NATIONAL INSTITUTE OF TRANSPORT
DEPARTMENT OF LOGISTICS AND TRANSPORT STUDIES
PROGRAM
: HIGHER DIPLOMA IN SHIPPING AND PORTS
LOGISTICS MANAGEMENT
MODULE CODE
: SPU 07421
MODULE NAME
: PROCUREMENT MANAGEMENT
LECTURER’S NAME : MICHAEL CHUWA
ACADEMIC YEAR
: 2022/2023
TASK
: GROUP ASSIGNMENT 01
STREAM
:B
GROUP NUMBER
: 22
SUBMISSION DATE : April 11, 2023
S/N
STUDENT NAMES
REGISTRATION
NUMBER
01
ALPHA JAMES
NIT/BSPLM/2021/673
02
RAMADHANI K. MUNIS
NIT/BSPLM/2021/580
03
SAIDA A. NYALILE
NIT/BSPLM/2021/1013
04
BAKARI A. HASSANI
NIT/BSPLM/2021/587
05
ROBINSON F. NYONDO
NIT/BSPLM/2021/839
06
AZIZA S. ALI
NIT/BSPLM/2021/957
07
DENNIS D. MHEMA
NIT/BSPLM/2021/892
08
ANORD THEOBARD
NIT/BSPLM/2021/785
09
MAGRETH MSENGI
NIT/BSPLM/2021/564
10
TRACE MTUI
NIT/BSPLM/2021/1010
SIGNATURE
Questions;
With vivid examples, differentiate between centralized procurement structure and de-
centralized procurement structure
A procurement structure refers to the organizational framework and processes
established within a company or organization for managing and executing its
procurement activities. The specific structure can vary depending on the size,
industry, and complexity of the organization.
There are several types of procurement structures that organizations can adopt,
depending on their specific needs and goals. Here are some commonly used
procurement structures:
Centralized Procurement structure. In this structure, all procurement activities are
managed by a central procurement department or team. It provides a unified approach
to purchasing, enabling better coordination, volume discounts, and standardization of
processes across the organization.
De-centralized Procurement structure. In a decentralized structure, individual
departments or business units have their own procurement teams responsible for
sourcing and purchasing goods and services. This approach allows for greater
autonomy and specialization within departments, but may result in a lack of
coordination and potential duplication of efforts.
Hybrid Procurement structure. This structure combines elements of both
centralized and decentralized procurement. Certain categories of goods or services
may be managed centrally for better control and economies of scale, while other
categories are handled by decentralized units to cater to specific needs or regional
requirements.
Consortia Procurement structure. Consortia procurement involves multiple
organizations collaborating to pool their purchasing power and negotiate better terms
with suppliers. This structure is often used by smaller organizations or public entities
to achieve cost savings, access to a wider supplier base, and sharing of procurement
expertise.
Category Management structure. Category management is an approach where
procurement activities are organized around specific product or service categories.
Each category has a dedicated manager or team responsible for developing strategies,
conducting market research, negotiating contracts, and monitoring supplier
performance.
Outsourced Procurement structure. In this structure, an organization outsources
some or all of its procurement functions to a third-party service provider. The
procurement service provider handles sourcing, supplier management, and
transactional activities on behalf of the organization, allowing the organization to
focus on its core competencies.
Virtual Procurement structure. Virtual procurement relies heavily on technology
and digital platforms to facilitate the procurement process. It involves online sourcing,
e-procurement systems, electronic auctions, and other digital tools to streamline
procurement activities and enhance
The following are the differences between centralized procurement structure and decentralized procurement structure:
Decision-Making. In a centralized procurement structure, all purchasing
decisions are made by a central authority or department.
Example: The General Services Administration (GSA) in the United States centrally
manages procurement for various federal agencies. It exercises decision-making
authority and ensures consistency in procurement processes across the government.
While
In a de-centralized procurement structure, purchasing decisions are made by
individual departments or entities within an organization.
Example: Within a multinational corporation like General Electric (GE), each
business unit or division may have its own procurement department with decisionmaking autonomy. This allows them to adapt their purchasing decisions to their
specific needs and markets.
Standardization. Centralized structures often promote standardization in
terms of specifications, contracts, and suppliers, leading to economies of scale.
Example: The European Union operates a centralized procurement system called the
European Single Procurement Document (ESPD). It aims to standardize procurement
practices across member states, facilitating fair competition and optimizing resources.
While
In de-centralized structures may prioritize flexibility and may not emphasize
extensive standardization across the organization.
Example: A de-centralized procurement structure within a multinational retail
company like Walmart allows individual stores to have some autonomy in selecting
suppliers and tailoring procurement processes to their local market demands. This
enables them to respond quickly to local needs and preferences.
Specialization.
In
a
centralized
procurement
structure,
specialized
procurement professionals are responsible for managing procurement activities.
Example: The World Health Organization (WHO) utilizes a centralized procurement
structure to manage the procurement of essential medicines and health products. They
have a specialized procurement team that focuses on negotiating contracts, ensuring
quality, and coordinating supply chains. While
In de-centralized structures enable departments or entities to specialize in
procurement practices that suit their unique requirements.
Example: In the healthcare sector, individual hospitals often have their own
decentralized procurement departments. These departments specialize in procuring
medical supplies, equipment, and services that are specific to their facility's needs and
operational demands.
Resource Allocation. In a centralized structure, resources such as budget,
staff, and technology can be allocated more efficiently since they are managed by a
central authority.
Example: The Central Bank of a country may have a centralized procurement
structure to manage its procurement activities. This allows them to allocate resources
strategically across different departments and projects to achieve cost savings and
economies of scale. While
In de-centralized structures may allow individual departments or entities to have
control over their own resources and allocate them based on their specific needs.
Example: In a decentralized procurement structure within a manufacturing company,
each production plant may have its procurement team responsible for procuring
materials and equipment specific to their production requirements, optimizing
resource allocation.
Risk Management. In a centralized structure, risk management strategies and
processes can be implemented more uniformly, allowing for better control and
mitigation of procurement risks.
Example: The United Nations Development Programme (UNDP) employs a
centralized procurement structure to manage procurement activities for its
development projects worldwide. This enables them to implement consistent risk
assessment and mitigation practices, ensuring transparency and accountability. While
In de-centralized structures may allow individual departments or entities to have
greater autonomy in managing their own procurement risks based on their specific
operational context.
Example: Within a decentralized procurement structure in the construction industry,
each construction site or project may have its procurement team responsible for
assessing and managing project-specific risks related to subcontracting, material
availability, or compliance.
Information Sharing and Collaboration. In a centralized structure, there is a
greater potential for information sharing, collaboration, and knowledge transfer across
different units or entities.
Example: The European Space Agency (ESA) follows a centralized procurement
structure for space missions and projects. This allows for effective sharing of
information, lessons learned, and best practices across different teams and projects,
fostering collaboration and continuous improvement. While
In de-centralized structures may allow for more localized knowledge sharing and
collaboration within specific departments or entities.
Example: A decentralized procurement structure in a university may have individual
faculties or departments managing their own procurement. This can facilitate
knowledge sharing and collaboration within academic departments, allowing them to
leverage their specialized expertise and requirements.
Supplier Diversity and Local Sourcing. In a centralized structure, there is a
greater opportunity to leverage economies of scale and implement strategies for
supplier diversity and local sourcing.
Example: The South Korean government follows a centralized procurement structure
that promotes supplier diversity and supports local businesses. They encourage
government agencies to prioritize local suppliers, fostering economic growth and
regional development. While
In de-centralized structures may enable individual departments or entities to explore
local sourcing options and foster relationships with suppliers in their respective
regions.
Example: Within a decentralized procurement structure in a retail chain, individual
stores may have the freedom to source products from local suppliers to cater to the
preferences of their specific customer base and support local businesses.
Compliance and Regulatory Requirements. In a centralized structure,
compliance with regulations, policies, and ethical standards can be more effectively
managed and monitored.
Example: The World Bank operates with a centralized procurement structure to
manage procurement across its projects. This allows them to ensure compliance with
their procurement guidelines, international standards, and regulatory requirements.
While
In de-centralized structures may require individual departments or entities to manage
compliance and regulatory requirements independently.
Example: In a de-centralized procurement structure within a multinational
pharmaceutical company, each country's subsidiary may have its procurement
department responsible for adhering to local regulations, ensuring compliance with
local laws, and managing country-specific ethical considerations.
In conclusion, both centralized procurement structures and decentralized procurement
structures have their own advantages and disadvantages, and the choice between the
two depends on various factors such as the organization's size, industry, and specific
requirements.
A centralized procurement structure offers the benefits of streamlined processes,
increased negotiation power, and better coordination and standardization of
procurement activities. By consolidating purchasing power, organizations can
leverage economies of scale, negotiate favorable terms with suppliers, and achieve
cost savings. Additionally, centralization allows for improved visibility and control
over procurement activities, enabling better compliance and risk management.
On the other hand, a decentralized procurement structure provides greater autonomy
and flexibility to individual departments or business units. This structure allows them
to make quicker decisions, respond to unique needs and market conditions, and
maintain closer relationships with local suppliers. Decentralization can foster
innovation and responsiveness, especially in dynamic industries where adaptability is
crucial.
It is important to note that there is no one-size-fits-all approach, and organizations
often adopt a hybrid model that combines elements of both structures. This hybrid
approach allows for centralization of certain core procurement functions while
delegating decision-making authority to decentralized units for specific categories or
regions. By striking a balance, organizations can optimize their procurement
processes, leveraging the strengths of both structures.
Ultimately, the key lies in aligning the procurement structure with the organization's
strategic goals, culture, and operational needs. Regular evaluation and adjustment of
the procurement structure based on changing market dynamics and internal
requirements are essential to ensure ongoing efficiency and effectiveness in
procurement operations.
REFERENCES
Smith, J. (2019). Procurement Strategies: A Comparative Analysis of Centralized and
Decentralized Structures. New York, NY: HarperCollins
Johnson, M. (2020). The Power of Decentralization: Unleashing Procurement
Potential.
London, UK: Penguin Random House.
Adams, R. (2018). Procurement Excellence: Strategies for Success in Centralized and
Decentralized Environments. Chicago, IL: University of Chicago
Press.
Lee, S. (2021). The Decentralized Advantage: Enhancing Agility and Innovation in
Procurement. Tokyo, Japan: Kodansha.
Mitchell, G. (2017). Centralized Procurement: Achieving Cost Savings through
Consolidation. Sydney, Australia: Wiley.