Creating Cost Reductions in Uncertain Times with Centralization

Most organizations are realizing the true value of high performing purchasing functions now more than ever.

When sales are strong, we have the luxury of overlooking dollars laying on the floor of our business. We can rationalize the decisions not to pursue obvious expense saving strategies because someone’s feelings might get hurt, a relationship may be challenged, or toes might get stepped on.

Research says that the centralization of Purchasing will yield 25% cost savings and that research is confirmed by StrategicSource who averages a whopping 29% savings across all categories.  Can you afford to ignore that fact today, tomorrow, net year?

Centralization of the Purchasing function will help to realize the financial benefits that come from scale and growth and protect your business in uncertain times.

A well-organized, centralized Purchasing function can provide the following financial benefits to an organization:

• Shared Business Functions – Purchasing and payables functions can be centralized.
• Staff Efficiencies – Fewer employees required to staff your locations.
• Purchasing Leverage – Greater purchasing leverage should result in reduced costs beyond what local purchasing groups could achieve.
• Specialization – Larger organization size allows for more specialization in staff and functions that will ultimately improve results and reduce risk.
• Facility Consolidation – Smaller space will be required to house the centralized Purchasing organization, with shared equipment and technology.
• Knowledge / Data – Greater benefit can occur through consolidated spend data/knowledge.
• Cost Reductions – Lower supply and services costs will result in higher bottom-line profitability.

Executive Leadership Imperative

Change is hard. Change can be messy.  However, executive leadership has a responsibility to provide the leadership and drive the change that provides the best returns on investment for the organization and in some cases saves the organization to fight another day.

Realizing complete economies of scale across a growing organization can provide significant, sustainable profit improvement opportunities to an organization. The new profit opportunities that come from centralizing the Purchasing function will easily provide savings in the hundreds of thousands and millions of dollars for organizations.  These savings fall to the bottom line as new profits.

If your organization has still not centralized the Spend Management or Purchasing function, now is the time. You probably have a centralized HR function, IT function, Marketing function…why not purchasing?  Can you afford to treat this function as a “nuisance” that someone needs to address or will you begin to be strategic?  Will you realize the benefits and the economies of scale that you originally intended? Is your leadership showing?