The answer is no longer black and white for this debate, which has been ongoing for years. With many now touting a hybrid approach as the way forward, it seems there’s a lot to gain by applying different operating models to specific business areas. SM asked for opinions
Central distribution unlocks a world of opportunity for SMEs
Sophie Daniels, category development director at Foodbuy
“We’re a group procurement organisation (GPO) using combined purchasing power to secure best-in-market pricing, while suppliers can negotiate with one organisation instead of many. As a centralised body we have the purchasing power of over £1bn, spanning more than 70 categories – 75% food, 25% non-food.
For a GPO model to work, procurement needs to be centralised, but the benefits are far greater than cost savings. For instance, now more than ever supporting local and smaller suppliers is vital. We work with more than 600 SMEs and over 20 social enterprises, and around 80% of our food comes from the UK. By consolidating deliveries and nominating products through central distribution partners, we’ve been able to unlock a world of opportunity for SMEs and reduce food miles and emissions across our supply chain.
Without access to meaningful data, centralised procurement models are destined for failure. We’re fortunate enough to own a P2P and eProcurement system designed for food service and hospitality businesses. It helps us identify potential switches, optimise buying behaviours, report on sustainability goals etc. and our centralised model means we can embed the benefits of our decisions far and wide.
Robust processes underpin all great centralised procurement models. All our procurement activity follows a framework with clear owners, activities, triggers and checks. Plus, every project has an annual sourcing calendar so we can go to market at the optimum time to reduce the impact of seasonal, market-driven changes.
By collaborating with clients we gain a breadth of expertise and can ensure specific purchasing or local requirements are met. Our teams regularly review the macro-economic market to identify opportunities that, combined with our category knowledge, enable us to build better negotiation plans and deliver bespoke strategies.”
A decentralised approach builds resilience in the supply chain
Asger Lauritsen, Chief procurement officer at FLSmidth
“Dependency on a single source of supply makes you vulnerable. In the mining and cement supply chain disruptions are the norm, so when China went into lockdown, we switched to Turkish and Egyptian suppliers quickly because decentralisation was already part of our model.
Building a decentralised or regional supply chain with multiple sources is complicated, but absolutely necessary going forward. The pandemic is the main reason why 93% of companies plan to increase supply chain resilience, according to a McKinsey survey, but the underlying long-term driver is technology. Labour-intensive production can now be done by machines, leading to lower labour costs and more nearshoring.
Decentralisation means cheaper running costs, lower shipping costs, shorter lead times, more control, and a reduced threat of disruption. But when you deal with more suppliers, the complexity grows, so you need a system to manage this, and to navigate trade barriers, tariffs and protectionism.
This will change the landscape a great deal, as it clears the path for regional suppliers to enter the market. In our case, smaller manufacturers are now becoming preferred suppliers with opportunities on a global scale. So, the decentralised approach builds resilience into the supply chain for global companies and opens opportunities for local suppliers.
The decentralised supply chain must rest on a centralised system which forms the basis for decision-making. You need a central body that’s responsible for standards, guidelines, controls, data, knowledge sharing and so on.
Also the supply chain needs to be managed on the ground, so it’s a mix. Collaboration and ongoing communication is key. It’s not enough to set the direction and leave it to local managers. The central body needs to support the regions, not the other way around.”