For chief procurement officers and other procurement leaders, centralizing operations is often the preferred strategy. And it’s not difficult to see why: A centralized approach allows procurement to drive greater visibility, compliance, and value.
But in the world of heavy manufacturing, decentralization is widely held as the mantra for success. In industries like automotive, steel, and paper manufacturing, individual production sites are often billion-dollar operations, competing with other sites within the enterprise. Their site managers are empowered to act as CEOs and enjoy significant autonomy and sizable budgets to manage their operations independently.
How can enterprises balance these two contrasting approaches: the decentralized operations of production sites and the benefits of centralized procurement strategy?
When WestRock, a global leader in sustainable paper and packaging solutions, planned to adopt a centralized sourcing strategy, it had a daunting task at hand. Like many manufacturing companies, WestRock followed a decentralized model, with its numerous paper mills and converting plants functioning as separate, autonomous units.
WestRock’s leaders wanted to preserve site autonomy while leveraging the enterprise scale. It was a risky path that could cause friction and hinder both operations and value realization.
“The foundation for this reconciliation comes from building trust, aligning up front on category strategy, and then following through with simple, streamlined buying processes,” says Jim Gruwell, senior vice president, procurement, WestRock.
“As long as the approach is collaborative—and procurement shifts from a centralized mindset to aligning with supplier landscape by category, and operations moves from full autonomy to embracing autonomy with the benefits of a larger enterprise—they can work together and deliver effective results,” says Pranav Padgaonkar, vice president, consulting, at GEP, who is working with WestRock on this procurement transformation program.
Such procurement approaches, used jointly by teams and aided by AI-powered solutions, can prove highly effective, as seen with WestRock. They foster an environment where sites are actively engaged and invested in decisions from the outset.
“We built trust with the local mill procurement teams and other stakeholders with GEP’s help by listening to their needs and adjusting the approach to harmonize,” says Gruwell.
WestRock and GEP identified four key drivers to ensure a successful transformation that centralized procurement strategy.
1. Alignment on Category Strategy
Value identified by sourcing can get lost if no one aligns with the site before executing strategy. In large organizations like WestRock, it is not feasible for a sourcing team to align with each site individually.
This is where category councils come in—select groups of experts, influencers, and budget owners in each spend area across sites who make decisions jointly and get buy-in from their respective sites. “This is the most crucial area of alignment,” says Padgaonkar.
2. Shared Responsibility to Manage Spend
Sites typically have a budget view of spend, while procurement tends to have a category view. Reconciling these two views is crucial. Some spend areas may not make sense to centralize. “Alignment on what are to be global-, regional-, and local-level responsibilities at the start will go a long way in preventing friction between central procurement and site teams,” says Padgaonkar.
3. AI-Powered Tools for Compliance
The new generation of guided buying tools avoids clunky enterprise resource planning (ERP) user interfaces in favor of a shopping-cart experience most users are very familiar with. AI engines can plug into ERP master data, catalogs, and contracts to collect and prioritize approved buying channels and the best options in user searches. The result: The easiest path to buying is also the most compliant, leading to “accidental compliance.”
“GEP has brought in functional expertise and great tools,” says Gruwell. “We are using its guided buying solution, spend analytics platform, integrated category management tool, and the project and pipeline tool, integrated with our finance team.”
4. Educative Processes
While guided buying tools assist at the start of the buying process, the purchase requisition–to–purchase order (PR-to-PO) process plays a crucial role at the end. A rigorous PR validation process will ensure that buyers use correct suppliers and prices. If a requester does not choose the right supplier, a procurement team member can educate them on making the correct choice in the future.
For small tactical requests, a spot buying team can identify suppliers, complete a three-bid buy, and recommend the best supplier. These steps serve as a final checkpoint before a purchase, ensuring compliance while educating buyers.
Unlike top-down mandates and restrictive procurement policies, these interventions are collaborative, supportive, and informative. Gradually, they will convince the sites that procurement’s goals are not at odds with their own and elicit a favorable response.
“The only way to build an enduring process in decentralized organizations,” Gruwell says, “is through collaboration and trust.”
On Track to Success
Striking the right balance between centralized procurement and a decentralized manufacturing culture is a challenging task, but WestRock, with GEP’s help, has laid down the roadmap for success.
The implementation of WestRock’s transformation program has already accomplished some crucial milestones:
• Processes are now aligned both within procurement and externally.
• Accuracy of indirect spend classification has improved, helping develop more effective sourcing strategies.
• In all, 23 category strategies have been identified; 16 of them are complete.
• So far, 13 category councils have been formed, sharing feedback and helping implement category strategies.
• The sourcing value pipeline has increased significantly, and WestRock is well on track to realize identified savings.
Striking the optimal balance between centralized procurement and a decentralized manufacturing culture is a nuanced challenge. However, achieving this equilibrium can significantly enhance a company’s net income and provide a substantial competitive advantage in the cost-sensitive environments characteristic of the manufacturing sector.
Learn how GEP can help your organization achieve greater resilience, efficiency, and sustainability through procurement transformation.
