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17 January 2019
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The myth of centralised procurement

12 August 2013

The arguments for centralising activity – procurement or otherwise – can be very persuasive, but so many of them are built on selective use of numbers.

I am not procurement bashing here for I am one of their number, but 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 – retail is a good example – are made for a central approach.

If centralisation is an option, which 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, for 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 standardise PCs, 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 need.

It does little for end user credibility when they know that they could have bought the PC they need for 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 think 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 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, especially in the public sector, you are told that an initiative will save millions or more, but procurement savings should be judged in retrospect – over the past 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