SIG University Certified Sourcing Professional (CSP) program graduate Nancy Wieskus shares the "Better Method" for procurement teams to implement into their procurement system.
The hybrid procurement method combines a central procurement base with subject matter experts (SMEs) already in each department to balance stakeholders' functionalities and strategic sourcing, which gives the business the best of both worlds.
Centralized purchasing or Procurement is a system in which one department manages the purchasing of goods and services for the entire organization. The purchasing department is usually located in the organization's headquarters, where it operates the purchasing for all the branches in the firm. Advantages of central purchasing include reducing redundant work, lowering costs associated with training and supporting additional staff, and better controls. Disadvantages may be that the category manager may not be a subject matter expert in the particular category. It may take longer to complete a contract as Procurement takes a strategic approach. Also, stakeholders may be resentful in introducing other vendors into the mix.
Decentralized Procurement, on the other hand, allows individual stakeholders to make purchases for their departments. This, too, can have its advantages. Decentralization brings the decision-making process closer to the scene of action. This leads to quicker decision-making at the lower level since decisions do not have to be referred up through the hierarchy. Disadvantages are lower cost savings, competitive edge, reduced workload, and strategic advantage.
Why have Procurement run the entire show when the business has some of the best buyers already on your team, the stakeholders. Stakeholders play a vital role and are crucial to sourcing initiatives by offering:
- Consent which allows for changes
- Resources, advice, and vital information
- Participation and support to allow efficiency
- Most important their expertise. Remember, they are the SMEs
Stakeholders are crucial to the success or failure of a sourcing initiative. When transitioning from decentralized Procurement to centralized Procurement, it is essential to build relationships while actively communicating and involving all parties in sourcing initiatives. This helps build trust, sets expectations, manages clear deliverables, and helps eliminate risks.
Instead of changing the process overnight, a hybrid solution would work well where there may be some areas that can be managed entirely by a procurement category manager and the other regions of the same department that can maintain a decentralized purchasing matrix.
The Four-Space Grid
In marketing, for example, there are different areas one can tackle, such as branding, eCommerce, social media, mailings, promotional goods, digital campaigns, etc. This is where they can develop the stakeholder relationship to see where the different stakeholder ranking's fit. You can use the Four-Space Grid here to help figure out where they fit in the ranking matrix. Remember, they must consider all stakeholders, their needs, and concerns. The ranking is based on influence (the amount of control and resources contributed) and interest (affected by the decision or interest intellectually or philosophically).
The four segments are Latent, Promoter, Apathetic, and defender.
- Latents-High influence, low interest, little involvement, but has the power to influence
- Promoters-High influence, high interest, key player, power to make successful
- Apathetics-Low influence, low interest, unaware and powerless
- Defenders-Low influence, high interest, great concern and support, little power
As the category manager, a decision should be made as a team with Marketing that can run promo goods and branding under centralized Procurement. In the meantime, they will continue to procure their other categories within their dept until we ramp up our resources in Procurement. It is a win-win for everyone. Procurement would be able to run RFx and get Marketing's buy-in with successful negotiations in the two areas and show there is a strategic plan through market research, innovation, effective communication, strategic thinking, category management, continuous development, and systematic thinking.
Once there is trust, then Procurement can create a network of cross-functional and global category owners who are accountable for driving performance in cost, quality, and delivery. This is where category managers will begin to build out their teams. A category team is a cross-functional team made up of resources who have ownership of some aspect of the category and individuals that contribute to the long-term goals and objectives of the class. The team should be client-driven and multi-functional and involve key stakeholders to increase the team's success. There are four stages to group development: forming, storming, norming, and performing.
How does a business decide whether to centralize or decentralize Procurement or get Procurement involved at all? Is it a cost amount where Procurement gets engaged, or a more strategic contract where several areas of the company are using the same vendor, as opposed to a one-off or a simple agreement under 100K, where there seems to be less need for a centralized team? This is where a hybrid model would fit and makes the most sense. It is a balance where department leaders realize the need for someone to oversee their buying more strategically and not just in a last-minute negotiation value.
A hybrid method does not mean there is no standard process in place. Whether the stakeholder or the category manager drives the buy, it must be by the same policy and procedures that are in place. This is key to ensuring compliance is adhered to; they mitigate risk, increase efficiencies, and reduce maverick spending.
What is the better method? It is the one that builds the relationship between Procurement and the lines of business before making any changes so that the stakeholders know that this change is being done as an overall cost-saving strategy designed to maximize savings and reinvests these savings into their departments and not a failure on their spending or negotiation practices? This needs to be a win-win for all.
The Certified Sourcing Professional (CSP) Program is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.
My name is Nancy Wieskus; for the past 15 years, I have been working for Valley Bank in Wayne, NJ. I have a background in Interior Design and Retail. I have been in the Procurement Dept. at Valley for the past 11 years. My position has changed over the years from Procurement Operations to Dept. Manager to Lead Category Manager. I love what I do, it is different every day, so I feel like I am starting a new job daily. Always something new to learn, and enjoy chasing the best thing.