When to Centralize Or Decentralize Your Supply Chain – And Why to Do Both
- Centralized and decentralized supply chains both help build resilience
- Centralized supply chains offer visibility and efficiency
- Decentralized systems enable flexibility and agility for localized issues
March 19, 2021 | Supply Chain Software
As companies build supply chain resilience to tackle future disruptions, the question of whether to centralize or decentralize their supply networks becomes important.
What are the benefits of centralized vs. decentralized systems in supply chain management?
A centralized supply chain can help companies drive efficiencies through standardized processes.
A decentralized supply chain can empower individual sites to solve problems creatively.
What’s the right balance between the two?
The answer to this question is often, “It depends.”
Next-generation supply chain management software offers the benefits of both worlds: a unified platform that can connect disparate ERP systems to gain a single source of truth, and the collaboration suite to empower local users to work together to identify and resolve supply chain issues.
Centralized supply chain: Visibility and process efficiency
For a global corporation with a large supplier base, centralizing supply chain operations makes sense. Business units might be separated not only by geography, but by different ERP systems, metrics or priorities.
All this fragmentation obscures visibility into what’s really going on and makes reducing costs, managing spend and achieving operational efficiencies more difficult.
The right supply chain management software centralizes a supply chain by connecting current ERP systems seamlessly and acting as a central repository of data so that all locations speak the same language.
In combination with built-in collaboration tools, a unified data model allows teams to work together and effectively mitigate potential risks.
Decentralized supply chains: Flexibility and agility for localized issues
At the same time, a completely centralized supply chain may not account for unique regional factors that affect supply and production.
Local managers need to be able to spot and adjust to changing market conditions on the ground. It might not always be feasible to do that in a highly centralized system if the decision-making authority is a couple of levels up the organizational chart.
Highly centralized organizations may not have knowledge of location-specific issues or problems. A decentralized supply chain can allow for faster issue resolution by individual locations and facilitate creative solutions.
Moreover, a platform that connects a company’s different locations can help the organization coordinate decision-making and enable collaboration and transparency.
A unified end-to-end platform allows global visibility and local action
In practice, most companies strike a balance between centralizing and decentralizing to gain the benefits of both.
Centralizing supply chains by creating a unified data model and connecting systems to a common platform can help increase resilience.
Decentralizing supply chains also builds resilience, by enabling cross-functional collaboration and action.
Having the advantages of visibility and flexibility in orchestrating supply chains is more important than ever today, but also more possible than ever.
Today’s supply chain management software can unify systems to get complete transparency, automate processes and empower people to build stronger, more agile supply chains.
Frequently Asked Questions
A supply chain management software offers a unified platform that can connect disparate ERP systems for creating a single database, allowing the collaboration suite to empower local users to work together to identify and resolve supply chain issues. Using supply chain management software can considerably improve visibility, process efficiency, flexibility, and agility.
A centralized supply chain collaborates supply chain operations in a unified database, allowing a linear hierarchy of processes without any fragmentations. On the other hand, decentralized supply chains use local nodes to take advantage of geographical location, making them more flexible for small businesses.
Centralized supply chains rely on creating a central repository of data without any fragmentations in the supply chain so that all locations work seamlessly. Decentralized supply chains rely on local advantages and unique regional factors that can improve supply and production. A decentralized chain is more flexible and helps facilitate localized creative solutions. However, a centralized supply chain is more suited to large businesses as fragmentation obscures visibility into what’s going on and makes reducing costs, managing spend and achieving operational efficiencies more difficult.
