Which Procurement Model is Right for My Organization?

Recipes. Parenting. Fitness routines. Life is full of examples where people will insist – incorrectly – that there is only “one way” of doing things right. Similarly, you may have met opinionated people in procurement who try to tell you that their model – centralized, center-led, or decentralized – is the best way to run a function.

They’re wrong. Every organization has specific needs, challenges, and goals that will determine the most effective procurement model for their unique circumstances. Perhaps you’re a start-up focused on rapid growth. Maybe you’re a multinational struggling to bring spiraling costs under control across different geographies. Or perhaps you’re working in government, where control and regulation are paramount.

Which procurement model is right?

The first step, therefore, is to understand your own organization before deciding between procurement models. Once you’ve done so, you’re ready to read about the exciting(!) world of differing procurement models, along with their pros and cons.

Centralized Procurement

What is it? In a centralized procurement model, all purchasing decisions and processes are managed by headquarters; a single, central department within the organization. This unit is responsible for sourcing, negotiating contracts, and managing supplier relationships across the entire organization.

Best for: Large organizations with multiple departments or locations. This model suits companies that need strict compliance and uniformity, such as government agencies or multinational corporations where standardization is critical.

Pros of Centralized Procurement

• Greater control: Keeping a tight leash on who can make purchases helps ensure adherence to company policies and standards.
• Cost savings: Central teams can combine all the spend of a product or service across the organization (such as all the printer ink used globally) to leverage the power of volume purchasing and negotiate better prices. This, by the way, is a concept we LOVE at Una.
• Streamlined processes: Reduces redundancy (having multiple employees doing the same job) by standardizing procurement practices and limiting it to a single team.
• Enhanced data analytics: Centralizes spend data for better insights, which leads in turn to cost savings.
• Small changes, big results: A small decision like switching to recycled printer paper may not make a huge difference in a single office, but if you’re in a corporation with 500 offices across the world, the impact is huge.

Cons of Centralized Procurement

• Overburdened central team: A single team handling all procurement may become overwhelmed. Luckily, procurement automation technology can help in this respect.
• Lack of flexibility: Central teams can be too rigid and find it hard to change processes or rules to suit specific departmental needs.
• Limited local knowledge: Centralized teams may overlook unique local market conditions, or run into cultural/communication difficulties when dealing with overseas suppliers.

Center-Led Procurement

What is it? Center-led procurement combines elements of both centralized and decentralized models. A central procurement function oversees strategic sourcing while allowing individual departments the flexibility to manage certain purchases based on their needs.

Best for: Medium to large organizations that seek a balance between control and flexibility. This model works well for companies with diverse departments that have unique needs but still benefit from centralized oversight, such as healthcare systems or educational institutions.

Again, there’s no right or wrong when determining what gets managed centrally, and what is managed by the departments. Some organizations will keep certain strategic categories under tight control at headquarters while non-strategic purchases are left for decentralized teams. Often this is determined by looking at cost vs risk, segmenting suppliers using the Kraljic matrix, or by setting spend thresholds.

Pros of Center-Led Procurement

• Balanced control and flexibility: A center-led model offers both centralized oversight and departmental autonomy.
• Increased collaboration: Encourages communication between the central team and local units – and with subject-matter experts.
• Strategic sourcing opportunities: Central teams have more time to focus on high-value projects while departments handle routine purchases.
• Tailored approaches: Departments can adapt processes and strategies without losing the benefits of having a central purchasing team.

Cons of Center-Led Procurement

• Potential for confusion: Dual control can lead to unclear responsibilities.
• Variable implementation: Effectiveness can vary depending on the commitment of each department.
• Need for strong communication: Success relies heavily on effective dialogue. For example, central teams may become frustrated with certain departments or individuals who constantly undertake maverick spend.
• Hidden data: Unless centralized procurement software is in place (and everyone is using it), spend data can be hidden from the central team, leading to flaws in spend analytics and errors in decision-making.

Decentralized Procurement

What is it? Decentralized procurement allows individual departments or units within the organization to manage their purchasing independently. Each unit has the autonomy to make decisions based on its specific needs and circumstances. In this model, there may be no central procurement team at headquarters, or each department may have a procurement team/individual attached. 

Best for: Smaller organizations or those with varied local needs. This model is ideal for businesses where individual departments require quick responses to specific demands, such as retail chains or regional offices of larger corporations.

Pros of Decentralized Procurement

• Local responsiveness: Enables quick adaptation to departmental requirements and local conditions.
• Empowerment: Decentralized procurement involves trust, fostering autonomy and accountability within units.
• Tailored supplier relationships: Encourages the development of strong, localized supplier connections. Great for local procurement.

Cons of Decentralized Procurement

• Inconsistency in policies: This approach can lead to non-compliance with company-wide standards.
• Higher costs: Organizations may miss out on opportunities to find cost savings such as bulk purchasing discounts.
• Lack of coordination: Decentralized procurement can lead to a messy situation involving wasted money, duplicate spend, no oversight, and fragmentation/loss of procurement data.

In conclusion, each model has its pros and cons; its strengths and weaknesses. Keep in mind that a procurement operating model needn’t be set in stone. An incoming CPO, for example, may choose to ramp up the focus on compliance and decide to switch to a centralized model to make this achievable. Or a large organization seeking to become more agile may decide to decentralize in order to move faster.

Not centralized? You still access volume discounts through a GPO

Even if you don’t have a centralized purchasing team, this doesn’t mean you need to miss out on the cost-saving benefits of spend consolidation and volume purchasing.

While a centralized purchasing team increases spend volume through consolidation across an organization to obtain discounts, a group purchasing organization does this on a much, MUCH larger scale.

Una leverages the collective buying power of thousands of member organizations to secure deeply discounted pricing from the nation's leading suppliers and vendors. Together, we'll work to slash the time it takes to source the goods and services you need, realize cost savings, and drive value.

Download a free copy of our Centralized vs Decentralized Procurement quick reference guide