Does your organization struggle to find the right way to optimize the procurement process while reducing procurement delay?
There are two approaches to procurement purchase – centralized purchasing and decentralized purchasing. In centralized purchasing, the organization employs a dedicated procurement team that deals with all types of procurement. In decentralized purchasing, the organization allows its employees to procure items without going through time-consuming purchasing orders. Both of these methods enjoy their own merits, but centralized purchasing can make the process more efficient.
As your business grows, so do its procurement needs. A growing business needs a scalable and robust procurement strategy. Centralized purchasing is particularly beneficial for long-term sustainability. A centralized purchasing system carries procurement tasks centrally while giving separate departments enough flexibility.
It may seem that a decentralized approach can reduce the time it takes for supplies to reach the concerned departments. However, without a tracking system, maverick spending can become a problem for the organization. Moreover, employees may choose suppliers based on their preferences, irrespective of the supplier’s value to the business.
Decentralized purchasing also eliminates any opportunity of getting volume-based discounts from suppliers. It does not allow automation of workflows and does not leave any analyzable data for the organization to determine procurement value.
Centralized purchasing is essential to prevent financial leaks, maverick spending, supplier monopoly, and fraud. Repeat expenses and duplicate purchases can be successfully avoided when a procurement team maintains and manages all types of business expenditures.
According to WBR Insights and ProcureCon, 69% of procurement leaders favor using strategic centralized procurement. About 22% of leaders are working towards transitioning from the traditional system.
Centralized purchasing creates a single platform for all purchases, making it easier to manage expenses, limit losses, save costs, and minimize fraud. Here are some other benefits of an integrated purchasing environment:
1. Reduction In Overhead Expenses
Procurement is not a single-step process. It involves a series of steps to procure supplies at an affordable price for the organization. Apart from the purchase price, various other factors such as supply quality, vendor risk, utility fees, and contract fees are also considered while making a purchase.
In decentralized purchasing, these additional expenses are scattered throughout the organization. With centralized purchasing, multiple micro-purchases are bundled to reduce transportation costs, inventory management overhead, quality monitoring commitment, and risk analysis.
2. Additional Cost Savings for High Volumes
It is impossible to derive any correlation between purchases in decentralized purchasing. When the procurement department monitors purchasing, it can collate similar orders and contact vendors for additional discounts. Suppliers are always interested in offering discounts for high-volume purchases. Centralized procurement can drive efficient negotiations and bargains with vendors.
3. Improvement in Vendor and Supplier Relationships
While making small purchases, employees tend to choose a supplier they’ve been in business with before. Suppliers are hesitant to develop rapport with buyers who don’t offer significant monetary value. As a result, your enterprise might develop a poor relationship with vendors and suppliers.
A highly engaged supplier is far more productive to a business than a cheap supplier. Centralized purchasing allows procurement leaders to focus on crucial suppliers to foster better relationships. The procurement solution provides an excellent platform to enable buyers and sellers to communicate with each other effectively to improve their relationships.
4. Transparent Purchasing Process
Frequent low-volume purchases usually stay hidden, leading to financial leaks in the organization. With a centralized procurement software, the stakeholders can always fetch information about procurement, its associated cost, realized savings, and much more. Enterprises can have better visibility of cash flows with just a few clicks, allowing for proactive budgeting.
5.Save Time On Purchasing
A lot of time is wasted in several micro-transactions. What could have been completed with a single transaction takes more time to complete if the procurement method is decentralized. The overall time for procurement can be vastly decreased with centralized purchasing. E-procurement also encourages suppliers to adhere to deadlines.
6. Ensure Compliance
Organizations are obligated to ensure compliance at every stage, including the procurement process. Compliance requirements continue to become more stringent, owing to national and international standard conditions.
Micro-transactions that don’t go through the procurement process do not always adhere to compliance requirements. With procurement software, vendors and suppliers assure compliance instantly. Centralized purchasing through procurement software helps complete compliance audits quickly and efficiently.
Creating a procurement department as a central point of authority is an investment in your company’s future. However, before adopting centralized purchasing, you must understand its limitations so as to escape the common pitfalls:
- Large organizations with multiple global branches may struggle to implement a unified, centralized processing system.
- Local discounts and local suppliers may not be available.
- Asking the procurement team to manage procurement for multiple branches can be counterproductive.
- During emergencies, branches may have to make quick purchase decisions to keep the business engine running. This function may be limited to centralized purchasing.
Procol is a highly rated procurement solution provider helping businesses optimize 70% of business expenditures spent on procurement. Call us to schedule a demo on how our procurement software can transform your business procurement environment.