Conflict of Interest _Centralized Procurement

Blog 1_Nov_ 2018 Conflicts of Interest

A Centralized Procurement practice has been known for allowing companies to have better control of purchasing activities.

On the surface, Centralized Procurement seems preferable to the alternative. However, there are also advantages and disadvantages for the Centralized Procurement

The Pros Centralized Procurement:

1.    Better pricing made possible by better control over suppliers.

2.    Elimination of the possibilities of violation and Conflict of Interest.

3.    More successfully address of non-tangible benefits such as driving more successful supplier risk management, supplier diversity and corporate social responsibility initiatives

The Cons of Centralized Procurement:

1.    A possibility of delays in procurement as all the purchases must be routed to the procurement department. 

2.    A centralized procurement organization may not be able to take advantage of local discounts. This can be a drawback if the company is geographically dispersed.

3.    Depending upon the size of the company, a computer system that is dedicated solely to purchasing may be too expensive to maintain.

Some pertinent questions would be:

1.    How should the company adopt Centralized Procurement practices?

2.    Who should be involved?

3.    What tools should be adopted?

4.    What is the approval process?

Companies can adopt a combination approach of  Centralized and Decentralized processes with the following Minimum Process Standard

  

Suggested Minimum Process Standard	Owner	Tool
Appointment of a designated Procurement Manager
Set up Procurement Policies and Procedures that will cover the process of both Centralized and Decentralized Procurement Practices	Procurement Manager	Excel Visio Words
Set up a Procurement Planning tool for a better anticipation of most purchase requirements	Procurement Manger	Excel Visio or ERP systems
Analyze the purchase requirements, categorize the purchases base on cost analysis	Procurement Manager and Requestors	Excel
Set up a Procurement Catalogue.  Categorize goods that have continuous   and frequent purchases. Requestors can submit purchase requests base on the catalogue, instead of via Procurement team.	Procurement, Requestors or Central admin	Excel or ERP systems
Establish and maintain a Supplier Database	Procurement	Excel or ERP systems
Establish and maintain a Contract Management Database	Procurement	Excel or ERP systems
Set up a Procurement Committee for review of the high cost purchases	Procurement Manager
Continuous monitoring spent analysis and reporting	Procurement Manager	Excel

Contact Grace Lim @ graceyeechuenlim@hotmail.com if needs more information.

About the Author

Grace is a freelancer for Supply Chain Management specialized in helping companies reducing operation costs and increase profits through optimized Supply Chain, Sourcing and Procurement Operation.