Are You with or Against Centralized Purchasing/Procurement Function ? And Please clarify WHY?

Thank you for the invitation.

A centralised procurement model or adopting any procurement model is a part of strategic management.   

I neither agree nor disagree with the many answers and arguments that will be provided for adopting a centralised procurement model.  Most will say that it will bring in cost advantages / product standardisation but is this the only KPI’s that we are looking at?  Adopting a procurement model will depend upon your requirements and you must design a model specific to your requirements whether its centralised or decentralised or a combination of both.  In my opinion for a  procurement model to be successful , it should have the resources, levels of authorisation, capability and flexibility to adapt to changing situations and become eventually a profit centre.

All the best.

Thanks for the invitation.

I am in favor of centralized procurement if it is within one country or a region having standardized government laws. For different regions, it is always challenging to manage, due to different government regulations. In addition, due to user preferences, it is sometime difficult to centralize the procurement.

But in general my vote is for centralized procurement.

A centralised model is my choice as it mitigates risk and consolidates demand allowing for best pricing strategies. There are some transactions that could be sourced regionally, however this would be for those goods or services that are best serviced by this option (ie. Plumber, or fresh bread and fruit)

The system and processes with regulatory controls are more easily managed and audited through a centralised process.

Are You with or Against Centralised Purchasing/Procurement Function?

I am in support of Centralised Purchasing/Procurement functions.  

We need to first understand what centralized Purchasing/Procurement is: which is the purchasing made from the headquarter or regional office or divisional level of an organisation. Centralised purchasing creates a strong purchasing/ procurement department, which streamline purchasing/procurement activities in the organisation to the department alone. The merit of which are; economies of scale, effective coordination and control of all procurement activities:

Economies of Scale: Centralised purchasing enables the organisation to leverage its purchasing ability to best with respect to:

§  Easy forecast of the total quantity of items required by the whole organisation for a specific period.

§   The huge quantity of items required by the organisation now serves as the basis for negotiating quantity discounts, rebate, and learning curve reduction.

§  Centralised purchasing gives the organisation the opportunity to employ professionals to manage their purchasing activities, who can become expert in the procurement of special classes of materials, or product following market trends and the development of reliable economic supply sources or of import and export procedures where there is substantial global sourcing. These may not have been possible in a decentralized system.

§  Suppliers dealing with Centralised purchasing have incentive to compete for “preferred supplier status” or the whole or a substantial portion of the order of the items to be bought by the organisation.

§  It also affords the suppliers to reduce their cost by spreading their overhead over a longer period.

§  It also helps the organisation to reduce their suppliers to one or two through the award of the preferred supplier status.

Coordination of Purchasing/Procurement activities:

§  Centralised purchasing tends to have a greater strategic focus than the decentralised purchasing due to proximity to major decision makers in the organisation.

§  Ease of adoption of policy such as single sourcing

§  It eliminates maverick or competitive buying between functions

Control of Purchasing/Procurement Activities:  

§  A purchasing department may become a cost centre (unit within the organisation which cost is apportioned), or an activity cost pool (with activity costing), or a profit centre (a unit within the organisation with responsible for revenue or profit and expenditure).

§  Enhances the application of budgetary control to the purchasing function as an operating unit and the total spend on supplies.

§  Enhance standardization of costing due to the uniformity price obtained from Centralised purchasing.

§  It enhance the control of  inventory due to application of variety reduction, leading to reduction in obsolescence and reduction in the loss of working capital tied to excess stocks.

§   Ability to monitor the performance of the purchasing department against set objectives and comparing the actual result with the predetermined targets.

The above benefits also apply when purchasing in a group or team within an “integrated supply chain” structure. 

I'm with centralized procurement , it will make the process more close and focused to make improvement and make productivity to bring in the end a cash back, I the other hand make one department negotiate  with the supplier mean it will make a good relationship between partners.

but its very necessary to take a technical support if needed from requesters.