In theory, centralized organizational structures hold a lot of promise. It makes sense to keep critical decision making within the confines of headquarters for better control, stronger focus, and faster execution in any business unit. This includes procurement, a traditionally tactical department that is under increased pressure to make key business decisions. But in practice, the benefits of centralizing procurement only apply to commodities that can truly be global.
So what’s the model for success?
Based on enlightening data from a recent ProcureCon survey, this infographic takes a look at how companies centralize procurement with a holistic, global outlook on sourcing capabilities.
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How Centralizing Procurement Can Drive Sourcing Efficiencies
The procurement transformation
Like any other function within a company, procurement is under unprecedented pressure to reduce its operating costs, provide better outcomes, and drive greater efficiencies. In response, the department’s role has taken a new direction. The sole focus? Creating value.
Most CPOs agree that some degree of centralization is critical to this value-driven mission—but not at the expense of local and regional support. So what does this concept look like in practice?
“We’re noticing a large trend toward procurement transformation that is driven by the C-Level, who are driving both effectiveness in terms of better value and also efficiencies in terms of centralizing, automating using technology, and the teams involved in all sourcing activity.”—Jagadish Turimella, CEO & Co-founder, GEP
Greater strategic advancement means streamlining relationships across business units.
As procurement prepares to take a more active—even dominant—role in sourcing, it’s critical that the department seeks improvement in several problem areas. According to ProcureCon’s latest annual CPO report:
- 26% of respondents are prioritizing improvements in technology.
- 24% of respondents believe their operations are in most need of improvement.
- 18% of respondents seek better performance from procurement partners.
Gaps in technology, operations, and third-party service capabilities force organizations to manage purchasing decisions across different teams in several departments. Rather than scattering these functions company-wide, however, more and more companies are embracing an approach that engages procurement universally.
“We are in the business to enable the business—we should be reducing friction, and making it easy for business units and functions to achieve their goals.”—Scott Wilkerson, VP of Enterprise Sourcing, McKesson
This approach shouldn’t be purely centralized.
Instead, the best strategy is one that:
- Follows a coordinated, holistic framework for procurement management.
- Uses consistent processes, procedures, and tools across the whole company.
- Creates centralization around commodities that can truly be global.
Not everything can be implemented and managed globally; there will always be a need for localization at regional and local levels. Therefore, centralization of procurement may not mean scrutiny of purchases made across a global organization. Rather, Procurement Centers of Excellence now serve as strategic command centers and providers of consultative value optimization, while recognizing that certain commodities cannot be effectively globalized.
“Best-in-class companies tend to centralize; and if they’re not fully centralized, they’re ‘center-led.’ 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
Learn more about how center-led models are redefining value in ProcureCon’s 2017 CPO study, Exploring the Role of Technology in Procurement’s Strategic Transformation.