Centralized or decentralized organization structure?

 

treeThe question I am most often asked by CEOs

This is a question frequently asked by the C-suite, who is wrestling with autonomous business units seeking control over their P&L rather than optimizing leverage and synergy from the supply base. The answer that I give is always simple and easy to understand: Let the company’s’ expenditure be the guide to how you design the procurement organization. If the company has spend that crosses all business units and is strategic to the business, it needs technical expertise, global strategy and coordination. The other consideration is understanding regional markets and regional business requirements. This needs to be supported by regional teams, each with a perspective on the region they represent and serve. They can coordinate and drive regional strategies, while coordinating the implementation of global strategies. There will always be a need to have resources on the ground at the manufacturing location to buy and manage local requirements. A key role of the local procurement teams is input to supplier performance measurement.

While a three-tier organization is the most effective organization structure, it must tie in to the overall business objectives and deliver on the needs of the individual business units. The procurement team is the commercial arm of the business, responsible for cost and value improvement, supplier integration and alignment to the business and supplier risk management and performance delivery. This leaves conversion, productivity, sales and marketing to the business unit to optimize. This matrix organization works at its best when the organizational objectives for the business are clear, aligned and focused.

What sort of organization should a company have?
Let the spend be the guide.

 

photo credit: Adarsh Kummur

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