Centralise or Devolve Procurement – the big debate

So our new briefing paper (sponsored by contingent labour-managed service providers Comensura) was launched at ProcureCon this week and can now be downloaded here.  

The paper looks at a couple of linked and important issues for procurement functions and leaders – how to structure procurement in large organisations, and the balance between devolving power to key stakeholders  (budget holders, service users and so on)  and retaining control of spend within the procurement function.

Most experienced procurement folk will know that this is an issue that never goes away. Indeed, I was talking at ProcureCon to a couple of people about how certain large organisations have swung every couple of years between the idea of very centralised, controlling procurement approach and a much more devolved, local approach. And that is still continuing today.

In the paper, we get into how technology is changing the equation around this issue. But today, let’s feature an excerpt from the paper where we look at the arguments for and against centralisation.

“Ever since the business stone age, a couple of related topics are almost certain to come up whenever two procurement practitioners from larger organisations meet for a drink and a chat.  Should their procurement function be centralised or decentralised?  And, the related but not identical issue – should procurement seek to maximise and retain power within the function, or devolve it to their internal stakeholders, the users and budget holders? 

These issues are connected because the whole reason for centralising procurement is usually in order to concentrate power and authority with the function. On the other hand, more structurally decentralised procurement organisations generally tend also to devolve power, whether that is to procurement staff operating at that devolved level, or to other users and budget holders in their organisation.

It is perhaps easier to see the potential benefits of centralisation than the drawbacks.  Centralisation means control – being able to control the suppliers and contracts that the organisation uses.  It means procurement can develop capability, and aggregate spend more easily.  However, in larger, more complex organisations in particular, it has some problems too.  For instance:

  • centralised functions (including procurement) can be bureaucratic and perceived as major cost centres by the business, becoming an easy target for cost reduction themselves. 
  • the more complex the organisation, the more chance there is of central functions simply getting swamped by data and multiple priorities, and losing direction.
  • the business focus can be lost with centralisation – ‘they just don’t understand my needs’ becomes the business user catch-phrase when describing procurement!

And ultimately, if the organisation is run in a reasonably devolved, de-centralised manner, it is simply unlikely to accept a highly controlling, centralised procurement function.”

More to come but you can download the paper here, free on registration

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Voices (4)

  1. Dan:

    Back in 2008, the procurement team in my council was moving offices as part of an organisation – wide centralisation strategy. At the back of one of the file cabinets we found a report written in 1932 recommending that the purchasing function should be centralised to improve efficiency and obtain better value for money.

    This could be a) a good example of how procurement strategies change over time in response to changing business philosophies and best practices, technological development and new CPOs desire to ‘make their mark;

    Or b) a damning indictment of just how slowly councils are able to change.

  2. Alan Holland:

    Centralisation versus devolved control is likely to be an unending disquilibirum until procurement officers begin to adopt technologies that can address market failures at opposite ends of this spectrum. The problem is multi-faceted of course with political, economic and social concerns all serving possibly competing interests. But I for one will look forward to reading this paper in depth!

    1. Secret Squirrel:

      I’m not sure it gets resolved ever. It must be a consequence of broader organisational strategy and design and how you intend to serve the customer which drives the right design for procurement.

  3. Market Dojo - Alun:

    You can see the parallels to how the central and local government Procurement is structured and the challenges they face. After recently being involved with the Communities and Local
    Government Committee on Local Government procurement they have finally produced the report. They acknowledge the need for centralisation to an extent with the need for caution that it does not over-rule local needs “We recognise that there are potential savings to be gained by increased aggregation and even national arrangements…but it has to be for local authorities to decide what provides the best value for money when weighted against their local needs…” and “Local freedom and flexibility would be lost if they were compelled to adopt a centralised model of procurement such as that adopted by central government in its Crown Commercial Service..”. They also highlight the need for more strategic leadership/ guidance “The Local Government Association should consider supporting the establishment of a peripatetic procurement team—a ‘flying squad’ whose purpose would be to train regionally based teams of trainers.” with the sharing of best practice “…Local Government Association should provide a forum for sharing data on successful approaches …”. This is very similar to a model we have seen adopted by many of our customers. To have a centralised procurement department looking at aggregated contracts where appropriate and offering a centre of excellence for strategic sourcing . For there they can offer advice to local offices. This ensures that there are benefits from aggregation and local sourcing with common processes being used. In all honestly we would wholeheartedly agree that this seems to go in cycles. The change between centralisation and decentralisation seems to be as much about change bringing efficiencies as anything else.

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