You’re right, a bunch of great comments, yours included! You hit on several interesting and progressive ideas, thank you. The one I’m most struck by is the hybrid approach which I think is a newer trend and something to be considered by groups after they’ve centralized (or shifted to center-led). I touched on it in one of my Aberdeen reports in ’09 after hearing several CPOs verbalize this goal or end-state but didn’t really have a name for it then. Your post has me thinking that maybe this could be called a ‘category-led’ strategy. I’ll start chewing on it for a future article and will definitely look for your (Andy’s and Dan’s) input here. Thanks to all of you for driving such a great discussion.

Andy – great post too. You’ve really gotten me thinking about how enterprises identify and leverage best practices across different groups, a topic we’ll certainly revisit soon. Thanks!

One idea would be to develop a hybrid approach where certain categories (office supplies, IT Hardware, etc) are centralized across the company, while others that are business specific stay decentralized. There would be challenges in setting this type of structure up, but may provide a “best of both worlds” solution.

Another idea for decentralized groups is to form a formal “Procurement Council” across BU’s. There has to be communication between these groups, and putting a formal structure around it will usually result in this communication. Large companies that have multiple Procurement groups are at risk of being taken advantage of by suppliers if there is poor internal communication.

You touched on many different obstacles that many both large and medium size organizations are going through. I work with companies around the world and a true believer that most organizations leave a boat-load of money on the table when it comes to sourcing (I was at one time a global sourcing manager). Here are a few thoughts. First, if possible conduct an assessment or audit for best practices throughout the organization. Develop an audit tool to flush out the ones that are doing “world-class” processes. From this assessment the best practices can be shared rather than redesigning the wheel everytime. Second, Data scrubbing goes a very long way in achieving the ultimate goal of strategic sourcing. I worked with a client that has 27 facilities around North America. I ran point for the project and visted each site to run a series of reports (i.e. part number, standarized part descriptions, unit of measure, category, etc). A team came in after me and scrubbed the data to standardize across the company. From this activity we could place all items in neat little buckets and track spending patterns, usage, and part standardization. The bottom line – This company reduced spending across the division $14.6 million in the first year. Every year since then has increased (or decreased depending on your viewpoint).
These types of programs work but it takes effort.
Cheers!
Andy

Sweet post (get it? heh-heh)! Seriously, I love it, great first hand account – just brimming with top ideas – Try to change the dialogue, take on the tough projects, leverage outside factors (SOX in your case, recession/new normal for those today), build consensus, play for the long term. Love to see more of this on these pages – keep it coming – Thanks!

BUT —

It’s not impossible, IMHO. I worked at a much smaller organization, and there was some degree of buy-in to centralization, but there were many challenges, not the least of which was “home rule”. No one wanted to give up their vendor relationships (hey, who wants to forego a free lunch every now and then?) and control (real or perceived) over performance, etc. I had a good degree of success in getting everyone on board by convening a group of mid-level managers from around the network and brainstorming best practices for procurement with the primary intent being cost savings. We came to the conclusion as a group that more centralization was a good thing, and I just nurtured that success into a wider scope over time. But I always let the people in the field have some input to major decisions and strategies, and let them do as much actual purchasing as they wanted so they could maintain ownership and some degree of control. Centralized Procurement with localized Provisioning, in other words. I also looked for the things they didn’t want to deal with and tried to take as much of that on as possible so I was actually helping them. That made me a few friends too. And I got creative. For example, when I wanted to establish one provider for IT asset recycling, I got a lot of push back. But there were a whole slew of reasons why we needed to formalize the process, not the least of which were to ensure data destruction and for liability purposes. So I established a single source and took on all the costs associated with recycling technology across the entire enterprise. This way no one could say “I can do it cheaper on my own”, since their budgets saw zero cost. Of course, SOX helped me a lot too, but the budget issue was paramount. Over time the program became so ingrained that former detractors ended up advocating for it (arguing the merits with newcomers!) This all speaks to your “bottom up” approach. There’s a lot to be said for grass roots participation.

The bottom line is that the best way to have a wide and deep cost impact is to leverage your spend, and the best way to do that is to centralize the procurement, but there are also value propositions that must be considered. No one really has the time and resources to fully evaluate every buying opportunity to qualify how best to meet it, so you simply have to find the best middle ground and try to be open to concerns and input from the field. It doesn’t really matter if you do it as a “Corporate Directive” with sticks — or even carrots — attached, or if you do it as an evolutionary, cultural change driven from the bottom. The latter can be much slower, but it will also be much stronger in the long run. No one likes to have things shoved down their throat, right? So get your worker bees to help out by offering them some honey, and you’ll end up with a sweeter result! (Sorry, I couldn’t resist!)