A centralized procurement process works best for businesses trying to be more efficient and gain control over procurements. Without a centralized process, it can be difficult to gain visibility of all procurements. To convince stakeholders about a centralized function is not easy. The transition can be a complex one, but it ensures that organizations purchase prudently.
Large companies need mammoth resources to operate and show their best. Organization efficiency depends largely on the ability to acquire goods while minimizing wasteful spend. Companies that face trouble managing the practices of purchase find that their decisions remain scattered. There are different teams allotted for purchasing goods across different departments. This becomes challenging with no central consensus in the company regarding purchase priorities and how much budget may be allotted to each department.
Many companies are adopting the Centralized Procurement Organization (CPO) model to specifically support tax optimization and spend consolidation. However, it has been revealed that a single goal cannot make a CPO successful. It needs to align its goals with supply chain and corporate goals. Very often, businesses have been seen creating CPOs to support broader initiatives, but they should ultimately provide collaboration and visibility for rapid resolution of problems within extended supply chains.
Creating streamlined, centralized procurement can be a complex process. However, success may be possible to achieve as described here:
- Clarity – There has to be a clear strategy and vision about the role CPO will play in supply chain. It is absolutely essential the CPO is aligned with operational excellence or corporate strategy initiatives to have a strong model of governance.
- Requirements – One must measure requirements so that a proper business model is built, like buy-sell, PO-based, or Vendor Managed Inventory (VMI-consignment model). Businesses need to collect their trading partners across different modes of the supply chain and involve them in tradeoff decisions.
- Expertise – Businesses need to remain aware of the business cases and tools that will help design the centralized procurement system and achieve goals. By involving external experts to work in the early stages within CPO will ease its adoption and acceptance.
- Perspective – It matters where the CPO is placed. It requires studying all the vital external and internal factors. Managers making key decisions will need to manage the functions performed, risks assumed, and assets owned by the business.
- Inclusiveness – Prepare for change throughout the organization by proactively managing the restructuring and relocation. Decisions should be focused on enhancing commitment and alignment within the organization.
Given the present global economic scenario, a CPO needs to gather information quickly, format it, normalize, analyze, and act on it. Numerous external entities will need to interact with their CPO on multiple, diverse processes and systems. This can make the task of synchronizing quite tedious. The worst part is that complexity increases as businesses go adding more systems. Systems supporting the processes of sourcing, procurement, reporting, and payment are not different just by geography, but in terms of the platforms they use.
A CPO’s success depends on the integration level in the systems that meet the CPO objectives. A common IT platform makes the operations more feasible. Most businesses are suggested to consider cloud-based upgrades to achieve overall and thorough improvements. It helps businesses reach appropriate levels of control, collaboration, and visibility.