Saying No To Centralized Purchasing is like Willfully Wearing A Blindfold. Here’s Why

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Purchasing is confusing and much of this confusion is unnecessary and frustrating. The confusion should not exist and the only reason it does exist is because Purchasing is full of newly minted words and loosely defined terms that are thrown about without understanding Purchasing as a process. For instance, let’s look at the term Centralized Purchasing. Instead of defining it (we don’t want to add to the confusion), let’s try to understand exactly what it is and why it is so fundamentally important. 

There is a prominent chain of bookstores — Let’s call it Book Lovers. Book Lovers is a large and successful company; it currently operates 50 stores across the country. Its purchasing process, however, can be vastly improved. At present, this is where it stands:  

Its store managers keep going above their budget. 

Their purchasing is not strategic — purchases are made on the fly, and with little accountability.  

Book Lovers does not have a Purchasing Manager per se. There is Jim, a manager at the company’s corporate office — but he is little more than a pen-pusher whose responsibility is to maintain a record of purchases made across each and every Book Lovers store.        

Since time is a critical factor for the company, this manager has been excluded from the purchasing process altogether; this means that he has no role to play in Purchase Order (PO) creation or in choosing suppliers and vendors. After a store’s maintenance manager makes a purchase request, the store manager approves it and creates a Self Purchase Order (SPO). Once the SPO is created, the maintenance manager looks for the right supplier and vendor to buy the product that the store needs.    

Now, let’s get to the bottom of Book Lovers’ problems and understand how Centralized Purchasing can solve them. 

  • The reason its store managers keep going over budget is because they do not realize that they are overshooting their budget. Since their purchasing data is maintained manually, they have to rely on monthly reports from the accounting department to find out if they have stuck to their budget; since these are monthly reports, the store managers have to wait till the end of the month — this means that mid-month, the store manager cannot accurately tell how much of his budget has already been spent during the first half of the month.

    What Book Lovers’ store managers need is a way to keep track of their spending, real time.  A centralized purchasing solution like Procurify offers Real Time Spend Visibility — a feature that would give the store managers the most up-to-date account of where their expenditure stands vis-a-vis their budget, at any time of the month, day or night. And as long as the store managers know exactly where their expenditure stands, they will have no reason to exceed their allotted budget. 

  • The reason Book Lovers’ purchasing lacks strategy is because there’s no one evaluating its purchasing. Yes, there is data collection — Jim, the manager at the corporate office, is diligently filling papers, updating excel sheets and keeping records of every store’s purchases. But, there’s no data analysis. And no purchasing strategy can be devised without a constant analysis of the company’s purchasing. 

    At the moment, Book Lovers’ data collection is central — yes, it is being manually collected by the office manager at the corporate office. But, that doesn’t amount to much — the purchasing data is still a jumbled mess of papers and excel sheets. A Centralized Purchasing Solution like Procurify offers Centralized Data Collection proper — a realtime and consolidated record of every store’s purchasing history. Think of it as a bird’s eye view of the company’s purchasing, which is easily accessible from your computer, phone or any hand-held device and at any time. This would enable and facilitate an easy understanding and analysis of the company’s purchasing habits.      

  • Book Lovers’ seems to see little value in having a Purchasing Manager. At the moment, Jim, who is in-charge of keeping the company’s purchasing records, is little more than a clerk; he is spending all his time in non-value added tasks.

    A Centralized Purchasing Solution like Procurify will do everything that Jim does and with far greater speed, accuracy and accountability. But does that mean that Jim’s services will no longer be required at the company? To the contrary, Procurify has bigger plans for Jim. With Procurify, Jim will go from collecting data to actually analyzing it. At the moment, the individual store managers might have made some analysis of their purchasing experience — they might have a list of preferred vendors, suppliers and, they may have discounts arranged with some of them. But, they are operating in silos, their intelligence is local, and the individual store manager is unaware of what other store managers are doing, purchasing-wise. Procurify will offer Jim a consolidated and combined account of all of the stores’ purchasing experience, their vendors and suppliers. He will be in a position to spot larger patterns, trends and deliver insights that won’t be visible to the localized store manager. Why is this important? Because as a purchasing manager, Jim will then be able to identify better vendors and suppliers, place bulk orders and arrange larger discounts. Ultimately, Jim will not only help in reducing the company’s spend but also, himself, be a value addition to the company. A Centralized Purchasing Process is not just centralized data collection — it’s using the data to make better decisions.    

  • Book Lovers lets each individual store manager create a Self Purchase Order (SPO) following which the maintenance manager places the order for the product so required. The reason behind having SPOs is clear — the company wants each individual store to be able to source its needs quickly, without having to wait for a purchasing manager to create a Purchase Order (PO).

    Time is crucial, and for a large company like Book Lovers, lost time is money wasted. A Centralized Purchasing Process goes against the idea of having SPOs. But, Procurify’s Central Purchasing solution can be quicker and more reliable than an SPO process. It’s quicker because it’s available on your laptop, desktop, phone, tablet and every hand-held device, and every time a store manager needs a PO, Procurify will send Jim a push notifications. And it’s more reliable than an SPO process because:   
    At present Book Lover’s maintenance managers are placing orders and receiving shipped goods. And a maintenance manager is by no means a purchasing manager — he is not qualified to deal with situations where the wrong goods have been shipped, the delivery has been delayed, or there has been a misunderstanding with the supplier etc. In such situations, the maintenance manager will then have to devise some last-ditch, desperate way of dealing with the situation in addition to being expected to perform his primary job function — store maintenance. Such situations will call for Jim’s expertise — Jim, as the purchasing manager overseeing purchases across all of Book Lovers‘ stores, will have a list of best practices and procedures to deal with such situations in a more effective and systematic way.               

    Suffice it to say, without a Centralized Purchasing Process, it’s difficult to have an overall and holistic view of your company’s spend — it’s a bit like denying yourself your eyesight and choosing to voluntarily don a blindfold instead.  

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About Author

Nitant

Nitant just completed his Masters from Simon Fraser University. He has worked as an academic researcher and a content marketer. Of late, he has busied himself in understanding and deconstructing Spend Culture across industries; he spends a great deal of his time learning how technology can help companies take control of their spending.

3 Comments

    • Nitant

      Thanks, Adilyar. Procurement suffers from a lack of information and we’re trying to help others understand it while trying our best to understand it ourselves :p
      It would be interesting to hear your insights about Centralized Purchasing — do you feel it can help organizations optimize their spending?

  1. Centralized spend is a good option for a organisation to have a thorough spend visibility and can drill all the way to bottom level, however, SPO’s can be useful to save time and approval process and waiting time to buy items which are low in value and mostly a spot buy which doesn’t require too much of analysis. The ideal situation would be the organisation should be setting a “Threshold limit” and provide the buyer a Purchasing Card to buy low value high important items without spending too much of time & efforts. It would also be within the system and could later be evaluated and analysed for future course of actions.

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