In any industry, the choice between procurement systems can quickly become a make-or-break

decision. While there’s no single correct answer to the great procurement question, it’s relatively easy
to break such systems down into three primary types, then use broad strokes to evaluate which might
be right for your organization.

Defining Centralized Vs. Decentralized

A centralized model relies on decision-making that occurs primarily at the top of the organizational
chart, with a single leadership body that draws up purchasing and ordering plans, then transmits
those orders to lower-level warehouses and procurement centers for completion.

In a decentralized system, nodes in the supply chain have a degree of autonomy and are free to
adjust ordering and inventory activities according to the best judgment of local managers.

Centralized Procurement
Studies show that centralized procurement systems operate more efficiently on average, with
ordering and manufacturing costs running about 10 percent lower when compared to decentralized
alternatives. Most centralized organizations can complete a purchase order procedure more quickly
with fewer individuals than decentralized regimes.

Centralized systems are strong performers in industries that don’t tolerate much deviance when it
comes to inventory and supply levels. Centralized systems also benefit from more efficient scalability,
as it’s cheaper to add additional subservient nodes under a centralized management structure than it
would be to train autonomous managers throughout the supply chain.

However, centralized cost efficiency comes at the expense of local knowledge. It’s easy for
centralized leaders to find themselves overseeing a web of subordinate locations that fail to meet
their goals because local management doesn’t have the authority or insight to operate effectively.

Decentralized Procurement
The most successful decentralized procurement systems rely on the local knowledge of end-chain
managers to optimize ordering and supply activities. This is most evident in retail sectors, where
decentralized leaders are well-placed to keep their finger on the pulse of the local market and can
rapidly adjust their activity in response.

Crucially, decentralized systems rely on a much wider spread of knowledgeable, well-trained

leadership; and management costs grow accordingly. When a business is unable or unwilling to meet
that standard, it’s easy for decentralized systems to spiral out of control, with inexperienced or
untrained managers operating on gut instincts and anecdotal evidence to determine procurement
activities.

Without correct training and guidance from above, it’s very common for local managers to adopt a
“can I see it?” philosophy, where empty shelves or warehouse floors means more ordering is
required. This tendency to view warehouses as storage locations, instead of conduits managing
throughput, can easily lead to overspending that ignores inventory already existing in other areas of
the supply chain.

Hybrid Procurement Systems

Hybrid models adopt a pick-and-choose approach to procurement, with a central leadership structure
supported by local managers with some degree of autonomy. Advances in technology have made this
easier, as communication and working processes can be more nimble, letting directives filter through
hybridized structures more quickly than they could even a few years ago.

However, it’s easy for an organization to adopt a hybrid model and end up with the worst of both
worlds. This is particularly the case for smaller businesses, where a single ordering manager feels
overwhelmed and starts adding subordinate functionaries on an ad-hoc basis, leading to a tangled
web of authority and leadership.

The most effective hybridized systems maximize communication along the organizational chart to
ensure core standards are maintained and aggressively take advantage of technology to facilitate
those goals.

Whatever your industry, it’s important to ask yourself what the organization requires. When clear-cut,
unyielding procurement parameters are a necessity, centralized structures may be best. Alternately,
fast-moving industries in volatile markets may be better served by some form of decentralization,
whether complete or hybridized.

For more information about our services and our Manufacturing and Distribution Service Group,
contact us at 214-635-2498 or fill out the form below.