Procurement Model: To Centralize or Not To Centralize
Table of contents
1. The centralized procurement model
2. The decentralised procurement model
3. The hybrid procurement model
In case you don't have time to read the whole article, here is a quick video:
You know how it’s like when you go to your doctor’s office for some flue treatment and they start talking about healthy life choices, saying that the way you treat your body reflects on your overall health?
The same goes for your business – how you are organized internally reflects the external achievements. And when you have to organize the sourcing process – a vital thing to any company – the battle goes between the centralized and the decentralized model.
What’s the difference?
The centralized model means there is a centralized department or platform that accommodates purchasing for the entire company as opposite to a decentralized procurement model, which allows each team or department to carry out its own procurement.
The centralized procurement model
The biggest benefit of using a centralized procurement model is leverage. You can leverage the total spend when negotiating with vendors and suppliers, especially if you are buying in larger volumes. You also get a clear overview of all bids, offers and suppliers, which leads to the best possible deal.
Another major benefit of centralized sourcing is the ability to develop a specialized procurement team/person, which will help optimize the purchase process.
But, as we all know, nothing is perfect and the downside of the centralized model is clutter: procedural operations, the need to address compliance standards, transparency concerns and budget approvals when selecting a supplier. Added to that, nobody likes opening and closing an infinite number of excel files. Luckily, you can improve all that by using a platform that centralizes all you RFPs and RFQs. A platform like Prokuria can help you with this and much more.
The decentralised procurement model
The advantage of a decentralized procurement is that it supports specific needs and opens up a more personalized relationship with suppliers. This model is applied mostly by geographically diverse businesses and it’s credited as a long-term development platform.
When you implement the decentralized procurement model, you give autonomy to different teams or departments of your company. In this case, the decisions are made quicker because the autonomy leads to a shorter route through company policies and financial approvals. But the same autonomy often leads to a lack of managerial and operational strength: the overall point is missing. Plus, you short up the paper trail but increase its variety. So, the need of a special platform to help you organize your sourcing process still stands.
The hybrid procurement model
Today, there are many organizations that choose a mix between centralization and decentralization when it comes to procurement. But, as we have already seen, the ability to automate the procurement process is a core need for your business to function efficiently, no matter what you choose.
So, the answer to whether centralize or not, is that good centralization promotes professionalism among buyers and helps you allocate resources efficiently. With a dedicated platform like Prokuria, you can maximize your profit by minimizing your organizing effort.