“The centralization of procurement in a large company leads to greater efficiency.” Discuss

The centralization of procurement in a large company leads to greater efficiency
This is in essence time.

Centralisation of procurement means that procurement decisions are all executed at the top. Basically, a centralization decision is influenced by factors such as the cost of decisions, desired uniformity of policy, subordinates desire the independence, economic size of enterprise and history of organization.

Given today’s magnitude of purchasing expenditures, then there is dire need for efficiency in the purchasing department.

Centralisation enhances efficiency in that:-
(i) It enhances control
Control is monitored and left entirely to one or a few persons thus greater monitoring
(ii) It eliminates inefficient duplication of effort
Therefore, no time is wasted in the procurement process
(iii) Centralisation promotes certainty because decisions are made in one place by one or few persons. Thus the required specifications are know to be met in advance.
(iv) Saves on cost
Centralisation of the procurement policy of a large organization saves on cost of purchase because the goods are bought in large volumes and thus quantity discount.

Efficient procurement focused on capabilities
The traditional procurement paradigm is fraught with issues. There is the matter of obsolescence – the tender takes so long to develop, respond to and to evaluate that by the time the contract has been awarded, the user’s requirements have already evolved and changed. Contracts are also generally rigid and inflexible, unable to readily support changes that naturally occur within an agency’s business environment, such as changing strategy, policy and technology. The development of detailed tender specifications and the evaluation of the responses is also extremely costly to the public sector. Moreover, the investment

required by the private sector to respond to a detailed specification is a high proportion
of its operating expenditure (the cost of responding to tenders can approach or exceed 20 percent of total operating expenditure) In short, the traditional procurement paradigm often results in agencies acquiring solutions that do not meet their needs, in a manner that increases costs for vendors and agencies alike.

To circumvent these problems, several approaches can be considered to mitigate the issues associated with traditional contracting. Public agencies should ensure that their tenders are simple and focused on assessing the relevant organizational capability of the vendor. Examples of criteria that the tender should seek to evidence could include the vendor’s relevant experience in a program of this type and scale, the strength of the vendor’s relevant reference sites, the strength of the vendor’s top management team proposed for the program, the scale and track record of the vendor in the local market and financial viability of the vendor.

Public agencies should also outline the required business outcomes and evaluate the ability of vendors to work within a framework that aligns the incentives of both parties. To achieve this, the tender could include additional evaluation criteria e.g. the vendor’s understanding of the client’s business and business outcomes; the vendor’s ideas as to potential contractual frameworks that would best align the objectives of the parties and maximize the probability of achieving desired outcomes, and the vendor’s practical experience in operating within the proposed framework (evidenced by reference sites, track record, lessons learned, etc)

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