Getting the most out of Center-Led Procurement (page 1 of 3)

There are three key areas they should understand as they consider CLP for their organizations.

In his book "Who Says Elephants Can't Dance," former IBM CEO Lou Gerstner voiced what Purchasing professionals have known for decades when he cited centralized purchasing as one of the first things a company should do to save money.

Consolidating common purchases across the enterprise provided the first great wave of procurement savings. But although there are still billions of dollars in savings to be captured from better execution of centralized purchasing, leading purchasing organizations see the limits of pure centralization and are forging ahead to explore new frontiers.

The limits of centralized procurement

In complex, distributed enterprises, complete centralization is not always practical or even desirable. For example, central purchasing organizations are sometimes unable to outperform local procurement buyers, with their knowledge of local supply markets and consumption patterns.

And of course certain goods and services categories - snow removal being the classic example - are simply not well suited to centralized purchasing. Even for categories that logically could be centrally purchased, organizational politics, tax considerations or regulatory requirements often require local procurement.

Many purchasing organizations have experimented with permutations of centralized and decentralized purchasing. After a few swings of the pendulum between these poles, and experiments with other hybrid models, many procurement leaders have embraced Center-Led Procurement as the synthesis of opposites.

CLP combines many of the most attractive aspects of centralized and decentralized purchasing models. It extends the reach of the Purchasing organization to lead and improve procurement processes regardless of whether they are executed centrally or locally.

Center-Led Procurement gives the central Purchasing organization influence over distributed purchasing process, allowing them to promote best practices into spend that they don't directly control.

But like the old Wall Street admonition to, "buy low, sell high", instituting CLP is easier said than done. Maximizing savings from CLP requires Purchasing leaders to think in new ways in three key areas: policy, operating models, and measurement. Spending some time now thinking about these three challenge areas can save time and trouble down the road.

The policy challenge

Appropriate policies and the mechanisms for creating them are even more crucial to success in Center-Led than in centralized procurement. While a completely centralized purchasing organization could (at least in theory) declare that all purchases must pass through it's gates, CLP requires a more flexible approach.

The Purchasing organization must develop policies that structure and guide all buying, while leveraging the best expertise in the enterprise for each category.

Ironically, this may mean that purchasing policy is not determined by the Purchasing department. Purchasing's power diminishes when dealing with far-flung and sometimes autonomous business units. Procurement organizations must realistically assess their political strength in the organization, because they risk damaging credibility if they unilaterally dictate policies that business units ignore.

Instead, smart Purchasing leaders gain influence by building cross-functional "category councils" with representation from all geographies, functions (e.g.