Procurement pendulum is swinging back to centralized models, study finds

The pendulum is swinging again: Many procurement organizations are moving away from decentralized procurement functions and management and toward centralized management, according to the latest quarterly "Procurement Advisor Pulse Survey" conducted by the consulting firm KPMG's international arm. Respondents included procurement advisory professionals in KPMG's member firms, who reported on what they are seeing at clients' companies worldwide.

The report, "Bargain hunter to business partner: The monumental opportunity facing procurement," documented a strong trend toward the adoption of both centralized and "center-led" models. The survey findings also indicated that outsourced procurement and hybrid procurement operating models are gaining traction in some organizations.

Researchers said the changes stem in part from procurement's evolution from being seen as a dispersed cost-center function to being treated as a strategic business partner. Centralized procurement operating models allow companies to better leverage purchasing power and economies of scale, the report said. However, a center-led model that centralizes control but decentralizes activities is more nimble and more responsive to local business needs.

Hybrid models facilitate category management by recognizing the differences across categories of spend, said Samir Khushalani, Americas Practice Leader for KPMG's Procurement Advisory practice. Categories may be managed locally, regionally, or enterprisewide, depending on factors such as strategic importance, commonality or uniqueness of requirements, and the nature of the supply market. Khushalani cited the example of high-growth, technology-focused companies where the speed and agility of a decentralized approach may be more valuable than a centralized model.

The survey also looked at the top priorities for the procurement function among KPMG's clients. Generally improving performance was the top priority, cited by 58 percent of respondents. Next came aligning more closely with business functions, at 42 percent, and improving governance and compliance capabilities, cited by 40 percent of the survey takers.

The research found that procurement organizations as a whole do not continually manage risks such as a lack of qualified personnel, loss of critical suppliers, and pricing volatility. Due diligence, even on key suppliers, is inconsistent, and few procurement teams conduct regular, systematic reviews of risk exposure in terms of probability and potential damage, the report said.

The fourth area studied was how companies measure the value of the procurement function. Most use cost savings and cost management as their primary measures. Qualitative measures that demonstrate procurement's broader impact and value—such as performance related to supplier risk, supplier relationship management, and social and environmental impacts—are relatively rare, the study found. KPMG suggests that procurement organizations develop a "return on procurement" measurement and assessment model that tracks and demonstrates the function's linkage to corporate strategic objectives as well as to top- and bottom-line growth. In most cases, that will require real-time monitoring of spending and improved data capture and analysis, the report said.

Click here to read the full results.