Unite | Doing decentralised procurement the compliant way

In small companies, all procurement tends to be taken care of by one team. Easy, right? Then, as an organisation grows, entering new markets to become multinational, some decentralised purchasing becomes more practical. But only if it’s done in a compliant manner. In this blog, we answer the following questions:

What is decentralised procurement?
How is it different from centralised procurement?
What are the benefits of decentralised procurement?
What are the challenges businesses face from decentralised procurement – and how can we solve them?

What is decentralised procurement?

With locations around the world, it’s not always feasible for one central procurement team to fulfil the needs of the whole organisation. Decentralised procurement allows individual business units to make their own purchases – ideal when different parts of a company specialise in specific product categories. Some organisations incorporate decentralised procurement with some centralised purchasing to get the best of both worlds. There are some potential challenges that arise as a result of decentralised buying, which we explore below. But when it’s well-managed, giving individual departments autonomy over what they purchase, there are also big business benefits to be had.

Decentralised procurement - a success story

Find out how our customer LGI improved its procurement processes with Unite

How is it different from centralised procurement?

Centralised procurement is managed and carried out at the head-office level, giving one part of the business greater visibility and control over the whole organisation’s purchasing needs. With this gate-keeping approach, any purchase must be submitted to a centralised team to be reviewed and approved. For industries where the products required are similar wherever you are in the world, centralised procurement might make more sense. And certain categories, such as raw materials, are better suited to a centralised approach. Deciding what makes most sense for your business comes down to a number of factors, including company size, location and expected growth rate. Another consideration is your industry and the categories of products you’re procuring. Where organisations are more widely distributed, it’s typical for a hybrid procurement model to be the norm – a mix of centralised and decentralised, often referred to as centre-led procurement.

What are the benefits of decentralised procurement?

There are a number of key benefits to incorporating decentralised procurement as part of a hybrid approach. Let’s take a look…

Procurement professionals in a meeting talking about purchasing decisions

Faster, more agile decision-making

Without needing to go through a central gate-keeping process, riddled with bureaucratic blockages, decentralised buying can make it faster and easier to get a decision about a purchasing request and meet urgent demands.

A wider range of suppliers

Without the limitations imposed by centralised procurement, buyers have more bargaining power to get a fair price and prevent supply chain shortages. If one supplier doesn’t have what you need at the right price, you’re free to go elsewhere.

Warehouse supervisor with laptop ordering supplies

Specialised supplier knowledge

It’s unlikely that a centralised department at a large organisation will have the expert knowledge about the needs or priorities of every team, department or location. Decentralised buying puts the power in the hands of the people who know best, so they can get precisely what they need.

Faster order to delivery times

With individual teams responsible for their own procurement, they’re able to buy from local suppliers, supporting their region’s economy and minimise the risk of supply shortages in times of global crisis. And with international shipping curtailed, the products and services you need arrive more quickly so they can be put to use right away.

What are the challenges businesses face from decentralised procurement?

All the positives aside, there are some potential issues that can arise from poorly managed, non-compliant decentralised procurement. Here are a few things to watch out for – and how to address them.

Procurement specialist speaking in front of other procurement professionals in a meeting room

Lack of accountability

What’s the problem?

With authority spread across the organisation, you run the risk that people won’t be accountable for their purchasing behaviour or take their responsibility seriously, resulting in higher spend and more maverick buying.

What should we do?

You’ll need clear policies and procedures in your organisational structure to encourage compliance, publicised guidelines that explain expected behaviours, ethical monitoring, and regular training sessions to keep everyone up to speed. Suppliers should also understand these rules and that they risk disqualification by not following them.

Rather than letting individuals determine everything about your purchasing process, making accountability non-existent, replicate your centralised processes for decentralised business units, building in enough flexibility for regional and cultural differences.

Procurement professional writing down policy details

Non-compliance with procurement policies

What’s the problem?

If you’re not from a procurement background, familiar with supply management policies, you might accidentally pick specific suppliers that aren’t compliant with your organisation’s rules or favour others that breach ethical guidelines.

What should we do?

Again, training and knowledge-sharing is key here. There should be a collaborative culture between procurement and non-procurement employees, so called requisitioners, with easy-to-understand policies that outline the dos and don’ts for everyone. A clear approvals process for all suppliers is vital too. And the procurement department should remain in control of your approved list of vendors.

Procurement professional sitting at a desk thinking about a challenge

Poor strategy execution and data collection

What’s the problem?

Strategic and financial purchasing forecasting is crucial to business success. Decentralisation without the proper guard rails in place can make it hard to keep tabs on spending and suppliers.

What should we do?

Regular monitoring and audits give you the insights you need to ensure ethical practices are in place and buyers across the business are adhering to guidelines, including purchasing only from suppliers who are compliant with your standards.

Unethical behaviour

What’s the problem?

When non-procurement employees are part of your procurement processes, especially when they lack proper training, unethical behaviour can arise. Whether it’s on the buying or the supplier side, this runs the full gamut – from the misconception that a buyer should receive gifts if they place a large order to bribery and corruption.

What should we do?

Through training and information-sharing, you can raise awareness and understanding around these issues to ensure fair treatment of suppliers. This also helps decentralised buyers to build long-term, respectful, trusted supplier partnerships and work in accordance with your business’ ESG goals.

Two procurement professionals in the office discussion about requirements

Missing out on management and scaling benefits

What’s the problem?

If all your procurement is decentralised, with no central oversight, it’s impossible to keep a handle on your organisation-wide spend and maximise any benefits of scale. You’ll also fall foul of duplicated work when it comes to supplier and contract management.

What should we do?

Policies and procurement solutions that help your central team retain control of the overall procurement budget, understand wider organisational needs, and keep track of approved suppliers and existing contracts will help avoid these issues.

Start at the centre ...

Centralised and decentralised buying both have their benefits – and their drawbacks. That’s why many large organisations favour a centre-led approach to get the best of both worlds.

Solutions like the Mercateo Procurement Portal from Unite help give procurement professionals the oversight and control they need. At the same time, they allow decentralised teams to exercise autonomy and expertise, access their preferred vendors, and build supplier relationships to benefit from negotiated terms and prices.