The Great Debate: Centralized or Distributed Purchasing

By | February 28, 2011

For as long as I can remember this debate and internal struggle has taken place in companies with multiple production sites, or those with a headquarters operation and remote production.  Who should own the purchasing function?  The pros and cons of both scenarios are substantial.  The following are a few of the most common points of the argument.

Centralized procurement offers the opportunity to maximize buying power and leverage.  Especially with transactional print work where volumes can vary greatly from location to location, centralized management can monitor and match inventory across locations, balancing usage and reducing waste. It assures that a consistently lower price exists across locations.  The biggest negative is that centralized procurement is often not keyed in to the different needs and requirements of production facilities and their processes.  (I have never yet seen two locations that have the same operating process or equipment across the board.)  Centralized efforts are also removed from the dynamics of rapidly changing project schedules and the quantities of the work in each operation (longer support cycles).  Finally there is the risk of getting too much dependent on too few.

Decentralized procurement is close to the action and should be on top of the local production demands and therefore more responsive.  They know what materials and supplies have worked best in their equipment, which should give the best overall cost and quality results.  Information on inventory receipts, usages and quantities should be real time for the site.  Buyers develop real relationships with the suppliers. One of the negatives is that different sites or divisions may be buying the same thing but paying different prices for it.  There are multiple supplier contacts and more orders and payables overall for the organization to handle. There is probably no good information about total spend across the enterprise.

Companies have adopted many different approaches to resolving this debate.  In some cases certain products which are in the highest spend category or capital goods are controlled centrally, while the normal operating supplies are managed locally.  Some organizations have used central staff to qualify suppliers and local organizations are free to buy from approved suppliers.  Others have set up the procurement organization so that there are local buyers but they report to a centralized head of purchasing who establishes the policies and strategy for the purchasing organization in support of the operating company.  These can all be good choices, and each organization needs to develop the compromise that maximizes the benefits of each approach for them.  Some organizations have even chosen to turn over major purchasing efforts to a third party who promises to use their technology and buying power to save the enterprise money.

At the core of the centralized vs. distributed debate is one common element: Communication.

Communication is the key to being able to optimize any companies’ procurement program.  A rigorous approach to documenting and communicating requirements and specifications for each production location’s purchasing spend is the first step.  Where is the spend data coming from, and where is it maintained?  Once this is firmly understood, then developing reports and sharing them in a timely and consistent manner will provide significant opportunities even if the process is not automated.  Automation merely provides the opportunity to handle more data faster.  This is all easier said than done because many times the core of communication issues reside in the culture of the organization.  Divisions or facilities are often competing with each other by design, and therefore not willing to share information they feel gives them an advantage. 

Ending the debate and optimizing the purchasing function in an organization must begin with a strong mandate from the top of the organization, but then be implemented with a cross functional effort from the bottom up to assure the cultural issues do not present an insurmountable barrier.  Focusing on communication and process improvement can yield rapid results without increasing spending or turning over the control to a third party.

Share this post