As a business grows, a common question arises about whether or not it makes sense to centralize some of the business functions of the company, instead of keeping their operations separate. The supply chain industry is one industry where centralization might make sense, but the final answer truly depends on the specific needs and environment of the company in question. Sometimes the operational efficiencies gained from centralization aren’t worth the disruptions caused by the process.
Let’s take a look at the pros and cons of centralizing the supply management function at your organization.
Centralized Supply Management – The Cons
As mentioned earlier, one of the major reasons to forego centralizing your company’s supply management function is simply the cost of undergoing the transformation. Make sure you perform a significant cost benefit analysis to see if your firm stands to gain value from the process. Depending on the size of your organization, centralization might not pay off for a few years – can you afford to wait on its benefits?
Another con is the potential loss of your company’s ability to properly serve the local markets once the supply centers serving those regions are closed. Additionally, centralization can possibly stifle the initiative of your staff now working in the only remaining central supply center.
Finally, a poor implementation of the centralization process risks the economies of scale which are a major reason many firms look to centralize in the first place. Sometimes, these firms remain unable to fully coordinate the strategies needed to properly scale operations.
Centralized Supply Management – The Pros
It was mentioned earlier that economies of scale remain one of the obvious reasons many companies incur the costs of centralization. When the centralization process is done properly, your firm is able to improve its bottom line by using one centralized supply management location, reducing costs in facilities and personnel. Many business experts feel that if centralization adds 10 percent value to your organization, the process is worthwhile, but it is important to do your own CBA, as those results may differ.
To truly achieve the benefits of centralization, your company needs to employ top-ranked talent in areas of the company where the potential for too much bureaucracy raises the risk of inefficiency. Also, if any of your current managers don’t support or understand the process, it is vital to replace them with ones who do.
When searching for top-notch talent in the logistics industry, look no further than ZDA. As one of the top supply chain staffing agencies in the country, we offer the keen business insight and talented, vetted candidates able to make a positive difference for your firm – whether you are centralized or decentralized. Schedule some time with us at your earliest convenience.