Structure of Procurement in an Organization

Types of procurement structures range from a single person with responsibility for purchasing, to a large, centralized department or decentralized organization with procurement professionals working in separate locations or business units. Getting the right structure is essential, because procurement typically accounts for half of an organization’s expenditure. It also plays an important part in a company’s competitive strategy.

In a startup or small business, one person — such as the finance director — may take responsibility for procurement. Alternatively, individual members of the management team, such as the production manager, office manager or marketing manager, may purchase products or services to meet their own departmental requirements. In this scenario, the company would not have a consistent purchasing procedure and would lack any purchasing power to negotiate better deals from a fragmented group of suppliers.

As it grows, the company may appoint a procurement manager with professional qualifications to allow for a formal procurement organization structure. The company may also recruit one or more purchasing assistants if the scale of procurement grows. The manager or team takes responsibility for purchasing supplies for all departments, discussing their requirements, identifying suppliers and processing orders.

By coordinating procurement, the company can place larger orders with preferred suppliers. It may be able to negotiate lower rates and impose consistent quality standards on suppliers.

Companies with a number of locations, operating divisions or business units have a choice of operating centralized or decentralized procurement organization models. In the centralized model, a single procurement department takes responsibility for purchasing on behalf of the company. The department, which may consist of a purchasing director, managers and assistants, imposes standard policies and procedures across the organization with the aim of reducing costs, increasing purchasing efficiency and achieving consistent quality.

To improve the service to different locations, the department may appoint specialists responsible for purchasing specific categories of supply.

In the decentralized model, the company delegates purchasing authority to locations and divisions. Procurement managers and assistants purchase supplies for local needs, although they may receive support from a small central unit. While a decentralized structure enables autonomy and reduces bottlenecks, it may lead to purchasing inefficiency, inconsistent standards and increased overall procurement costs.

Companies that need essential supplies such as critical engineering components, or want to harmonize quality across a range of suppliers, have moved from traditional procurement practices to long-term relationships with strategic supply partners. Members of the procurement team responsible for strategic sourcing focus on critical supplies, leaving the purchase of commodity supplies to other team members.

The strategic sourcing team places long-term supply contracts and collaborates with supply partners to drive down costs, harmonize quality and production levels, and undertake joint product development projects.