Is the Centralised Procurement model providing better value?

Procurement needs to be present as a central part of value creation across the enterprise and operat...

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Posted by Dave Food on Dec 12, 2019 3:12:55 PM
Dave Food

Procurement needs to be present as a central part of value creation across the enterprise and operates supported by its executives. It is vital a widespread-administrative recognition and requires higher investment in the role of strategic Procurement functions to drive more exceptional contribution to the organisation.

Does a Centralised Procurement model deliver better value?

-         Many companies are adjusting their Procurement operating models to reach better value but, only a few often review them or make the necessary adjustments to guarantee that the company encompasses Procurement systematically.

-         Most businesses around the world advocate for a more centralised- operating model to regulate purchasing, keep spending under control, and to generate business processes standards to empower Procurement stability and value, often reporting the most significant value building relating cost savings.

-         The Supply Chain (SC) benefits are often light compare to those accomplished via centralisation.

-         Few companies are taking their centralised model even further producing management frameworks, shifting more of the operations through partnering, and focusing on internal customer management, elevating Procurement to a change-leadership role where it provides supervision, guidelines and sponsorship.

We can find other benefits with a decentralised model:

·       More independence in the business sections and regions, allowing them to identify innovative opportunities within their market.

·       Gaining more flexibility to reduce or increase business units according to the characteristics of given episodes.  

·       Indirect spend lies securely within Procurement activities, being regularly much simpler for them to handle.

·       Developing countries put a greater emphasis on the role of Procurement in diminishing bribery and fraud, demanding regulatory policies and environments.

·       The Procurement functions can more easily manage the combination of sourcing, contracting, legal, operational and financial expertise.  The Board, no doubt, would look to Procurement for solutions.

·       A Centralised Procurement is an excellent thing for risk management as its focus on centralising the supervision of contracts and supplier relationships, whilst also staying aware of local and regional risks. 

Procurement systems and technology investments

Automation and technology adoption is essential to improve Procurement value; both focus on getting the full benefits of systems and technology, particularly in business cases. Develop a roadmap for Procurement in perfect match with the corporate IT strategy and architecture; offer broad-easy-access for user's interfaces to support activities such as on-line catalogue ordering and raising purchase requisitions.

However, Procurement must do more to promote the use of technology in the creation, capture and management of contracts throughout their life, to drive cost savings, improve cash flow, manages supplier relationships at a strategic level, and mitigates risk. To be succesful, Procurement needs to make a shift toward direct spend at the heart of the business, but most advances aim to get the maximum value from their technology investment.

So, Procurement should grab this opportunity taking the initiative in risk management. Procurement professional must function as principal controllers who retain the risk agenda, pulling in the significant knowledge from other sections of the company when needed. It will guarantee to meet all the requirements of interested parties.

Procurement will also need to gain better visibility of the company requirements to understand how individual contracts are structured to make operational changes if required. The low per cent of spends in management and contracts point out that a large part of the supply base stays out of Procurement reach. This situation is remarkably worrying as Procurement cannot keep risk healthy if not close to particular suppliers and their corresponding contracts.

Procurement must have the power to pinpoint where risks broaden into billing or lacking reporting accuracy; Procurement can play a more prominent role in watching over the enterprise risks/benefits.  CPOs have to mature before taking essential functions in the organisation risk management strategy.

Summing up: focusing on developing a Centralised Procurement soft skills and relationships with customers would allow Procurement to move up the value chain.  Technical training and IT investments are unlikely to deliver value without proper business engagement.

Some of the more transactional duties can be automated, allowing functions to focus on more strategic responsibilities and thereby, deliver a more significant contribution to business performance. The opportunity for CPOs is now considerable!


Dave Food

Prophetic Technology

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