What is a procurement operating model?
A procurement operating model is a blueprint of how procurement is structured and performed in terms of people, processes and technology to deliver the required value the organisation needs to achieve its corporate strategy.
This article will explain the main procurement operating models that an organisation should consider and the pro's and con's of each one.
Decentralised procurement operating model
A decentralised procurement operating model is where procurement is performed by individual business units with no central oversight. Business units may employ their own procurement staff or assign specific procurement responsibilities to existing staff members. This type of model is typically found in organisations with limited supplier expenditure or in an early growth phase.
The main advantage of a decentralised model is that it can be extremely quick to obtain the required goods and services due to lack of processes, approvals and governance. However this comes at a cost, savings opportunities are missed due to a lack of aggregation, competition and specification challenges.
Centralised procurement operating model
A centralised operating model is where all procurement processes are performed by a central team. This type of model is commonly found in the manufacturing sector or in heavily regulated organisations where the need for full compliance is essential.
The main advantage of a centralised model is having complete control over all expenditure and ensuring full compliance with policies, processes and use of contracted suppliers. There can also be operational efficiencies through centralising and standardising processes. This level of control can create large cost savings through aggregated volume buying and demand management, however it can also be inflexible and have high processing times.
Centre-led procurement operating model
A centre-led procurement operating model is a hybrid model between decentralised and centralised and offers the best of both models. Each process is evaluated to understand whether it is best performed centrally, regionally or locally.
Organisations who adopt this procurement operating model normally also implement a centre of excellence function that is responsible for defining all procurement processes, ensures those decentralised are being performed in a standard consistent way.
This model typically allows the business the flexibility to source some categories locally but source strategic categories centrally which are most critical to the operation of the business. The centre-led procurement operating model is currently the most popular model with private and public organisations and offers the greatest flexibility as decisions can quickly be made as to what is centralised.
The pros and cons of decentralised, centralised and centre-led operating models
The following infographic identifies the main characteristics of each procurement operating model and the relative pro's and con's.
Choosing the right procurement operating model
Choosing the right procurement operating model depends on the type of organisation, the level of control it wishes to have and its maturity. Small organisations may opt for a decentralised model until their expenditure reaches a certain level. Given the centre-led model can be easily adjusted between what is centralised and decentralised it offers the greatest flexibility and agility.
How can Swan Procurement help?
Swan Procurement are procurement experts focused on accelerating procurement maturity to optimise costs, manage supplier risks and support business growth. We have more than two decades of experience in helping both private and publicly listed organisations to generate the required value from procurement.
We combine deep specialist knowledge with data insights to deliver a range of services from procurement cost reduction, procurement target operating design to supplier risk reduction. We will work alongside you as your trusted partner to solve your procurement challenges. Please contact us to discuss how we can help.