Thursday, 31 October 2013

To Centralize or Decentralize? That is the question... (Part 2)

Authored by Paras Sood

A few weeks ago i asked the question to centralize or decentralize? From my perspective, the argument for centralizing purchasing operations has to revert back to the original intentions of strategic sourcing and how much an organization wants to control the procurement activity within a company. If we assume that an organization is looking to drive cost savings and manage their spend, the next steps are largely based on the organization cultural drivers for how ‘spend under management’ can be achieved.

As a result, I believe organizations need to consider short, medium and long-term activities when organizing their procurement operations:

Wave 1 – Short-term Activities:

- Situation Analysis – before an organization structures their procurement department, a factual examination into the ‘current state’ of purchasing needs to highlight the buying behaviours across the organization. This may be a detailed analysis of spend data through finance systems or other purchasing routes such as ‘one time vendor’ requests, purchasing cards etc. Either way, a geo-political footprint needs to be developed to see what people are buying in which parts of the organization, which may highlight greater purchasing demand in particular business units over others, hence, they require more hands-on structural procurement support.

- Challenge Demand – in conjunction with the situation analysis, and often an ignored part of the purchasing strategy, organizations typically analyze the buying trends across an organization and quickly look to identify tender-based cost reduction exercises without challenging the historical evolution and demand for certain goods and services. For instance, why does a manufacturing organization need to buy 15,000 pairs of sunglasses under personal protective equipment rather than providing hard hats with visors? This behaviour can only be highlighted through stakeholder engagement and factual debate, sometimes facilitated by localized procurement operational teams.

More on the medium-term activities to follow in my next post...


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