KPMG: Operating Models, Savings, and Performance – Ever Hear of Decentralization?

This analysis is based on the KPMG and Procurement Leaders research study: High Impact Procurement Operating Models – A Survey of Global CPOs. Readers can download the full analysis (warning: it is dense!) by clicking the previous link.

Procurement operating models are constantly shifting, not by definition but in practice (a point supported by the data in KPMG’s and Procurement Leaders' analysis). Part of the challenge is that “even for those more established functions, there are innovations in methodology requiring a change in the operating model. For instance, the introduction of category management … requires substantial work in stakeholder management, strategic planning, and organizational redesign.”

One of the nuanced observations KPMG makes in the analysis is that “the transition that appears to be experienced by many is an oscillation between two trends. Firstly, there is a centralizing phase, where more spend is under management, with the organization aiming for a centralized structure. Secondly, there is evidence of a decentralizing phase, as this moves to a more center-led structure.”

The concept of “decentralizing” procurement is an interesting one. Consider:

“Center-led functions can enjoy the benefits of standardization and control that comes with centralization, while engaging directly with stakeholders and ensuring compliance at the local level …  [Yet] the benefits of centralization appear to be limited by 
the regionalization of supply markets. There are few genuinely global markets around which organizations can construct global category strategies. Having improved their information management capabilities and standardization through centralization, moving to increased decentralization better aligns with the majority of supply markets and typically means closer stakeholder relationships. These close stakeholder relationships enable the delivery of a new level of savings.”

Perhaps there is truly a “next phase” in regards to balancing the need for decentralized capability and intelligence with the future of the procurement function. We’ll explore this (and its complete alternative, the move to procurement BPO/outsourcing) in the coming weeks.

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