Getting the most out of Center-Led Procurement (page 3 of 3)

However as much or more benefit can come from doing the reverse and moving high value high value activities (e.g. best practices, rfq and contract templates, research on categories) to locations where the highest skills are available.

The measurement challenge

Center-Led Procurement requires new forms of measurement suited to Purchasing's expanded oversight of traditionally decentralized categories. Measuring the savings from centralized purchasing is hard enough, but to show success in CLP Purchasing must face the much harder challenge of documenting savings in spend it does not directly control.

But taking immediate baseline measurements and showing rapid improvement upon them is essential. Center-Led procurement inevitably imposes new processes and often new suppliers on business units, which will push back unless Purchasing show evidence to senior management that the results are worthwhile.

Once initial credibility for CLP is established, the focus of measurement shifts. Aggregation of PO data for consolidation opportunities remains important, but more strategic measurements come to the fore. Purchasing leaders measure supplier performance, BU's commitments to following policy, violations, contract compliance and leakage, regulatory compliance and more. With so many metrics to follow, Purchasing professionals need to be able to view up-to-date information themselves at any time rather than waiting for IT or external consultants to prepare reports.

Though it's easy to tout the importance of measurement, most organizations find that poor data quality makes meaningful measurement very difficult. Purchasing must therefore take the lead in maintaining data quality and educating the entire organization on why this data matters to everyone. Despite best efforts to enlist local cooperation though, it is Purchasing must take the lead in committing both dollars and heads to this effort. Local IT departments are unlikely to have the resources, focus or political will to fully support this corporate-level objective.

Conclusion

Purchasing success often leads to bigger savings targets. Center-Led Procurement is generating interest among procurement professionals because it offers the chance to mine a previously untapped vein.

Despite the challenges it poses, Center-Led Procurement offers enterprises an expanded set of savings opportunities. For those willing to commit the needed organizational and system resources, CLP can provide the next great wave of procurement savings.

Things to remember with Center-Led Procurement?

Center-Led Procurement suits the procurement model to the needs of the business unit and the special characteristics of specific goods and service categories.

CLP applies different purchasing models - including centralized shared-service, decentralized and hybrid buying - depending on what is being bought, who needs it, and where it will be used.

Center-Led Procurement decouples the physical and logical locations of procurement activities. Buying is executed where and how it makes the most sense, while the Purchasing department contributes structure, expertise and measurement to the process.

Major manufacturing components such as drive trains for automobiles are usually centrally sourced by Purchasing. On the other hand, snow removal services are impossible to source on a strictly central basis because supply markets are highly localized. However, central purchasing organizations can still save money on snow removal by providing business units with best practices for contracting these services in local markets.