OMNIA Partners Blog

The Centralized Vs. Decentralized Debate

Posted by Ara Arslanian on August 25, 2013

Do you have the best organizational structure in place to manage indirect spend in the post-sourcing era?

If your company isn’t set up to allow for a centralized procurement structure, you’ve probably longed for the leveraged pricing that a decentralized approach may never achieve.

And maybe if your company does have a centralized structure you’ve lamented the compliance challenges you face. After all, who wants to stop using the vendor who brings donuts every Friday in favor of the one “those guys from corporate” insist upon?

What resources does a centralized procurement department need?

A centralized structure will only be effective if it has the necessary resources – broad category management expertise and tools to:

  • Analyze spend
  • Manage contracts
  • Track compliance
  • Measure performance
  • Execute continuous improvement

Most procurement departments don’t have those resources and are unlikely to get them. Consequently, the most effective structure tends to be a coordinated one — neither centralized nor decentralized — that balances local requirements and aggressive corporate targets.

How does a coordinated indirect procurement structure work?

A coordinated indirect procurement structure is more effective in leveraging indirect spend than either a high-cost centralized system or a decentralized structure that fails to leverage best practices and best suppliers across the organization. It takes the pros and avoids the cons from each model.

Centralized vs decentralized.png

Are most procurement organizations centralized or decentralized?

According to a recent report by ProcureCon Indirect West, 38% of procurement departments are "centralized across regions and business units." Decentralized departments make up 22%. That leaves 36% that function with a center-led approach ("procurement strategy determined centrally, business units or locations handle actual purchasing"). 

It appears that in 2017, procurement departments would rather deal with limited resources and barriers to compliance than lack leverage and consistency.

Which approach do you use? What pros and cons would you add to either of these lists?

Editor's Note: This post was originally published in August 2013 and has been updated for accuracy and comprehensiveness.

Topics: Group Purchasing Organization, Procurement

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