One of the areas that most generates opinions and doubts about the place it should occupy in the companies’ organizational chart is the area of ​​strategic supply. In fact, even its name has many variations that arise in English and Spanish: Procurement, Supply Chain Management, Strategic Sourcing, Purchasing, Supply (as we will refer to in this text), Supply Chain, among others; combined with distribution, materials and/or logistics complements, according to the responsibilities of each particular case. This situation generates a very interesting debate about which is the most suitable model to locate this area (with multiple names) in the value chain and business structure.

Some scenarios and possibilities in Supply

1. Transactional roles

In the times preceding 2 or 3 decades ago, the supply areas, being purely operational (with transactional or secretarial roles assigned to the area that had available resources ), in most cases more than a consolidated Department, operated as execution of isolated tasks based on the processing or legalization of purchases and management of materials and inventories. It is evident that this scheme is on the verge of extinction. Companies that have not changed this mode of operation are making a very costly mistake in terms of efficiency and value generation possibilities.

2. Shared services

Later, when the need for an area with its own responsibilities became visible, one of the trends was to assign the supply team to the shared services areas under the umbrella of a corporate support area.

This model highlights the need for the area to have a customer service focus, but as a concept it is wrong, to the extent that it completely omits the possibility of fitting the function as strategic in the value chain.

3. Decentralized supply

The debate on the figure of decentralized supply arises . In which each unit (especially if it is core ) with the support of its technical expertise tends to have the power to execute the purchasing process for its needs (or even choose to have the supply team report directly to it).

This scheme has deficiencies, highlighting as an example the fact of being judge and party, which can maximize the probability of resulting in inefficiencies and distortions at the level of transparency.

As a trivial example, if I have the budget approved and available, and there is the option of buying a Ferrari or a mid-range car that fully meets the basic need, it is likely that I will be biased towards the option that generates more comfort or satisfaction under arguments subjective.

Given a company’s momentum and complexity, this model may be appropriate for agility and some specific business objectives.

However, the ideal is to have a figure that autonomously centralizes and supervises the processes, the call to do so being the supply area with the vision of grouping the function from the transversal to the specific gradually as far as possible. .

4.  Integration with Finance

A common and natural tendency was to assign this role to the Finance areas, reporting to the CFO. This path is logical to the extent that it is connected with planning and budgeting , and with savings management, cost accrual, and payment and treasury management. This model, with the premise of seeing the role of Supply integrated into the aforementioned transactional processes as a strategic need, makes sense.

In this business scheme, as an enabler, the ERP or accounting system is integrated as transactional support and financial backbone, with web systems that connect the strategic actors of the supply chain such as suppliers, internal clients and supply teams. accounting and treasury.

This is how the concept of Supply Chain Finance arises with a focus on the integration of the Budget to Pay process (see more detail about this concept here)

5. Vice Presidency

The highest level of relevance is for the supply area to be consolidated as a vice presidency . This implies having the vote of confidence and visibility that a team that executes the corporate budget deserves . However, this achievement does not imply that the synergies mentioned in the previous points are ignored; and especially ensure that the deficiencies and bad practices listed are avoided.

There is no single answer as to what is the right path to take. However, the initial challenge is to understand and know our company and its moment very well, in order to define which model applies in light of our role in a specific context. 

You should lean towards the model of maximum relevance and visibility, or look for mixed figures among the mentioned (or additional) options. Knowing that it can be a gradual and change management process in which the 100% transactional model (as the worst case scenario) is moved step by step, escalating according to the diagnosis made. Without a doubt , this exercise requires the support of senior management , with the CEO’s sponsorship being essential, seeking as a premise the classification of the area as strategic in the value chain.