Centralized vs. Decentralized Procurement: Technology as (one of) the Great Governance Disrupters

In procurement, we often look at technology as an enabler. For example, sourcing optimization technology can change how we source by allowing us to gather an increased set of data points from suppliers (and then apply our own constraints to understand how various biases or requirements create additional supply chain cost, such as requiring higher inventory levels, not awarding to the lowest bidder, etc.). Yet technology can enable more than just tactical activities like sourcing – it can also help redesign how we structure procurement teams and leadership to begin with.

In Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models, my colleague Peter Smith provides significant history and context around the move to (and from) centralized procurement structures – as well as hybrid approaches. For example, he notes, “We still see conflict between centralized and de-centralized approaches to procurement, and indeed many organizations swing back and forward. Central government in the U.K. is going through a swing toward greater centralization; but last year a major U.K. based energy firm devolved power away from a central procurement group and dispensed with their group chief procurement officer, placing power back with business units.”

But we are becoming more sophisticated in how we approach governance. There is, for example, “a growing realization that structures and operating models need to be carefully chosen and specific to each organization - and even for different spend categories. So, for instance, some large organizations control certain areas of spend very tightly, even to the point of global centralization, whilst devolving decision -making very widely for other categories.”

But perhaps most important, technology is truly changing the governance game as well. In this regard, Peter notes “the second development that is changing terms of this debate is the advance of technology, which is giving us the opportunity to change the balance and combine the advantages of centralized and de-centralized models. So this is the crux of the matter, and a key point … the realization that ‘devolved’ does not necessarily mean out of control, and ‘decentralized’ doesn’t necessarily mean unstructured.”

And this, of course, is where the right solutions (deployed, configured and managed effectively) come in to play.

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: how technology is changing procurement governance and control in practice.

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