Bottom-up or top-down: Which approach is best for optimizing lab supply procurement in life sciences? For labs, the choice of decentralized (bottom-up) or centralized (top-down) procurement strategies can greatly impact efficiency and effectiveness. We'll explore the nuances of each, share examples from industry leaders like Bayer and Sanofi, and discuss key considerations to optimize your lab's procurement strategy.
Decentralized procurement
This bottom-up approach involves delegating purchasing decisions to individual departments or units within an organization. Each unit is responsible for sourcing, purchasing, and managing its own supplies. In the case of life sciences, this is usually the responsibility of the lab operations team or the scientists themselves.
Example: A university lab with multiple departments handles its own procurement. Each department orders supplies directly from vendors based on its unique research needs and budget constraints.
Benefits of decentralized procurement
- Departments can quickly respond to their specific needs and make decisions based on local requirements.
- Faster decision-making. Departments have control over their purchasing decisions, which can lead to faster approvals and procurement processes.
- Enhanced expertise. Local teams may have specialized knowledge about their specific needs and suppliers.
Drawbacks of decentralized procurement
- Lack of standardization. Different departments might use varying processes and suppliers, leading to inconsistencies and inefficiencies.
- Higher costs. Without centralized negotiation, prices might be higher due to smaller order volumes and lack of bulk discounts.
- Duplication of efforts. Multiple departments may duplicate efforts in supplier research and management.
Centralized procurement
Operating from the top-down, centralized procurement consolidates purchasing decisions within a single, central department or team. This unit handles all procurement activities for the entire organization, including sourcing, negotiating, and purchasing.
Example: A large pharmaceutical company manages all procurement through a dedicated central procurement team. This team consolidates orders, negotiates contracts, and ensures that all departments adhere to standardized procurement processes.
Benefits of centralized procurement
- Cost savings. Centralized purchasing can leverage bulk buying and negotiate better terms, leading to cost savings.
- Standardized processes and supplier management lead to uniformity and reduced errors.
- Improved supplier relationships. A single team can build stronger relationships with key suppliers and manage contracts more effectively.
Drawbacks of centralized procurement
- Reduced flexibility. Centralized systems may be slower to respond to specific departmental needs and changes.
- Potential bottlenecks. All procurement requests go through one central point, which can create delays and bottlenecks.
- Less local expertise. Centralized teams may lack detailed knowledge of local needs and specialized requirements.
Sanofi and Bayer: Industry examples of each procurement approach
Achraf Bannai, Sanofi’s Global Head of Scientific Procurement, and Steffen Schweizer, Bayer’s Vice President and Global Head of Procurement for Lab Supply, joined Florian Wegener, ZAGENO’s CEO and Founder, at the 8th Annual R&D Procurement and Sourcing in Pharma Summit for an illuminating discussion on procurement best practices. This conversation touched on decentralized versus centralized procurement strategies.
Decentralized procurement at Bayer
“Bayer is undergoing one of the most radical transformations in the industry, and is completely changing its operating model. We call it dynamic shared ownership, the essence of which is to get rid of all the corporate bureaucracy while establishing slim and fast decision processes.”
— Steffen Schweizer, VP and Global Head of Procurement for Lab Supply, Bayer
Bayer's transformation, part of a broader radical change within the company, emphasizes decentralization and trust. The new operating model, announced in January 2024, aims to make the company more agile and significantly improve operational performance. The dynamic shared ownership (DSO) model seeks to eliminate corporate bureaucracy and empower employees to make decisions at the lowest possible level. This is a timely shift for them, as their procurement requires a flexible and dynamic approach to manage a broad range of lab supplies across diverse supplier networks, while meeting the varying needs of their scientific teams.
Centralized procurement at Sanofi
As part of Sanofi’s ongoing Play to Win strategy, CEO Paul Hudson announced targeted savings of a total of up to €2 billion from 2024 to the end of 2025, with a targeted €700 million coming from procurement savings. This top-down mandate empowered procurement to centralize efforts to create a more streamlined and efficient system. The goal was to reduce the time scientists spent on procurement and allow them to focus more on their core research activities, as well as impact cash flow and P&L impact in accordance with the mandate.
Bannai and his team turned to ZAGENO, the industry’s leading AI-driven lab supply marketplace, as a major component of its procurement optimization efforts. ZAGENO offers over 40 million SKUs from 5,300 global brands, providing easier product identification, competitive pricing, streamlined ordering processes, and simplified billing.
Go deeper: Read more about Sanofi’s procurement journey
Comparing decentralized and centralized procurement
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Aspect
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Decentralized Procurement
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Centralized Procurement
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Approach
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Bottom-up. Delegates purchasing decisions to individual departments or units.
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Top-down. Consolidates all purchasing decisions within a single team.
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Flexibility
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Higher flexibility; departments can respond quickly to specific needs.
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Lower flexibility; central team manages all purchasing.
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Decision-Making Speed
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Faster decision-making at the departmental level.
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Potential delays due to centralized approval processes.
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Cost Efficiency
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May result in higher costs due to smaller order volumes and less negotiation power.
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Often achieves cost savings through bulk purchasing and better negotiation terms.
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Consistency
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Potential inconsistencies in processes and supplier management.
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Standardized processes and uniform supplier management.
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Supplier Relationships
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Local teams build relationships with a variety of suppliers.
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Central team builds stronger relationships with key suppliers.
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Expertise
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Departments may have specialized knowledge relevant to their needs.
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Central team may lack detailed knowledge of specific departmental needs.
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Efficiency
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Can lead to duplication of efforts and lack of standardization.
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More efficient through consolidated management and bulk buying.
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Implementation Speed
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Quick implementation of departmental needs but may lack coordination.
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Slower implementation due to centralized processes but more coordinated.
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When comparing decentralized and centralized procurement for your organization, consider the following factors:
- Scope of needs. Large, complex organizations might benefit more from centralized procurement, while smaller labs with distinct needs may prefer a decentralized approach.
- Cost efficiency. Centralized procurement often offers better cost savings through bulk purchasing and negotiation leverage.
- Speed and flexibility. Decentralized procurement allows for quicker responses to local needs but may lack consistency.
Enhancing procurement strategies with a lab supply marketplace
Regardless of the approach, biotech and pharma organizations ranging from startups to global operations can benefit from access to a lab supply marketplace, such as ZAGENO.
- For decentralized procurement. A marketplace provides a centralized platform where individual departments can access a wide range of suppliers and products. It ensures consistency in purchasing and allows departments to benefit from collective bargaining power while maintaining their autonomy. In the case of a small biotech, empowering the scientists to become ordering users with ZAGENO saved $326,000 in 12 months.
- For centralized procurement. A marketplace streamlines the procurement process by offering a unified platform for ordering, managing, and tracking supplies. It facilitates bulk purchasing, consolidates supplier management, and provides valuable analytics to optimize procurement decisions, as well as help tame longtail spend. In the case of Sanofi, ZAGENO implementation achieved significant tail-end cost savings, reduced procurement times, increased overall efficiency, and enhanced scientist satisfaction.
Final thoughts: Choosing the right procurement strategy
“It was really exciting to hear a very different approach at two different organizations. Top-down and bottom-up. But what's really exciting is how different companies approach different problems and come up with a solution that's a win-win for the whole organization.”
– Florian Wegener, CEO and Founder, ZAGENO
Choosing between decentralized and centralized procurement depends on your organization’s specific needs and structure. By understanding the benefits and drawbacks of each approach and leveraging a lab supply marketplace, you can enhance your procurement strategy, optimize costs, and improve efficiency.
To learn more about how accessing the ZAGENO lab supply marketplace can create a win-win for your organization, no matter your procurement approach, contact us today for a free demo.
