Should your organization be centralized or de-centralized? Many business leaders struggle with building the right organization structure for their procurement organization.  While there are advantages for individual business units, a decentralized structure can create an environment where leverage and synergy are lost and category knowledge is not captured.  Conversely, when an organization centralizes all its procurement, it can miss key local, geographic market opportunities and sub optimizes individual business unit requirements, creating dissatisfaction among stakeholders. In this blog, we’ll explore six key procurement organizational structures that enhance efficiency, streamline processes, and align procurement strategies with business objectives.

The goal of any organization is to maximize leverage and synergy, create expertise, drive cost and value improvement, and accommodate geographic and local business requirements.  The different possible organizational structures discussed recently in a webinar that organizations can adopt are:

Source-to-Pay Digitization Diagnostic

Learn More: Procurement Software Suite

What is Procurement Organizational Structure?

A procurement organizational structure refers to the framework that outlines how a company’s procurement functions are organized. It defines the roles, responsibilities, and reporting lines within the procurement department, aligning them with the company’s overall strategy and objectives. This structure can vary widely depending on the size, industry, and complexity of the organization. Common structures include centralized, decentralized, and hybrid models.

In a centralized structure, procurement decisions and activities are consolidated under a single department, which can streamline processes and standardize practices. In contrast, a decentralized structure allows individual business units or locations to manage their own procurement, offering flexibility and local autonomy. A hybrid approach combines elements of both, aiming to balance efficiency with responsiveness to specific needs.

An effective procurement organizational structure ensures clarity in communication, facilitates efficient decision-making, and supports strategic sourcing initiatives. It also helps in managing supplier relationships, risk, and compliance, while promoting cost efficiency and value creation across the organization.

Read more: Centralized or Decentralized: Generative AI is the Key to Unlocking Best of Both Procurement Operating Models

Benefits of a Procurement Organizational Structure

• Clear Roles and Responsibilities: Provides clarity in functions and accountability, reducing confusion and improving decision-making within the procurement team.
• Strategic Alignment: Ensures procurement strategies are in line with overall business objectives, supporting goals such as cost reduction, quality improvement, and innovation.
• Enhanced Supplier Relationship Management: Facilitates consistent communication and negotiation strategies, leading to stronger partnerships and better terms with suppliers.
• Cost Efficiency: Standardizes processes and centralizes procurement efforts, which can lead to significant cost savings.
• Improved Compliance and Risk Management: Establishes clear protocols and oversight mechanisms, helping companies adhere to regulatory requirements and mitigate risks.
• Operational Efficiency: Streamlines procurement processes, making them more efficient and effective, contributing to the company’s overall operational success.

Achieving Excellence: The Hackett Group’s Story with Zycus Generative AI

Witness The Hackett Group’s journey toward achieving excellence in procurement. This video highlights their strategic use of Zycus Generative AI to overcome obstacles and set new benchmarks in the industry.See Their Journey – Click to Watch!

6 Essential Procurement Organizational Structures for Optimal Efficiency

Discover 6 essential procurement organizational structures designed to optimize efficiency, streamline processes, and align your procurement strategies with overall business goals.

1. Decentralized Purchasing with No Collaboration:

This type of structure has a financial holding company, financial business or mergers or acquisitions which allow the company to work independently. Purchasing covers a range of categories of expenditure under the control of local site management. There is no integration between the global business strategy and local business unit. Though this structure is absolutely focused on to internal customer service but it makes no attempt to locate and exploit synergies and has almost little or no cross-business best practice.

2. Decentralized Purchasing with Limited and Managed Collaboration:

Organizations in this structure are decentralized and brings together a purchasing council or collaboration cell to work on certain level of spend as a team. The problem is, though the team works for the entire organization, their activities are mostly focused on the independent business unit rather than to the best interest of the organization. The advantage of this structure is better coordination without the disadvantages of centralization and the complexity of dual reporting where it operates directly under the business unit manager or CPO or VP of Operations.

3. Centralized Control:

The organization is channelled into a central functional team with authority over country or worldwide sites. This cuts through the organizational difficulties of dual reporting. It maximizes volume leverage and cost control. But it could be isolated from the local or regional market.

4. Centre Led:

This structure puts a strong focus to help organizations to leverage synergy across a bunch of business units.  It develops centralized expertise, as in most cases it deals with the suppliers who contribute to 80% of spend. This structure tends to be regional and operates in regional markets or markets setup for specific regions. Hybrid organizations are best suited for this kind of structure and it avoids the tendency for isolated, distant, heavy handed corporate control.

5. Profit Centre:

All purchasing activities are run from a free standing business unit with normal commercial disciplines and requirements. Operators of profit centre make the money and return them to their own individual businesses. Its trading accounts holds responsibility, authority and accountability for generating benefits. But this is not much practiced, as not all organizations are willing to set up a separate business unit for procurement. The disadvantage of this structure is, purchasing rather than supporting the business can prevail and buying becomes more important than value for business.

Learn More: You Probably Didn’t Know these 6 Procurement Myths

6. Outsourced to a third Party:

It’s a powerful way of simplifying the internal purchasing process where the organization retains control over sourcing and outsources a part of the requirement or all of it.

For more knowledge about organizational structure and how to optimize the procurement organization, watch this on-demand webinar.

Related Read: 

1. Procurement automation: How can it help in procurement transformation? 
2. Understanding Blockchain in Procurement and Its Impact  
3. Change Management in Procurement and How to Handle It 
4. Procurement Best Practices– Top 10 Tips to Follow in 2023 
5. Procurement in Value Chain for Business Advantage 
6. Procurement Organization Structure– 6 Key Points to Consider