02 May Central agreements with decentralized contacts
What benefits can you gain from a more efficient procurement process in your organization? More than you might think!
Most organizations traditionally have a largely decentralized structure that complicates the concentration of the negotiations and management of all procurement portfolios at a central location. This partially decentralized structure often results in a poorer insight into the needs of the internal organization and reduces contacts with the Decision-Making Unit (DMU). This is also the reason why companies increasingly opt for central agreements with a focus on decentralized operations. What are the benefits? Organizations with centralized or consolidated procurement and decentralized ordering processes operate with a proven higher efficiency than organizations with a fully centralized, decentralized, or non-consolidated structure.
Here are three reasons why you should get to work on your new procurement process now
Procurement strength is an important driver for businesses to continue with consolidation and optimization. From a historical perspective, all branches and/or companies have their own – often multiple – channels for the procurement of IT products and services.
From a central perspective, this proliferation of vendors impedes spend consolidation and complicates efficient vendor management. A reduction of the number of vendors automatically enhances procurement strength. This enables you to consolidate and continue to optimize your spend, for example by introducing company-wide standardization. Economies of scale resulting from an increased contract value contribute to the reduction of direct costs.
Culture also plays an important role in consolidation and centralization. Local autonomy, powers, language, and opinions all need to be taken into account and must not be underestimated. These factors form a potential stumbling block for the success of a consolidation and centralization process. Failure to obtain a good insight into and address these factors will result in additional delays and discussions.
In the most extreme cases staff may even work around the new business processes and agreements, which will jeopardize the achievement of the envisaged savings in direct and indirect costs. This is avoided by working with centralized agreements and adopting a decentralized model that also focuses on important local factors such as the prevailing culture. This provides, for example, for the ability of your operational contacts to communicate in their native language and the use of local transport and the local currency.
The efficient and decentralized implementation of the centralized agreements will remove most of the potential stumbling blocks.
Managing indirect costs is probably one of the greatest challenges confronting organizations. All material expenditures must be preceded by an – often manual – offer, approval, and order procedure. There is also the risk that each branch and/or country has adopted its specific procedure, not to mention all the additional costs of vendor management and, for example, the time-consuming question during every after-sales process: ‘which vendor did we procure this from?’
You can retain full control by incorporating the internal power of attorney in an own cloud procurement system, or laying this down in the ERP package or P2P system, and then fully automatically integrating these arrangements in the back-end. You also assist your internal clients by working with efficient processes that also produce consolidated reports which relieve you from the administrative burden.
If you are interested in finding out more about how your organization’s procurement process can be configured to achieve maximum efficiency, then you are welcome to contact IT 2030.
As an international organization, where can you save on your IT spend?
Many processes directly influence the overall operating result. However, many organizations underestimate the return impact on decentralized purchasing.