Which model for my Procurement organization?
Number one "sea snake" in Procurement, centralization vs. decentralization is a debate that should not take place anymore since a center-led organization makes it possible to capture benefits from both models with little downside if any.
The structure of a Procurement Department within an organization has a direct impact on its performance and effectiveness. Over the years, companies have bounced between centralization and decentralization, highlighting the advantages of one model opposed to the disadvantages of the other one, just to discover after several such cycles that none of these extreme was the ultimate solution. A centralized structure, with all procurement activities under one cohesively managed unit is a great upside in terms of consistency and global leverage. Nonetheless, decentralized departments in which Procurement is segmented to be closest to Operations also bring some value and benefits to an organization.
Recognizing the strengths that each model brings to an organization, the key to optimizing Procurement comes from leveraging the benefits of both, and finding the right balance between centralized and decentralized models to avoid disadvantages.
A center-led structure centralizes the strategic aspect of Procurement and sourcing while leaving the tactical purchases to the individual business units. At the core of a center-led model is a Procurement Center of Excellence (COE). The COE is a team of strategic policy makers, project managers, and sourcing professionals who develop the framework for Procurement activities.
The COE identifies the strategic categories that would benefit from a centralized approach, leveraging the entire spend of the organization. It is also responsible for developing processes around the non-strategic categories that are best left to the localized markets and subject matter experts within each individual Business Unit.
Best practices can be shared easily throughout the organization, maverick buying significantly reduced, and performance maintained at a consistent level. Furthermore, all research studies indicate that organizations with center-led Procurement considerably outperform their non-center-led counterparts in spend under management and supply cost reductions.
The following table is a comparison of the three models: