|At A Glance|
Some benefits of centralized procurement include:
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In general, centralized procurement is recognized as having several key advantages. First, it avoids overhead and redundancy by concentrating procurement in one organization. This in turn provides for centralized records or data and usually ensures the use of trained and expert staff. Another plus is that suppliers deal with a central organization and are more likely to forge strategic partnerships. Finally, the big one, collaboration can lead to better prices through volume discounts. But do the generic benefits of centralized procurement apply to state fleets? Well, why wouldn’t they?
It is certainly advantageous to concentrate vehicle acquisition within a single organization and staff that organization with procurement experts. There is the additional critical requirement, however, to involve fleet management experts in the procurement decisions. Having a consolidated fleet database is also a benefit as it permits better decision-making and avoids duplication. Strategic partnering in vehicle procurement cannot be emphasized enough — building those indispensable relationships with vendors is most easily accomplished through a central organization. In addition, vehicle pricing is highly impacted by volumes achieved through consolidation of an organization’s requirements. NAFA’s Business Management Guide offers an in-depth look into strategic planning from how to size up potential opportunities to why some strategic partnerships succeed while others fail.
While there are many benefits to centralized procurement, there are possible downsides to consider. In many cases, field departments control the funds and therefore want to make the decisions, perceiving any attempt at centralization as a threat. It is also possible that centralization could impose an additional layer of bureaucracy and complexity, which could lead to acquisition delays. In still other cases, central procurement means purchasing off standing contracts set up to achieve the largest discounts and can preclude purchasing locally, even when it makes sense for time or price reasons.
A Good Choice for State Fleets
Despite its disadvantages, centralized procurement is attractive for state purchasing. In addition to the obvious benefits listed above, two more reasons make collective purchasing advantageous — the regulatory environment and risk mitigation. When procurement authorities are scattered throughout an organization, the process is more difficult to control and audit. It is much easier to verify regulatory compliance in a centralized procurement environment. Similarly, risks are reduced when procurement regulations are followed and when the people involved in procurement are trained experts.
A quick look at only three states illustrates that the aforementioned benefits are only the start. In Michigan, centralized vehicle procurement has reduced the types of vehicles purchased from 104 to 38. Fewer vehicle types means fewer parts on hand, less training required for mechanics, and potentially greater volume discounts. In Vermont, centralized procurement has resulted in many of the advantages listed, plus the ability to better monitor and reduce environmental impacts. In Florida, a State with decentralized purchasing, serious consideration is being given to centralization, in part because only seven of 30 agencies have fleet management expertise.
The arguments for centralized fleet procurement clearly go beyond vehicle purchasing; many organizations also recognize the benefits of experts managing fleet utilization, maintenance data collection, and remarketing. In the end, the key to centralization lies with utilizing the strengths that fleet management experts bring to the table. With the proper guidance in place, centralization can offer many positive benefits to an organization.
About the Author
Lt. Col. (retired) Katherine Vigneau, CAFM, spent almost 27 years in the Canadian Army working in transportation and logistics. She retired in 2010 to start KMVS Fleet+ Consulting, specializing in fleet management education and training. Vigneau is a former NAFA Trustee and currently serves as NAFA’s Professional Development Strategist.