How you decide to structure your public purchasing department has lasting implications. It impacts how you hire, communicate, delegate, and operate.
Decentralized purchasing can empower jurisdictions to personalize spending to local needs…but often creates overlapping costs of operations, lack of uniformity, and silos. Centralized purchasing, on the other hand, delivers uniform procedures and policies and, as a typical by-product, cost-savings. But, a centralized structure makes it hard to pivot quickly, risking innovation and the ability to add a local touch to operations.
Which is the best structure for your organization?
With any large organizational decision, it’s critical to hear from others who have navigated these waters with success. In this post, we share what we’ve learned from two recent interviews with public sector change agents. Chris Yarbrough, Director of Procurement at Tennessee Department of Transportation (TDOT), was tasked with transitioning TDOT from a decentralized to centralized purchasing model
. Secondly, Sharon Minnich and Jenny Doherty, both of Pennsylvania State System of Higher Education (PASSHE), share how they reimagined Pennsylvania’s higher ed procurement administration
to create a commodity-based central procurement organization serving all 14 universities across the Commonwealth.
In this post, we explore three keys to successfully transitioning from a decentralized to a centralized purchasing structure.
Understand what is working (and not working) in the current decentralized system
Don’t throw the baby out with the bathwater. While it may be time to move to a centralized system, take note of the aspects of your current setup that are working well (or not). Understanding why your organization pursued the current decentralized system will reveal rules, regulations, or preferences that you may not have considered otherwise. These realizations will help you make more informed decisions when forming the new structure.
In TDOT, Chris cited geography as a key reason why the agency remained decentralized for so long: “In East Tennessee, you have mountains. In Middle Tennessee, you've got hills, some mountains, some waterways. West Tennessee is completely flat, it's just farmland, and so there were very different needs across the state from one region to the next."
On the surface, these geographic differences lend themselves well to decentralization. Why make state-wide decisions regarding snow equipment, when only the mountainous region of Eastern Tennessee receives snowfall annually?
"To leverage the state’s buying power,” says Chris.
These geographical differences will still play a major role in purchasing decisions within the centralized system. But by doing the work upfront to understand each region’s needs, it’s easier to identify where the contract overlaps may lie (i.e. snow plows and farming equipment being purchased from the same vendor). A central purchasing division can then negotiate larger contracts with greater cost-savings.
Be prepared for (and welcome) pushback
The current system is in place for two reasons: it’s comfortable, and it works. As you embark on any process or organizational change, expect a significant amount of pushback from colleagues. This resistance is typically well-intentioned, stemming from a desire to maintain performance levels, retain order, and minimize risk.
In fact, view the feedback as a welcome step in the process. Their concerns mean they are paying attention and invested in the outcome. Treat these conversations as opportunities to win an advocate.
Here’s how: come prepared with data to support why this change is critical to the success of your organization. Being thorough, thoughtful, and prepared goes a long way with winning workforce trust and buy-in.
In Pennsylvania higher ed, it was critical for Sharon and Jenny to get university purchasers to understand why they were transitioning to centralized purchasing. When asked, they were eager to explain: in order to make tuition more affordable to increase enrollment, PASSHE needed to reduce spending. And here are X, Y, Z examples of how centralized purchasing would create cost savings.
Create opportunities to empower and lead
This is a vulnerable time for your team, especially for leaders who have enjoyed the empowerment, ownership, and autonomy synonymous with a decentralized system. It's important to communicate - and deliver on - how that autonomy and empowerment will exist in the new system. How job titles and responsibilities are assigned impacts this in a huge way.
When asked about how they created opportunities to empower and lead during the transition process, PASSHE’s Jenny Doherty shared, "We wanted to create a procurement structure that went from being university-focused to a commodity-based procurement organization: a services team, material teams, IT teams, and a construction team. - We created job descriptions for all these new leadership positions, and we posted them. They were only available for existing procurement leadership folks. We had them select their first, second, and third choices. Then, we interviewed everybody, and we made selections. There a was leadership role for all existing leaders, and they are now leading commodities."
Each leader you retain through the transition brings years (or decades) of procurement experience and knowledge with them. Creating a leadership role for each existing leader shows that you respect their hard work and dedication and value what they bring to the table.
Enjoy the benefits of centralization
Centralized governing structures allow for better levels of consistency throughout your organization, leading to more cost-efficient and fairer procurements. By eliminating waste, setting a standard, and increasing efficiency, your organization can focus more on long-term planning and decision-making, which benefits the whole community.
This article was inspired by our interviews with Chris Yarbrough, Sharon Minnich, and Jenny Doherty on the Decisions That Matter podcast. Tune in to Chris’s episode here for more about the challenges he and his team faced while creating a centralized procurement division at TDOT and how they overcame them. Tune in to Sharon and Jenny’s episode here for more on creating a central purchasing division for Pennsylvania’s State System of Higher Education.