October 30, 2018
Managing complex and distributed global supply chain consisting of a very large number of vendors across industries and geographies.
The common solution that many organizations assume they must undertake to solve this problem is to centralize their procurement decision making to drive operational efficiencies, cost improvement and bring these distributed nodes under a single roof. Centralization is meant to bring the benefits of greater control, improved efficiency and increased visibility to transactions. These benefits should translate to improved costs & efficiencies which frees up resources including cash. This seems very logical in most situations especially as latency of information in today's world is nonexistent and decisions can be made virtually (& in some cases with automation) and executed quickly. In fact, in some situations centralization removes any emotional or preferential bias from decisions found at local levels.
These types of projects make sense not only for the results they seek, but also for the in-depth knowledge gained from a cleansing exercise like this. In our experience, these activities identify many small intricacies that were not transparent and create opportunities to eliminate inefficiencies and drive cost reductions for “quick wins” usually before projects are completed. A self-fulfilling prophecy of a project that at surface level seems to be a low risk exercise.
If centralization of procurement decision making is the panacea, then why isn’t everyone prescribing to its universal cure?
In our view centralization is not the panacea. While it offers several strategic benefits, there still exist strong drivers for decentralized procurement. Drivers promoting decentralized procurement include understanding the detailed needs of local teams of your supply chain. These resources may have exclusive opportunity to capitalize on custom work or meet operational objectives of quality, delivery & speed that are only available locally. Other drivers are strategic local partnerships, available discounts, regions where digitization doesn’t make sense. There is still value in the decentralized model, but of importance for leadership is to avoid the “peanut butter spread” idea that a singular strategy works for all. It doesn’t have to be ALL centralized or decentralized. A hub and spoke system like that of the airline industry could prove the better strategy – so called hybrid of both. Hybrid approaches like hub and spoke work very well depending on several factors related to your supply chain. As teams better understand the connectedness of each node in the supply chain, they learn the values derived from the existing models and the opportunities created by changes within the supply chain. Occasionally these decisions to create a hybrid model come about organically or by debate, but they are a good transition point on the supply chain management journey as long as teams and leadership remain open minded and committed to the transformation.
Sustaining the efforts of these transformations should be reviewed regularly as part of your dedicated supply chain management strategy. If you need help with establishing a your procurement strategy or are looking to change your procurement model, we can help.
October 29, 2018
Want to learn from our client conversations?
During many of our client conversations we get asked for our opinion to challenges organizations face when it comes to initiatives within their supply chain. These conversations range from mere inquisitiveness about our approach to deeper discussions on strategy. We always enjoy these discussions and at times they drift into areas that surprise us. To distribute these conversations to a broader audience over the next few months we’ll publish a summarized view on the following topics.
We’d enjoy hearing your opinion and if you have any you’d like to add to the list, please let us know by sending us an email. We hope it helps our followers as they consider their operations and as always, we are happy to connect and expand on any topic.
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This blog is generally our view on topics in Supply chain and operations that we find interesting, move the profession forward or are important for supply chain leaders to consider as the develop their strategies and teams. Please comment or reach out if you have any questions.