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The myth of centralised procurement

11 January 2016


The arguments for centralising activity, procurement or otherwise, can be very persuasive, blogs John Bowen, but so many of them are built on selective use of numbers, as may well have been the case in the recent media frenzy for they, too, are only trying to sell you a story. 

 

I am not procurement bashing here because I am one of their number, and nor am I media bashing either, as I am also one of them in a small way. No, I would like to try and present a balanced view based on what I have seen and experienced over the years.

 

The first question to ask is whether or not centralisation is right for not just your organisation, but for what you want to centralise. Not everything lends itself to being centralised in any organisation, although some – and retail is a good example – are made for a central approach.

 

If centralisation is an option, then what products or services lend themselves to a central approach? That’s going to depend on your organisational needs, and making generalisations here would be to perpetuate the myth because any decision on whether or not to centralise procurement for any line or category is one that needs to be taken with care.

 

It needs to be considered in the light of business strategy and the marketplace, and the procurement method chosen has to support the strategic goals.

 

A product or category that is centralised may not always need to be so and it can make sense to move from centralised to decentralised as best suits business needs. All organisations are dynamic and so their needs change over time. Varying procurement methods to suit those changes should be standard procedure.

 

Having a balanced range of procurement methods is what is needed, not bland generalisations. It may sound obvious to standardize, for example, but I’ve seen examples of organisations providing standard-specification PCs across the board when they don’t need to and thus paying several times more than they could do. It does little for end-user credibility when they know that they could have bought the PC they need for less than half the price at their local retail park.

 

In another case there was a proposal to shave a fraction of a penny of each consumable by standardising, when to do so would have cost thousands in terms of changing the equipment that used the consumables; the equipment had to be different and each needed a different consumable.

 

I often say that there are lies, damned lies and statistics, but that procurement savings come next in the series. That isn’t to say that savings are not true – they very much are, but some of the numbers that are bandied around are projections or assumptions that are made on the basis that if the organisation buys a certain quantity and a given price they will make that saving.

 

The problem with that premise is that in many cases the quantities actually bought over time are different and so the savings predictions made when the contract is placed are under or over-fulfilled. All too often you read – especially in the public sector – that an initiative will save millions or more, but procurement savings should be judged in retrospect; over the last year we have saved £x.

 

Centralisation has its merits, but the myth of centralised procurement is built on the dual premise of sweeping generalisations and savings assumptions. Procurement professionals work on real numbers and to organisational goals; they will centralise when they need to, and only then. As always, a balanced approach works best.

 

John Bowen is an FM consultant

http://thatconsultantbloke.wordpress.com/