For the greater good

27 March 2009

27 March 2009 | Jake Kanter

Homeserve has bucked the trend and decided to decentralise its procurement. Jake Kanter examines the benefits and the risks of this approach

On hearing word of Homeserve's plan to decentralise its procurement operations, SM asked the question: why dismantle an award-winning, target-beating department?

The company's answer was clear: "The organisational change was implemented to further improve customer service."

It plans to use buying expertise in individual business units giving them more autonomy and control over customer relationships.

But it raised the frequently debated question of whether it is better to centralise or decentralise buying.

Homeserve's move is a departure from several organisations that have recently centralised their procurement functions. The charity RSPCA established a central purchasing function late last year, while the Public Accounts Committee praised the Prison Service last month for its significant procurement improvements over the past five years, which included introducing a centralised strategy.

And Electronics firm Hitachi plans to save ¥300 billion (£2.3 billion) this year by expanding the remit of its central purchasing team.

Among the few major procurement decentralisation projects in the past 12 months was at German retailer METRO Group in January, when it devolved purchasing functions to its four sales divisions.

So which approach is best? And are there alternative models? John Durrell, managing director of consultancy Associated Procurement, says both strategies have "virtues and vices".

In his view centralisation offers significant spend transparency, consistency in dealings with suppliers and a clear focus. But on the downside it can provoke internal turf wars, over who owns a supplier relationship.

Procurement coach Dick Russill agrees that both strategies have pros and cons, but believes complete decentralisation is difficult to manage successfully without a procurement figure at the heart of the company overseeing buying operations.

Roger Gonourie, director of global strategic sourcing, EMEA, at pharmaceutical firm Wyeth says procurement departments must understand how their business is organised and then put in place a structure that best supports it.

Wyeth runs a "network" structure which means it has site-based buying teams in each of its major markets and a small central team coordinating them. Through an intranet system the purchasing groups share processes, best practice and category knowledge.

Gonourie says this gives the department "commercial agility", and the power to adapt quickly to changing market conditions.

Footwear firm Clarks has a very similar setup, where a category manager sits in each of the company's main divisions while four buyers remain as a central consulting team and another acts as a purchaser for the retail business.

Russill concludes that whichever structure procurement teams decide to adopt it must serve the business's desired outcome. Much like the new setup at Homeserve, which now has a greater focus on customer service.



SMmar2009

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