires continuous cross-functional collaboration among these teams that are different both strategically and functionally. Having a robust procurement strategy that facilitates collaboration among the connected processes allows organizations to remain agile and be responsive to meet the competition from different quarters. Today’s competitive environment also demands that management have complete visibility into the expenses so that the team is able to take proactive measures to avoid maverick spending in the supply chain process.

The Hub and Spoke Model in Procurement

The 2-tier model of procurement, also known as the “Hub and Spoke model,” helps organizations build a successful procurement strategy by integrating all elements crucial to the functioning of the procurement value chain to a central hub that is responsible for crafting key strategies in an organization. As the latest trends indicate, the role of procurement is evolving from simple processing of transactional documents to a more complex strategic entity, which can influence and manage several other processes in organizations. Hence, a modern procurement strategy should focus on building a collaborative approach involving both the strategic and operational elements of the process.

The Hub and Spoke concept revolves around the idea that a centralized approach facilitates communications and collaboration among different teams in the procurement value chain. The central hub will develop, implement and support the organization’s procurement strategies, processes and policies, whereas the spokes representing each of the categories of procurement will provide services within their responsibilities. While the hub provides centralized control of the services in each spoke, the spokes are free to develop specialist skills or services, without affecting the equilibrium of the procurement wheel. The strategic profiling of each process will enable coordination across the procurement value chain, resulting in significant efficiencies through information sharing, collaboration, market analysis and more. For example, in the procurement hub of a retailer, there can be different categories, such as inbound logistics, operations, outbound logistics, marketing, sales and service, which work as independent units (spokes) but collaborate with the central hub for better decision making. Each of these categories will also have independent owners who can make strategic decisions for that particular category. However, as the processes are connected to the central procurement hub, there will be collaboration among the different categories and the central hub that is in control of the overall procurement strategy of the retailer.

How does the Hub and Spoke model improve procurement?

In the procurement Hub and Spoke model, multiple processes of the supply chain work collaboratively and exchange information with a central hub so it can be accessed by different teams for improved reporting and analytics. Centralized reporting enables companies to view information in a single dashboard, with complete visibility into the contract process, supplier risks and opportunities, spend patterns and more, eliminating frequent intervention from multiple teams located in same or different organizations. The centralized process also helps managers identify compliance issues associated with complex contracts and reduce risk quotients across legal, market and procurement levels. The Hub and Spoke strategy thus enhances the strategic role of procurement in an organization.

With a consolidated view of transactional data, procurement can gain control of real-time developments by taking into account transactions as and when they happen. Procurement managers get insights into customer/supplier engagements, enabling them to make strategic decisions at the appropriate time. By sharing the spend analytics data in real time, finance can identify opportunities in cost savings and drive optimal expenditures. With supplier analysis and market research, the procurement team is equipped with the resources that can drive efficiency in supplier selection and cut down on maverick spending. Gaining insights into supplier performance, e-sourcing and supply-demand economics will help create a collaborative environment in the supply management process.

The procurement cycle will not be complete without the involvement of the transactional elements, such as invoice management, catalog management, requisition processing and the like. In the Hub and Spoke approach, there is close collaboration between the transactional components and the strategic components, improving the organization’s ability to gain tighter control over the expenses. With rule-based processing and automation of documents, supported by the latest technologies, supply chain professionals can streamline execution while also ensuring compliance with end users. Integration of these components also helps them standardize the entire procurement process while offering enough opportunity for custom purchases as well.

The main benefit of implementing the Hub and Spoke model is that it results in automation of different processes that are interlinked within and outside the organization. It is a well understood fact that automation of key processes brings significant cost savings. For the procurement process, automation brings efficiency to the entire supply value chain by enabling timely delivery of products and services. With automated supplier management capabilities, managers can identify loopholes in supplier selection, supplier management and SLAs. With intelligent spend analytics, decision makers can gain insight into savings opportunities through a number of supplier-based savings strategies. They can also track fluctuating commodity prices in the market and link the external market data to internal spending data to identify new savings opportunities.

Integration of strategic and operational metrics in procurement can have a direct impact on the performance of an organization. Organizations can build expertise in specialist areas by sharing insights, such as key categories of spend, current sourcing capability, performance of potential suppliers and more, to drive critical savings opportunities. As procurement paves the way to control expenditures, drives efficiency in processes and builds standardized procurement practices, an integrated approach to procurement is sure to help businesses to be more agile and competitive. What makes the Hub and Spoke model more attractive is that it can be integrated with other key processes such as ERP and expense management. By integrating procurement with such key processes, organizations are able to drive business process efficiencies, improve competitiveness and realize huge operational savings.

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