Centralized vs. Decentralized Procurement: Centralization Theory Takes a Great Leap Forward (Courtesy of Peter Smith)

A couple of days back, we introduced our readers to the notion of a Center Led Action Network (CLAN) concept for structuring procurement, courtesy of my colleague Peter Smith (who recently authored the paper: Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models. More than 10 years ago, Peter took this thinking a step further by introducing a more advanced CLAN, or Strategically Controlled Action Network (SCAN) as he termed it.

The concept behind a SCAN is “that the center needed to exert more direct strategic control, without going as far as a fully centralized procurement structure. So the center would require more in the way of data and compliance from business units, and would look to lead key categories more directly. Procurement managers around the network would hold a primary reporting line to the center rather than locally.

However, this requires more resource in the center, and also assumed that devolved units would allow the center to hold more direct power. There is also, of course, the option of a fully centralized procurement structure. But our experience suggests that this has rarely worked in large organizations. Assuming that a team sitting in London, Geneva or Mumbai could buy and control everything for a large multinational just hasn’t proved feasible.”

Flash forward just over a decade to today and the concept of a SCAN is actually very much in play inside a significant number of more advanced procurement organizations (these are companies and procurement groups which generally have gone through various stages of centralization and, quite often, some degree of devolution). But in today’s market, a SCAN will not necessarily become the procurement governance and structure end state that companies follow into the future. There must be something next.

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: setting the state for technology and structure / governance innovation. 

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