Why Centralize Procurement?
As businesses grow, the need for standardization becomes urgent. When identifying growth strategies, many organizations realize a decentralized procurement approach results in redundancy, loss of efficiency, and increased costs. Their office, store, and warehousing establishments may be scattered across various geographical locations, and they all operate independently. With this, businesses identify multiple purchasers and lack oversight in the procurement process. They have little to zero visibility on their supplier network and often have multiple suppliers providing the same goods and services to their business. Whether out of convenience or advantages of having a local supplier, many business units select their suppliers for reasons outside of cost savings. Once a business has established a centralized procurement system to drive cost savings, increase supplier visibility, and standardize processes, they find themselves searching for new categories to manage centrally to optimize these benefits. Let’s discuss an approach to selecting and implementing these new categories.
A 10-Step Guide to New Category Integration
- Identify internal stakeholders
Centralized procurement requires collaboration throughout the business. Identify the teams impacted by new category management. Finance teams may need to be informed regarding setting up payment networks. Operations, warehousing, and logistics teams are the end-users that will be directly impacted by the decisions procurement has made. Will a training and development team need to be involved to create resources for a new piece of equipment? Will the safety team need to evaluate potential changes to specifications?
- Prioritize items with greatest impact
Once the internal stakeholders have been identified, procurement can create a list of categories that will impact the most people in the organization or have the greatest impact on overall spend. They can do this by analyzing spend data provided by the finance team or selecting items that meet the current goals of the organization.
- Schedule a meeting with internal stakeholders
Procurement should schedule a meeting with these stakeholders to identify the low-hanging fruit. Are there categories like office supplies that would be used by every person in the organization that can be prioritized? Is there a current team that is overseeing category management for a significant part of the business that would be easier to adopt by a centralized team to integrate with the full business? These teams should align their current goals to select these categories. Finally, integration timelines should be discussed to ensure compliance with the integration.
- Conduct internal and external research
After a category has been selected, procurement teams are tasked with researching the category, both internally and externally. They should create RFIs internally to identify all the current suppliers being utilized. They should also identify the current ordering cadence and purchasers. They should request feedback from the end users on the goods or services specifically. What are the pros and cons of the item(s) they are currently using. Understanding the “why” behind their current selections is key. Spend and usage data from the current suppliers should also be requested. Procurement should review this data as specifically as possible to ensure their understanding of usage based on locations. Will some locations require increased usage based on higher sales? Is one location larger than another?
Finally, throughout the research process, procurement should define the specifications for that category. The specifications defined should consider those of the current specifications being used, but also those that would be most optimal for efficiency to ensure alignment with operational goals. When bidding out this category, suppliers will need to know the must-have specifications but also understand where they can offer alternatives. Is galvanized steel a requirement or will another metal be acceptable? This will allow suppliers to ensure their bids are not only competitive in pricing but also match their competitors in requirements. Throughout the research phase, procurement may also find alternatives to the specifications they could consider and trial in collaboration with the operations teams. Not only may they find alternative suppliers, but new and emerging technologies that could be considered in the future.
- Schedule meetings with current suppliers
Connect with the current suppliers of this category to introduce the new centralized procurement process and team. Establish expectations with these suppliers and gauge interest in a national bid. Some suppliers may not have the ability to supply on a larger scale and may decline participation. This also provides time for suppliers to evaluate and prepare for the upcoming tender.
- Forecast usage for future contracts
After analyzing internal and external spending and usage data, procurement should estimate the forecasted usage for the upcoming contract. Contract length should also be considered at this time. When centralizing a new category, consider a one-year contract length to ensure supplier compliance. This will also allow procurement to forecast needs for the short term, as multiple years can often be difficult to estimate when internal adoption of the contract is questionable, or the standardization of a specification has been established.
- Create tender
As with any other category, procurement should create the tender and invite suppliers to submit their bids. Make sure to request the following information from each supplier, whether they are previously used suppliers or new to the organization.
- Is the supplier a manufacturer or distributor?
- What is their current production capacity?
- Do they have plans to increase capacity soon?
- Geographical locations
- Where are they manufacturing or distributing from?
- Do they have limitations on where they can ship?
- Is there a Minimum Order Quantity (MOQ) required?
Ensure the suppliers are only bidding on the locations for which they can supply. Some suppliers may not be able to supply the full forecasted volume or have geographical restrictions. Procurement may be able to award partial business to one supplier and the remainder to another.
- Analyze, negotiate, and award the supplier(s)
Procurement must then review all bid submissions, analyze, negotiate, and award the business, as with any other tender. For new categories, procurement teams should consider the risk of the potential awarded supplier(s) by completing a risk assessment. Is the business viable? Do they currently provide goods and services to similar-sized businesses? Determine an effective contract length. As mentioned earlier, consider a one-year contract term as a trial to ensure a mutually beneficial partnership before awarding a multi-year contract.
- Inform the business
In order to reap the benefits of a centralized procurement system, procurement should inform the business of any new category contracts. Procurement should ensure the internal stakeholders are aware of the key information of that contract such as the effective date, lead time from the supplier, and MOQ, if necessary. A cut-off date should be established for ordering from previous suppliers. Procurement should also ensure that previous suppliers are informed of an award decision, so they do not fill orders after the specified date. This will limit rogue spending.
- Ensure contract compliance throughout contract term
Procurement should connect with the awarded supplier(s) within the first couple of months of a contract effective date to ensure the supplier is able to meet the current demands of the business. The procurement team should request feedback on the current orders, processes, or any concerns the suppliers might have at this time. As a liaison between the supplier and the business, they should also share any concerns and positive feedback to the suppliers directly. This transparency will help establish a respectful, long-term relationship. Based on these conversations, procurement will be able to identify rogue spending early and implement corrective action immediately.
Benefits of new category integration
As procurement teams integrate new categories into a centralized procurement system, they will leverage larger volume to lower costs, increase supplier visibility to limit rogue spending, and standardize processes, eliminating duplication. Managing new categories centrally allows internal stakeholders to focus their time on optimizing their teams with the time and efficiency gained from procurement. In the end, centralized procurement benefits the entire organization, allowing for a better customer experience.
About the Author
Andrea Gnezda is a seasoned procurement and retail operations leader with over a decade of experience, driving results across diverse roles in the retail industry. Starting as a part-time cashier, she advanced to operational leadership roles, including over seven years with ALDI USA. There, she served as an Executive Manager in National Procurement, excelling in problem-solving, RFP management, and supplier relationships, and as a District Manager, where she oversaw safety awareness, team development, and operational excellence. Her career foundation at Marsh Supermarkets saw her progress from Co-Manager to Store Manager, refining her leadership and operational skills. During the global pandemic, Andrea transitioned into procurement, successfully navigating supply chain disruptions, mitigating cost increases, and fostering collaborative supplier partnerships. Her unique blend of operational leadership and procurement expertise makes her adept at solving complex challenges, driving efficiency, and building strong, lasting partnerships.
About Varis
Varis is a one-stop shop for supplies and services stores need to run, from frontline to finance—no paperwork, no phone tag, no confusion through a powerful eProcurement platform. Their solution allows retailers to curate supplier catalogs and access Varis’s managed suppliers, simplifying the purchasing process and enhancing efficiency.
The leadership team includes Chief Executive Officer and co-founder Prentis Wilson, who previously founded Amazon Business and scaled it to a $15B+ division, and Chief Operating Officer Daniel Smith, who has extensive experience launching and scaling businesses, including leading Amazon Business for Education to over $2B.
Varis’s platform is designed to make it easy for employees to find what they need, aiming to improve profit margins and associate experience by simplifying indirect purchasing.
