Centralize purchasing


The objective is not reached: despite common recipes, the bakeries are still baking bread with different tastes.

The recipes are the same, but the flour everybody orders is not the identical.

Synergy does not only concern the Transformation: certain Operational activities also need to be shared, such as Purchasing, or other activities where we would like to see economies of scale or consistency.

The baker centralizes the "Purchasing" department, which handles the orders. From then on, the ingredients are the same. Whatever the shop, the same bread is distributed.

  1. Centralize or decentralize?

    A group made up of different Organizational units can be managed in different ways.
    The simplest form of management for executive management is to let each Organizational unit be completely autonomous except for the financial consolidation. It is then just a question of distributing the brownie points and black marks and getting rid of the Organizational units that do not generate any profit.
    This purely financial approach has the advantage of:

    • Lightening the tasks of executive management: starting up an activity or acquiring an enterprise, then following the dashboards is enough.
    • Motivating each Organizational unit, which is free to manage itself as it so wishes, providing that it generates a profit.
    Unfortunately this approach has its obvious limits: no synergy in the Group, duplication of investments, absence of economies of scale...

    Conversely, we can set up a very centralized approach: the Models are the same, the Resources are managed centrally, the Customers are shared...
    This approach has the opposite advantages to the decentralized approach: we can develop a consistent Image, a uniform Culture, a single Product catalog, global Customer management and global Resources management.
    But executive management has its work cut out and the Organizational units feel deprived of all autonomy.

    The key question is therefore: what is the right level of centralization taking into account the type of activity of the Enterprise?

  2. Centralize the management of Resources

    An Enterprise is nothing more than an agent which executes an Enterprise Model thanks to the Enterprise Resources.
    We can therefore centralize either the Models or the Resources or both.

    Centralizing the Models means:
    • imposing the same Operation or Transformation Model on everyone, that is to say changing the work habits of those who Operate or Transform in accordance with an autonomous Model
    • imposing the same Offer Model, that is to say removing all particularisms as regards Products.

    It is easier to centralize Resource management and it is often the first step of a Group approach.
    To take an example, if the Organizational units group their purchasing together,
    • the Group will achieve economies of scale for everyone,
    • it will be able to control more easily as there will not be any collusion with suppliers
    • it will also save us looking at as many products to buy as there are Organizational units
    • it will be easier, at a later stage, to impose a Product Model if the Components that are used to assemble the Product are the same.

    It is the same for the other key Resources:
    • centralize human Resources management to ensure that the recruitment, promotion and development criteria are identical
    • centralize financial management to manage the liquid assets globally, negotiate more favorable credit conditions
    • centralize the management of premises to share the same space between different Organizational units
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