Centralized or Decentralized???

In today post, we will be talking about Centralized vs Decentralized Organization Structure, what are both definition, what is their Pros and Cons, what would you go for in your own organization.

Centralized vs Decentralized not only applies to Procurement in term of decision making, it can also be applied to Supply Chain Management i.e centralized or multiple warehouses to support its customers demand.

So what does Centralized and Decentralized Organization Structure means?

In simple explanation, Centralized Organization Structure refers to one central decision maker for different Business Unit (BU) i.e. Making decision for Thailand, Singapore & China. 

While Decentralized Organization Structure means there is individual decision maker for respective BU i.e. One decision maker in Singapore, one in Thailand and One in China.

So why does one choose to centralize its organization structure while others go with decentralized structure? What are the individual benefits?

Centralized Organization Structure

·         Reduce Purchasing Cost (Bulk Purchase)

·         Consolidated Supplier Database

·         Strategic focus and improve planning

Decentralized Organization Structure

·         Better communication with internal stakeholders

·         Swift response

·         Easy managing different cultures, geographic, political, taxation etc.

*There are a long stretch of benefits; you can check it out via GOOGLE – our best friends*

However, there are some falls back for each approach such as:

Centralized Organization Structure

·         Lack of Focus i.e. Business Unit requirement

·         Communication Barrier i.e. with internal stakeholders

·         Common Supplier different behavior in term of geographic, market segments

Decentralized Organization Structure

·         Loss of better Supply opportunity

·         Lack of standardization

·         Operational against strategic focus

In this fast moving economy, more companies are now trying to shift to the new Organization Structure which is called “Hybrid” or “Center-led” approach. This approach make use of both Centralized and Decentralized approach to create a new strategic role for Procurement, leveraging on spend, sharing of knowledge and resource, process standardization to help companies sustain in this current fast growing economy.

Different Organization Structure works differently for each individual organization. Whether to go with Centralized, Decentralized or even Center-Led approach, it depends on various factors i.e. process, source of supply, geographic etc.

So what is your take on this? Should your company go for Centralized structure, Decentralized structure or Center-led structure?

you may read up on this article: http://www.mypurchasingcenter.com/purchasing/industry-articles/centralize-or-decentralize-procurement-no-longer-clear-cut-choice/