Procurement Organization - 5 reasons to have a de-centralised organisation

Posted by Denise Connor on June 2nd, 2023

Centralising procurement functions is a common practice to maximize the use of resources, implement best-in-class systems and processes, and exert greater control. Decentralising can have significant benefits for a procurement organization that has reached a certain level of maturity. Here are five good reasons to change the procurement organization.

1. Increases flexibility. In a centralised organisation, the profile of spending and activities can be very different from a decentralised one. Roles and responsibilities can also be different. In these circumstances, managing procurement in a business unit that is decentralised will allow management to be more flexible in their deployment of people and systems in order to meet local needs.

2. Brings decision-making closer to the front lines. In a centralised organisation for eprocurement system in malaysia, all decisions affecting a particular business unit must be sent to the center. In a centralised procurement organisation, decisions that affect a business unit must be referred to the centre. This can lead to delays and missed chances. These decisions can be made faster and better in a non-centralised organization because they are taken by people who know the business best.

3. This allows management to better manage the resources available. A productive and effective procurement organisation is built on the foundation of setting goals and tasks to be completed by individuals. A procurement organisation closer to the "customers" will allow management to align the goals and tasks of the organisation with the needs of the business.

4. Rapider reaction to market changes. Changes need to be made quickly in order to take advantage of market trends. Decentralised organisations are closer to their end users.

5. Creates subject matter experts. An effective procurement organisation requires more than just knowledge of procurement processes and techniques. To ensure that sourcing meets business needs, it is important to understand the specific markets of particular business units. It is easier to acquire this subject matter expertise in a decentralised organisation.

The answer is largely determined by the maturity of the organization in terms of procurement. Decentralisation is possible if, for instance, your performance monitoring and procurement processes are mature. If you have multiple working styles, low levels of procurement expertise, and need to revitalize procurement, you may be better off with a centralised organization in the short-term.

Purchasing management software, also known as procurement software, is used by companies to automate the purchasing process. These systems are designed to streamline organizational processes by maximizing profit and managing cycle times efficiently. Many organizations customize their working styles, but that does not stop them from using automated software.

Procurement is not something that just happens. To achieve the goal, it must go through specific processes. The steps in a business's procurement process include identifying the need, identifying the supplier, managing logistics and submitting a tender.

Procurement is a cost-reduction measure

The procurement process is conducted to identify unnecessary costs for a company so they can be eliminated completely and maximize profits. According to the Ardent Partners report, an average procurement department can save around 6.7% annually. This is significant for companies that operate in the millions or billions. In the report, it was found that only 60% of total expenditure or spend is managed by procurement. This percentage, also called spend under management (or the percentage of the total expenditure that is managed by a specific department), is also known.

The authorized department faces a difficult task in managing end-to-end purchasing. They are often unable to achieve the desired output due to various factors that impact the business of an organization.