Procurement Technology
Do We Need to Debate Procurement Centralization?

More sophisticated procurement organizations, and the consultants that work with them, are fully aware that the centralization vs. decentralization argument in procurement is more of a myth than anything else – at least for companies that are further along the bell curve. Indeed, there is not a “singular path to centralization or decentralization” that top performers follow. Rather, there are periods of both centralization trending and devolution that ultimately lead to a hybrid structure that should, theoretically, bring the best elements of both structures to the table.

Still, having made this point, it is critical to first understand the arguments in favor of centralization and decentralization before getting to hybrid scenarios – as well as the underlying skills, processes, governance structure and technology that can support different approaches. Earlier this year, my colleague, Peter Smith, penned a very thoughtful paper exploring the age-old concept of centralization and decentralization with a modern twist and set of observations and recommendations: Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models.

In the coming weeks on Spend Matters, we’ll take a look at some of the highlights and observations that Peter makes in his work, starting first today with what he aims to achieve with his effort. We’ll also include additional observations and commentary as we explore some of the elements of his analysis in detail.

Framing the Issue

To get started, Peter frames his argument: “[T]his briefing paper [considers] … some fundamental issues for procurement … The first relates to how the procurement function is structured; in particular, the balance between centralized and decentralized organizational models. The second and related issue is whether the procurement function devolves power, or tries to hold it within the function.”

Peter then suggests that, “These issues are connected because the whole reason for centralizing procurement is usually in order to concentrate power and authority within the function. On the other hand, more structurally decentralized procurement organizations generally tend also to devolve power, whether that is to procurement staff operating at that devolved level, or to other users.”

Whether you spell centralization with a “z” or an “s,” we can all agree it’s a great topic to explore. Join us as our analysis of Peter’s work begins. And by all means, download the full work, Centralize or Devolve Procurement? Why not Both? How Technology is Enabling New Operating Models, if you’re interested in the topic!

Next up: The benefits (and challenges) of centralization.

Voices (2)

  1. Roland,
    We’d generally agree in principal. This is the whole idea of center lead procurement where the corporate center works with the business to define the key supply strategies even though execution is distributed. In execution however, power dynamics are a fact of life. For example, if procurement works with IT and IT applies all of the sourcing and SRM best practices in the procurement toolbox, but the resources all roll up to the CIO, can the CPO claim the IT led benefits as a procurement value-add? If no, and “savings follow the FTE” up into the corporate procurement organization hierarchy, then there will be a power struggle to see who is justifying their existence to the CFO/CEO. The best organizations move beyond this silliness and deal with it in different ways, but it does waylay many folks. Thanks for writing in!

  2. Roland Simon says:

    The purpose of centralization of the procurement organization is not to concentrate power, but to enable the organization to fulfill bigger promises through access to the entire footprint for the supply base.

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