Listen to this blog

For decades, companies have debated between Centralized versus Decentralized versus Center-led Procurement operating models. In Centralized models, which was the goto operating model, a central team, wielding the power of purchase approvals, reigned supreme. This centralized procurement model offered a sense of control, ensuring compliance and spending visibility. But at what cost? Bureaucracy, slow approvals, lack of supplier diversity, and a disconnect between buyers and suppliers plagued this approach.

Want to know What is your Procurement Operating Model?

On the other end of the spectrum lies Decentralized Procurement: Empowering different business units/ regions/ departments and employees with self-service tools, autonomous guided procurement, streamlining approvals with AI, and fostering agility.

While the promise of a decentralized model was great, concerns about policy compliance and maverick spending lingered. Also, for larger and complex organizations, decentralization was a question of practicality and practicability rather than a choice.

Now the rise of Generative AI (GenAI) powered tools has fueled the fire for complete decentralization, promising self-service procurement and faster turnaround times while also effectively addressing some of the legacy concerns posed by decentralization.

Download eBook: Master the Generative AI Revolution in Procurement

However, a one-size-fits-all approach might not be ideal for every organization.

Enter the hybrid procurement model – a strategic blend of centralized oversight and departmental empowerment. This blog explores both decentralization with GenAI and the hybrid approach, helping you choose the best fit for your organization’s needs.

The Centralized Procurement Conundrum: Control vs. Chaos

For years, centralized procurement reigned supreme. A central team held the reins, ensuring compliance and spend visibility. But this approach came at a cost:

Bottlenecks and Delays: Imagine thousands of employees waiting for a small centralized team to approve every purchase. This creates delays and hinders productivity.
Disengaged Employees: The disconnect between buyers and suppliers fostered frustration, leading to “maverick spending” outside approved channels.
Limited Expertise: A centralized team can’t be experts in every purchase category. Decentralization allows employees to leverage their domain knowledge.

Unleashing the Power of Decentralization with GenAI

GenAI is a game-changer. These intelligent agents can revolutionize procurement by:

Automating Tasks: GenAI streamlines approvals, manages workflows, and automates repetitive tasks.
Empowering Employees: Self-service portals allow employees to make compliant purchases independently, boosting productivity.
Enhancing Compliance: GenAI enforces policies at every step, ensuring adherence to regulations.

How it Works

Imagine a procurement portal powered by GenAI. Employees submit requests through a dynamic forms, and the AI whirs into action. It verifies budget availability, routes approvals based on pre-defined rules or underlying policy document, and even suggests compliant vendors based on historical data. All this, while ensuring adherence to company policies.

The benefits are compelling:

Faster Approvals: GenAI eliminates bottlenecks, speeding up the procurement process.
Reduced Costs: Automation minimizes errors and maverick spending, leading to significant cost savings.
Improved Compliance: GenAI ensures adherence to company policies and regulations.
Empowered Employees: Self-service fosters a sense of ownership and accountability.
Enhanced Supplier Relationships: Decentralization allows for deeper collaboration with preferred vendors.

Studies show significant cost savings potential with GenAI-powered decentralization.

Let’s quantify the impact. Consider a company with 40 procurement professionals (officers, agents, supervisors) at an average annual cost of $75,000 each. Here’s a potential cost breakdown:

Total Annual Procurement Staff Cost: $3,000,000

Potential Savings with GenAI-powered Decentralization: 40-50% (industry benchmarks)

Cost Savings Range: $1,200,000 – $1,500,000

But the benefits go beyond the bottom line. Decentralization fosters agility, employee satisfaction, and stronger supplier relationships.

The Hybrid Dance: Striking a Balance

While decentralization offers numerous advantages, some organizations might not be ready for a complete overhaul. The hybrid model offers a middle ground, recognizing that:

Certain aspects like strategic sourcing and category management benefit from centralized control.
Day-to-day purchases are best handled through decentralized structures.

Here’s how to create a harmonious hybrid model:

Centralized Stronghold: The central team focuses on strategic sourcing, category management, policy development, and risk mitigation.
Decentralized Delegation: Departments manage everyday procurement needs for low-value items, department-specific purchases, and faster approvals.

The ideal balance between centralization and decentralization depends on factors like:

Company size and structure: Larger companies might benefit from a more centralized approach.
Industry and complexity: Highly regulated industries might require stronger centralized control.
Employee skillset and technology adoption: A skilled and tech-savvy workforce can handle greater decentralization with GenAI tools.

Building Your Winning Hybrid Team

Centralized Procurement Center of Excellence (COE): This central team focuses on strategic aspects of procurement.
Decentralized Procurement Specialists: Department-level specialists handle day-to-day purchases within established guidelines.
GenAI Integration: Leverage GenAI tools for self-service procurement, automated workflows, and real-time policy guidance across the organization.

The Advantage of Hybrid Procurement Structure

A well-designed hybrid model offers the best of both worlds:

Optimized Efficiency: Centralized control for high-impact areas and decentralized agility for everyday purchases lead to an optimized system.
Reduced Costs: Strategic sourcing and negotiation leverage at the center combined with streamlined decentralized processes lead to overall cost savings.
Increased Compliance: Centralized policy development and enforcement through GenAI ensure consistent spending practices across the organization.
Employee Empowerment: Decentralized decision-making fosters a sense of ownership and boosts employee satisfaction.

Real-World Application: SIRVA Achieves Sourcing Efficiency with GenAI

As we delve into the transformative impact of Generative AI, it’s crucial to highlight real-world examples of organizations leveraging these advanced technologies for significant benefits. SIRVA, a leading global moving and relocation services provider, is one such example.
Discover how SIRVA transformed its procurement processes and achieved remarkable efficiency gains by adopting Zycus’ GenAI-based solutions. Watch the video below to learn more about their journey and the significant improvements they experienced.

The Final Step: Continuous Improvement

The hybrid model is a dynamic dance, requiring ongoing monitoring and adjustments. Regularly assess your KPIs, including cycle times, employee satisfaction, and compliance rates. Leverage data insights to fine-tune the balance between centralized control and decentralized empowerment.

Conclusion

The future of procurement is not about a rigid structure but a dance between centralized control and departmental autonomy. Whether you choose decentralization with GenAI or a hybrid

FAQ

1. What are the biggest challenges of traditional centralized procurement?

Centralized procurement can suffer from slow approvals, bottlenecks, and a disconnect between buyers and suppliers. This can lead to delays, frustration, and maverick spending.

2. How can Generative AI (GenAI) revolutionize decentralized procurement?

GenAI automates tasks, manages workflows, and enforces policies, empowering employees with self-service procurement while ensuring compliance. This leads to faster approvals, reduced costs, and improved efficiency.

3. What is a hybrid procurement model, and when is it the right choice?
The hybrid procurement structure combines centralized control for strategic sourcing and procurement policy with decentralized purchasing for everyday needs. It’s ideal for organizations that need a balance between agility and control, or those with complex procurement needs.

4. What factors should I consider when choosing between decentralization of procurement and a hybrid procurement model?

Factors to consider include company size, industry regulations, employee skillset, and technology adoption. Decentralization of procurement process might suit smaller, agile companies, while hybrids work well for larger organizations with complex needs.

5. How can I implement a successful decentralized procurement model with GenAI?

Focus on defining your procurement goals, evaluating your needs, selecting the right GenAI solution which offers touchless autonomous procurement, developing a training and change management program, and implementing the GenAI powered source to pay software with a pilot and scaling up based on success.

Related Reads: