Purchasing Organization Structure: Decentralization to Centralization
Hua, Li
Embry Riddle Aeronautical University Student
LGMT 536 Purchasing and Supply Chain Management
Maggie Rivers
November 29, 2021
For a company with operations in ten different countries and six different business groups, geographically concentrating an organization is challenging. A company of this size can utilize e-sourcing software to achieve the organization’s transformational goals. E-sourcing software has features like manufacturing management, such as the SAP procurement software. This way it’s easy for business unit leaders to receive reports from a purchasing manager, whatever their level in the organization is. Also, it’s easy to report to the chief purchasing officer (CPO), with visible spending details, regardless of their physical location in the corporate structure. This dotted-line reporting channel is required to connect the corporate CPO and executive to the centralized reporting managers (Monczka et al., 2020).
Often, top management’s philosophy will dictate the predominant form of the organization (Monczka et al., 2020). Therefore, to transform the organization from a decentralized to centralized structure, it requires business unit leaders to move closer to the corporate office amidst transformation. A business unit leaders’ job is to interface with various business units sourcing teams, provide expertise and input into the sourcing process for these units (Monczka et al., 2020). They have knowledge on how to handle sourcing issues, and directly communicate with executive levels. This way, they can often facilitate “buy-in” for centralized purchasing strategies which are to be implemented into the company.
Depending on the dollar amount, the purchasing authority level is different. For centralized organizations, a company should direct most capital expenditure purchasing authority to a headquarter CPO when over a specified dollar amount. Lower-dollar capital decisions could remain at the business unit level (Monczka et al., 2020). This also requires organizations to be lean, flexible, and competent at managing the responsibility. Otherwise, there will be a push back to more decentralized purchasing structures (Monczka et al., 2020).
Support purchasing strategies, coordinating e-purchasing systems, data gathering and part numbering systems along with other business units are critical activities for a centralizing organization (Monczka et al., 2020). Designed purchasing strategy and coordination of these systems shouldn’t become an individual units’ responsibility. If the above activities were managed by each business unit level, the results would be mixed and wouldn’t be compatible in the market (Monczka et al., 2020).
For buy-in from the different business groups working with the organization set to transition from a decentralized to a centralized purchasing structure, the organization needs to demonstrate centralized organizational advantages. At centralized organizations, purchasing volumes could be consolidated at corporate level from all the different business units. This leads to better prices from suppliers, resulting in the best value for the entire organization (Monczka et al., 2020). It can also reduce duplication of effort, making the whole organization’s operations efficient and consistent.
A centralized organization not only benefits the organization, but it also gives advantages to individuals. Purchasing employees could develop different skills while transforming the organization by coordinating with different business units, especially when building the company’s e-sourcing software with the information technology (IT) team (Monczka et al., 2020).
Winston Churchill said “To improve is to change; to be perfect is to change often.” (Churchill, n.d.). The transition changes purchasing functions from being tactical in nature to a more strategic function. Centralized goals and coordination for the different business units could result in the development of new competitive purchasing strategies. This would increase survivability for all parties in a rapid changing environment.
References
Monczka, R., Hanfield, L., Giunipero, L. Patterson, J., (2020). Purchasing and Supply Chain Management, 7th Edition. Cengage
Winston Churchill Quotes. (n.d.). BrainyQuote.com. Retrieved November 28, 2021, from BrainyQuote.com Web site: https://www.brainyquote.com/quotes/ winston_churchill_138235.
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