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Advantages and Disadvantages of Local vs. Centralized Procurement

It is not uncommon for companies to grow by acquisition, creating many semi-autonomous divisions. Other factors drive fragmentation of spend as well, such as geographic expansion and product line proliferation. Eventually, a company wakes up one day to realize that they have very splintered and fragmented spend, and worse yet, have no idea what they are spending across the enterprise. The response may be a pendulum swing in the other direction regarding control of the procurement function. A centralized sourcing group with strong authority is formed in an attempt to consolidate spend across all the divisions. Unfortunately, it is also not uncommon for local requirements to then be overlooked or overruled in the new organizational priorities, sometimes with disastrous consequences.

Consequently, there typically is tension between choosing a centralized vs. distributed approach to procurement and sourcing, especially in large, multi-division corporations. Each approach has its advantages and disadvantages.

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