A customer asked me today to define Central Procurement for them and where they should report!
Today’s post is from Ron Southard, CEO at SafeSourcing Inc.
As you can imagine the answer to this question could actually be pages in length. However the following is directionally correct based on the question and minus the organizational structure and alignment. However, it is this authors firm belief that Procurement should ultimately report to Finance. Example: CPO reports to CFO.
The Central Procurement Function in responsible for the procurement of goods, services and capital projects by an authorized group within a company’s hierarchy. Central procurement in a best case scenario includes the financial decision making authority specific to that procurement on behalf of the entire company for reuse or resale from an approved list of vendors or suppliers. In some cases the budget for a specific spend may reside within another functional area where central procurement collaborates and negotiates on behalf of that areas subject matter experts but the subject matter experts approve the final vendor selection. In the case of manufacturing company’s this function also includes the purchase of commodities used in the manufacture of finished goods.
The central procurement function is typically authorized within a company in order to insure consistency thought-out the organizations procurement process by eliminating the potential negative effects of non-collaborative, non-aggregated purchasing by multiple divisions, departments and other corporate entities that can support rogue or unstructured buying.
Measurements of a central procurement organizations success can differ widely from company to company depending upon where they fall relative to a procurement maturity model. Typically these organizations are measured by overall procurement Key Performance Indicators or KPI’s at the procurement department level that usually includes the following at a minimum.
1. Percent of spend under management
2. Price Improvement
3. Quality Improvement
4. Safety Improvement
5. Reduction in Carbon Footprint
6. Service Level Improvement
7. Distribution Flexibility
8. On Time Delivery Improvement
9. Supplier Management
Management of these KPI’s is intended to insure that companies have a defined processes in place so as to promote a fair and open competitive model for the supplier community that’s interested in soliciting their business. This also minimizes the opportunity for fraud and collusion while insuring the best possible product or service is purchased at the best possible price and overall value to the company.
If you’d like to learn more about the central procurement function, please contact SafeSourcing.
We look forward to and appreciate your comments.