Centralizing procurement is a timeless argument that has plenty of support on both sides. Cost savings can be identified quickly, but why should the end user be the one that suffers because some other area is saving money? How does their input figure into the argument?
The great part of centralized procurement is that you control all the pieces. Centralization puts you in the driver seat for better negotiations, increased visibility of demand flows and at the same time increasing your overall level of talent. The key is to balance the benefits of centralization while not losing the local touch. Thanks to technology, keeping a localized touch is now easier than ever before.
Cash flow is king and centralizing procurement directly impacts your bottom line like few other business strategies. Here are 5 key benefits that will impact your organization by implementing centralized procurement:
- Negotiation leverage
The biggest benefit in centralizing procurement is the benefit of being able to negotiate with your centralized demand. Would Walmart ever consider negotiations with their suppliers based on an individual store? Never and neither should you. Negotiating with your suppliers with centralized demand in mind increases your leverage significantly. Consider it buying in bulk. Negotiations change quickly when you can look at a bigger picture.
- Increased utilization of resources
Everyone has to deal with limited resources and centralization allows for the most effective use of those resources. This not just limited to manpower, but other resources such as space, equipment and technology. Why pay additional expenses for duplicate resources if you have the option to consolidate expenses. Office space, software licenses, training and many other opportunities exist in the consolidation of procurement. Fluctuations in the marketplace create challenges when attempting to allocate resources and centralization helps to smooth out those peaks and valleys. Centralized procurement is better equipped to handle seasonal demands, new projects or customer spikes than a localized procurement strategy.
- Strategic alignment
Implementing strategic goals across an organization is tough enough, but attempting to implement strategies in procurement when there are different leadership teams is even tougher. Aligning the teams into one centralized structure allows for a consistent message to be delivered top to bottom. It also lends itself to standardized processes from beginning to end. Key metrics are easily identified, tracked and used for evaluation throughout the process.
- Driving down costs through technology
ERP solutions have changed the game when it comes to centralizing procurement. Centralized procurement is now possible through the use of ERP applications that can be accessed from just about anywhere. Cloud services make those solutions easier today that what it was just a few years ago. Now purchasing can essentially stay on top of all localized demands through real time ERP systems. Inventory levels and logistics costs can be directly reduced through information that is easily accessible in centralized ERP applications.
- Procurement outsourcing
Outsourcing is a well-established model that is widely utilized in many areas such as IT, Human Resources or Payroll and is now gaining traction through procurement outsourcing. Centralized procurement allows for a much easier transition since many of the processes can be standardized and information is flowing through one focal point rather than many points. Procurement outsourcing is an extension of centralization because it allows even greater access to industry experts and potential technology solutions such as eprocurement applications.
Centralized procurement is a strategic solution that helps benefit operational efficiencies across many areas from negotiations to increasing cash flow. Once upon a time, keeping the localized touch was out of reach with a centralized procurement strategy, but today’s technology such as ERP applications easily helps keep centralized services in touch with end users as if they were just next door.
If you or anyone you know would like to know more about how centralizing procurement can add value to your organization please email firstname.lastname@example.org
Question: Have you ever been hurt or helped by centralizing a procurement function?