As organizations seek to optimize their supply chain operations across the continent, whether or not to favour a centralized or decentralized approach has become a common question.
Many organizations and supply chain managers want to know which is the best fit for them and how they can go about it.
Before we go into that, we will take a brief overview of the two concepts, define them and explore their pros and cons.
What is a Centralized Supply Chain?
A centralized supply chain operation consolidates the key aspects of the supply chain, such as procurement, planning, and production, into one unit. You may call it the control unit.
The idea is to have a top-down approach to the operation. And the approach is usually taken when supply chains are looking to save money or consolidate resources.
Pros of a Centralized Supply Chain
These are the advantages of using a centralized supply chain in your business or organization.
𝗥𝗲𝗱𝘂𝗰𝗲𝗱 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗖𝗼𝘀𝘁: Centralization can help supply chains reduce operational costs by consolidating everything into one system. This allows them to tweak and nitpick as necessary to cut down unnecessary costs.
𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱𝗶𝘇𝗮𝘁𝗶𝗼𝗻: With centralization, there aren’t a lot of ideas swinging around, no offence to the system. This leads to standardization of the processes and products, which in turn simplifies and improves quality.
𝗦𝘁𝗿𝗲𝗮𝗺𝗹𝗶𝗻𝗲𝗱 𝗣𝗿𝗼𝗰𝗲𝘀𝘀𝗲𝘀: In a Centralized supply chain, it is easy to monitor and tailor the supply chain process to the ideal fit. This makes it easier to integrate new people, processes or tech solutions.
Cons of a Centralized Supply Chain
Here, we explore some things that go wrong when using a centralized supply chain.
𝗥𝗲𝗱𝘂𝗰𝗲𝗱 𝗥𝗲𝘀𝗽𝗼𝗻𝘀𝗶𝘃𝗲𝗻𝗲𝘀𝘀: Because everything has to go through one central system, in many cases, centralized supply chains can be less responsive to local or regional market demands, potentially leading to customer dissatisfaction.
𝗥𝗶𝘀𝗸 𝗖𝗼𝗻𝗰𝗲𝗻𝘁𝗿𝗮𝘁𝗶𝗼𝗻: In a centralized supply chain, the key operations are concentrated in one point. This also makes the supply chain more prone to risk. When there is a disruption in one part of the supply chain, it brings all the others to stand still because they are all interconnected.
𝗖𝗼𝗺𝗺𝘂𝗻𝗶𝗰𝗮𝘁𝗶𝗼𝗻 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲𝘀: With the centralized supply chain, managing and decimating information gets tricky, especially when operations span a wide geographical area. When information is not properly managed, it leads to inefficiencies and problems for the supply chain.
What is a Decentralized Supply Chain?
Decentralized supply chain operations spread the core functions and decision-making across multiple points. There is no one single unit that controls the entire supply chain.
With this approach, the supply chains prioritize local responsiveness and market adaptation instead of cost and resource consolidation.
Pros of a Decentralized Supply Chain?
Here, we explore some benefits of favouring a decentralized supply chain.
𝗤𝘂𝗶𝗰𝗸 𝗥𝗲𝘀𝗽𝗼𝗻𝘀𝗶𝘃𝗲𝗻𝗲𝘀𝘀: With decentralization, supply chains are empowered for faster response to market demands. This also helps lead to more customer satisfaction.
𝗥𝗲𝗱𝘂𝗰𝗲𝗱 𝗥𝗶𝘀𝗸: Distributing the functions and decision-making across the supply allows the risks to spread across multiple locations. It can help isolate the impact of supply chain disruptions in one area, enhancing resilience.
𝗙𝗹𝗲𝘅𝗶𝗯𝗶𝗹𝗶𝘁𝘆: Decentralization enables businesses to adapt to regional or seasonal variations in demand and supply, offering more flexibility in operations.
Cons of a Decentralized Supply Chain
These are adverse effects of using a decentralized supply chain.
𝗜𝗻𝗰𝗿𝗲𝗮𝘀𝗲𝗱 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗘𝘅𝗽𝗲𝗻𝘀𝗲𝘀: Higher operating costs are associated with the decentralized model because of resource duplication, various facilities, and dispersed operations.
𝗖𝗼𝗺𝗽𝗹𝗲𝘅 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 𝗖𝗼𝗻𝘁𝗿𝗼𝗹: It can be more difficult to manage inventory across several sites, which could result in problems like stockouts or overstocking.
𝗤𝘂𝗮𝗹𝗶𝘁𝘆 𝗖𝗼𝗻𝘁𝗿𝗼𝗹 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲𝘀: It can be difficult to maintain constant product quality across several locations because standards may differ.
Which of them Should Your Supply Chain Operations in Africa Adopt?
Finding the right fit for your supply chain, whether it is a centralized or decentralized approach, depends on many factors, including the nature of the supply chain, the industry, the location, and the type of product, among others.
There is no better option between the two, it all depends on what you want to achieve. In many cases,it can boil down to preference.
How you adopt them is what defines the success of your supply chain. There are instances of similar supply chains across Africa adopting each of them, and yet they enjoy the same level of success.
The two types of supply chain operations are dependent on the resources and limitations available to your organization. Whether or not you will get success from them depends on how well you channel these resources.
In Africa, there are limitations, such as poor infrastructure and political instability, that may also impact your choice.
Obinabo Tochukwu Tabansi is a supply chain mastro and writer with a decade of experience working in different facets of the supply chain. Today he is living his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is Africa’s fastest-rising supply chain blog, helping professionals, business owners, and curious minds navigate the supply chain complexities on the continent.
