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Should You Centralize Your Procurement Operations?

Should You Centralize Your Procurement Operations?

If you want greater control of your company’s procurement processes, a centralized procurement organization may be the best for your company. How often has your company had issues with keeping track of the purchases being made?

If your procurement organization is decentralized, it might be harder for you to keep control of your purchasing operations. How much better would it be for your company if your organization was able to maintain greater control over its procurement operations?

The decision to centralize your procurement functions can be a huge one. It can have major ramifications for your organization. While it isn’t an easy transition, it may be just what your organization needs to ensure that it is purchasing effectively.

 

The Issue

If your company is a larger organization, it requires a massive amount of resources and tools in order to operate at peak levels. The efficiency of any large organization upon largely upon its ability to obtain what it needs while keeping spending at a minimum.

If this isn’t done, your company will become less efficient. An addition to lessened efficiency, your company will also waste money and open it up to outside threats.

It’s something that can’t be taken lightly.

 

Why Does This Happen?

One of the primary reasons why companies have trouble managing their purchasing practices is because most of the procurement functions are allocated throughout the company. Different purchasing decisions are managed by different purchasing teams in different departments.

In some cases, this might be more effective. However, for a larger organization, this makes effective procurement exceedingly challenging. Since many organizations have not yet moved from decentralized procurement operations to a more centralized approach, they are not managing their purchasing as efficiently as they could be.

This is one of the most challenging aspects of running a procurement operation. In order to properly supply the resources your organization needs, you need to have as much control as possible over the way money is being spent. This is why a more integrated approach may be necessary for your company.

 

The Centralized Procurement Organization

A centralized procurement organization is one that is handled by one department in one location. In this type of operation, all purchasing functions come under the purview of one  centralized procurement organization instead of having various functions that are scattered across the company.

Companies opt for the centralized procurement operation because it allows greater efficiency and better control of purchasing functions. It makes it much easier to maintain policies and procedures that promote a more effective buying process.

 

The Benefits Of Centralizing

The main benefit that centralizing can bring is greater control over the various buying processes that your company engages in. This greater control allows for more efficiency and more visibility into how the company is obtaining its resources.

Here are some of the other benefits:

• Less time spent on ad hoc purchasing.
• Better pricing and more discounts from vendors due to greater volume purchasing.
• Larger deliveries can reduce delivery charges.
• A centralized location for all purchasing records. This provides greater visibility into purchasing decisions.
• Better communication between your company and its vendors. Suppliers will easily know whom to contact.
• Better management of inventories.

When you incorporate all or most of your organization’s procurement functions into one silo, your procurement operations will be more streamlined. This allows for a much smoother purchasing process.

 

The Drawbacks Of Centralizing

While centralizing is great for many companies, it does come with some drawbacks. For most companies, these drawbacks are minor. For others, it could be an indication that your company isn’t ready to become a centralized procurement organization.

Here’s some of the drawbacks:

• While ad hoc purchases will decrease, they may become more difficult. The requisitions for these purchases have to be sent from other departments to the procurement department. This can result in delays.
• A centralized procurement organization may not be able to take advantage of local discounts. This can be a drawback if your company is geographically diverse.
• Depending upon the size of your company, a computer system that is dedicated solely to purchasing may be too expensive to maintain.

How To Centralize

Centralizing your procurement operations is not an easy undertaking. It requires much effort and buy-in from all involved. The exact steps you should take depend upon your organization.

Since every company is different, there is no one-size-fits-all solution when it comes to transitioning to a centralized operation. Because of this, it’s best to consult with professionals who are familiar with procurement operations.

Here are some questions you should ask before making the change:

• Is our change management strategy on point? Can you successfully manage this transition?
• Do we have buy in from the top leadership?
• How will we encourage all stakeholders to adopt the new operation?

Conclusion

Maintaining an efficient procurement department is a critical component of your company’s success. If you aren’t 100% confident that your procurement functions are performing to their fullest potential, you may want to consider centralization. If you want to learn more, attend our free webinar on tail spend management!

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