To centralize, or not to centralize? This was a major question among chief procurement officers just a few years ago. But as they take on responsibility for more sourcing categories across the global organization, centralization has become inevitable.
Now, the question is more likely to be “How much should we centralize?”, and it never hurts to look to other CPOs for inspiration. Based on recent ProcureCon survey, this infographic breaks down the three main levels of centralization procurement leaders have adopted in the last 12 months.
Download the full CPO Study here.
Download the infographic here.
Today’s typical procurement department is built around some degree of centralization. At the very least, centralization allows CPOs to consolidate spending across an increasingly wider variety of sourcing categories, and at its best, it gives CPOs the power to make strategic decisions that have an impact on every part of global business.
But there is some mismatch between the levels of centralization CPOs deem necessary. Realistically, categories that can’t be sourced globally (as well as some region-specific vendor relationships) must be managed on a regional or local basis.
To get a better sense of procurement leaders’ strategies for 2018, a ProcureCon CPO survey asked: How important is centralization to procurement?
The results show fairly even adoption of three centralization models, besides the smaller proportion that pursues a single strategy. So what do each entail, how do they compare, and which works best?
- Full centralization: The largest share of CPOs are involved in managing a highly centralized approach to procurement, setting up policy and consolidating control over as much global spending as possible.
- Centralized with local processes: Nearly a quarter have also developed a centralized framework, but allow niche sourcing activities to take place at a local or regional level.
- Center-led: This approach sets policy from a center of excellence while allowing the tactical execution of that strategy to occur in a distributed fashion or on a self-serve basis.
- No centralization: CPOs’ growing strategic influence is clearly seen in the small proportion of leaders who execute strategy without a centralized leadership group.
Which best benefits your organization?
In last year’s study, a center-led model emerged as the preferred organizational structure for most respondents. Now, the focus is on creating centralization around all commodities that can truly be global. But you don’t necessarily need to adopt a purely centralized model to compete with best-in-class companies—just one that has a coordinated, holistic strategy for how it’s going to procure.
“From experience, the predominant model is centralized procurement, as it enables a holistic view and synergies that result in optimized process, reduced operating costs, and creating efficiencies. A center-led organization, while different, doesn’t deliver the same value as a fully centralized model. In my opinion, it misses on the economies of scale that are available under a centralized model, as well as the ability to gain more visibility into areas ripe for improvement.”—Greg Tennyson, CPO, VSP Global
“There is always going to be a need for on-the-ground local and regional support … In my opinion, it has to be centralized where it makes sense, and localized where it makes sense, but one coordinated model is the right model going forward.”—John Proverbs, Head of Procurement, KLA-Tencor
Download a copy of the CPO Study to find out more about the part centralization plays in global procurement strategies.