What is your Procurement Operating Model?
Procurement has come a long way. From being viewed as a “department that buys stuff” to being strategic, the one that can drive real value to the organization. With fierce competition and global supply chain, cutting cost is becoming more and more important and, an uphill task. Top management is taking special in interest in procurement and how it can be leveraged to contribute to the organizational goals.
The way procurement operates has an impact on the organizational savings and objectives at large. Is your organization following a centralized approach? Or, being decentralized is the way it works? Or, is it in transition phase? What is the impact of the procurement model your organization follows?
A research report by KPMG and Procurement Leaders, “High Impact Procurement Operating Models – A Survey of Global CPOs” tries to identify the linkages between centralized, decentralized, center-led approaches, and savings to find the “best” procurement model.
As per the report, 83% of organizations have changed their Procurement Operating Model (POM) within the last five years. Most companies start from a legacy of decentralized structures, which a nascent procurement function seeks to consolidate in the center. This seems to give way to a second wave of decentralizing, leading to center-led models. As organizations cycle through different POMs, they do not lose the benefits of past models.
Here’s a look at the procurement journey of most of the organizations.
A single operating model does add value to the business. However, changing operating models deliver savings and sustained benefits. The levels of reported savings do not vary greatly between different procurement models. On an average, Decentralized, Center-led and Hybrid models generate a savings of 6%, while Centralized generates 5% savings.
The report says, “POMs do not by themselves deliver incremental savings. There is no single answer for an organization in finding its procurement operating model. Changing the POM can itself generate additional benefits and possibilities of savings delivered in a new environment. The change, in and of itself, can produce wider benefits.”
With the evolution of the organization, the procurement model evolves. At which stage your organization is in and the operating model it follows will impact the savings and business goals.