Centralizing Or Decentralizing Your Procurement Organization: Who Should Do What?
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???????????SCOPE Recruiting recently partnered with Google to help build out their Group Procurement Organization (GPO). Google’s GPO is a complex matrix of supply chain programs and initiatives that support all indirect sourcing. Google has recognized the advantages of a centralized procurement group for itself and in this article, we will look at some of the pros and cons of a centralized/decentralized procurement program and the types of companies that will benefit from either approach.?
What does it mean to centralize your procurement organization?
A centralized procurement program is a “system in which one department manages the sourcing of goods and services for the entire organization."
The purchasing/sourcing department is usually located in the organization’s headquarters, where it handles the strategic sourcing for all the branches of the firm. This means that all purchasing requests flow through one team who oversees the POs, supplier relations, contract agreements, and execution to completion.
The benefit of a centralized procurement group is the increased visibility the department has of who’s buying what, when, how much, where from, and at what cost. This allows the department to put in place highly efficient sourcing processes and favorable contract agreements which as a result, creates cost savings.?
Types of businesses that benefit from a centralized procurement approach.
Organizations that have a siloed supply chain/procurement department due to factors such as location or multiple business units will benefit the most.
Another business that is taking advantage of a centralized procurement group is Culver’s. Culver’s is a popular Midwest fast food chain with 867 locations spanning 26 states. Known for its fresh “butter burgers”, cheese curds, and frozen custard milkshake, it has become a staple for road trips of locals and tourists alike. Their headquarters is in Prairie Du Sac, WI, which is centrally located to most of their restaurants.
Culver’s has benefited from a centralized purchasing system because most of its restaurants can take advantage of favorable vendor agreements from the same meat and dairy suppliers.
Like most businesses, the current state of inflation and labor shortages has led to complex challenges. The purchasing team is able to work together and has complete visibility on where and how to adjust as needed, which has resulted in continued success to this day.?
What advantages are there for a decentralized approach?
A completely centralized supply chain may not account for unique regional factors that affect supply and production.
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If your business has a very diverse product offering or relies highly on products that are expensive to transport and available locally it might not always be best to centralize.
Highly centralized organizations may not have knowledge of location-specific issues or problems. A decentralized supply chain can allow for faster issue resolution by individual locations and facilitate creative solutions.
Best of both worlds? (Direct vs Indirect spend)
Google has chosen to go with a mixed approach – centralizing its indirect spend but keeping its direct spend decentralized.
Additionally, Google created different pillars within its GPO to best serve its different businesses such as YouTube, Google Cloud Services, etc. While there may be some overlap, each category team will have its own set of vendors and contract pricing.?
Indirect spend such as marketing, travel, IT, etc. might be best suited for a centralized procurement approach as these are typically global or nationwide vendors that offer services and products that don’t require localized adjustments.
On the other hand, keeping its direct spend decentralized will allow Google to react quickly to disruptions or changes in the supply chain and ensure quality, risk, on-time delivery, and cost are handled in a balanced and nuanced approach.
Do you have the right Talent?
Overall, the choice to centralize or decentralize your procurement processes will depend on multiple factors, including but not least your level of talent and the ability to attract new talent.
One of the reasons why Google’s push for a GPO was so successful was its ability to identify and hire the right talent for its’ strategic sourcing positions. While Google can rely heavily on its brand recognition and its ability to attract talent - Google also chose SCOPE as its recruiting partner to run an active recruiting campaign to identify and attract those hard-to-reach, high-performing passive candidates.