Your Quick Guide to Centralized Procurement
Wondering what the difference is between centralized and decentralized procurement?
We’ve put together a quick reference guide that defines the concepts, explores the pros and cons of both options, and shows how a group purchasing organization (GPO) can help implement the best strategy for your business.
What is Centralized Procurement?
Centralized procurement is a system where a single team or department manages all purchasing and procurement activities for an organization.
All goods and services for the company are purchased at the headquarters level.
For example, a company decides to standardize its cleaning services across 20 different office locations. The centralized procurement team scopes out the project, approaches the market, evaluates suppliers, negotiates a volume discount, and awards the contract to a single supplier.
However, this approach means local SMEs at different locations miss out on consideration and implements a one-size-fits-all solution despite some of the offices having different maintenance needs.
Pros & Cons of Centralized Procurement
Pros
Cons
What is Decentralized Procurement?
Decentralized procurement is a business model where purchasing decisions are made by local branches, sites, departments, or other specialized teams, rather than a centralized unit.
For example, an office manager is tasked with organizing catering for an important event with international partners. Using her knowledge of the types of food her team enjoys, she approaches a minority-owned supplier in the area who can offer local cuisine that will impress their guests.
The event is a success, although the catering was a one-off purchase that failed to leverage any sort of volume discount.
Pros & Cons of Centralized Procurement
Pros
Cons
What is Center-Led Procurement?
In a center-led structure, the core team manages strategic purchases while decentralized teams manage tactical purchasing needs. Some organizations use spend thresholds and risk assessments to determine what is managed by the central team and what can be decentralized.
The core team may set up procurement software, guidelines and processes for decentralized teams to use.
How Can a GPO Help?
There’s no one-size-fits-all answer to the centralized vs decentralized vs center-led question. It depends on your organization’s size, its current needs, and the dynamics between headquarters and regions.
By partnering with Una, companies can unlock buying power and access similar volume discounts across dozens of categories.
With the help of a group purchasing organization, procurement teams can supercharge their volume purchasing strategy to levels that are well beyond the reach of any individual company.
Contact Una today to learn how we enable astronomically higher cost savings than those created through centralized spend management.