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Centralized vs. Decentralized Purchasing

Before you dwell on that, it’s important to understand both centralized and decentralized procurement.
Also important is to know their advantages and disadvantages. Only then can you form a better understanding of the two and decide which outweighs the other in terms of the need of your company.

What is Centralized Procurement?

Centralized procurement means that a single department controls and manages the purchasing for the whole organisation. Ideally a manager oversees the purchasing department regarding what materials need to be purchased and in what quantity. The single purchasing department is generally located in the headquarters.

What is Decentralized Procurement?

With this method, rather than leaving the purchasing control with a single department, it is granted to local branches or departments. They have the authority to purchase items necessary as per their requirements.

Centralized Purchasing – Pros

  1. Purchasing in bulk quantities reduces cost to the organization.
    2. Good relations developed with the supplier can lead to better discounts and bargain in the future.
    3. Since shipments are consolidated, the transport cost is also reduced.
    4. Inventory investment can be minimized through centralization of purchase.
    5. Inventory management gets drastically reduced.
    6. Duplication of work can be avoided through centralized purchasing.
    7. Policies formulated for purchasing can be maintained uniformly through centralized purchasing.
    8. Centralized records can be maintained.
    9. Since a single department is involved, the quality of the materials can also be maintained.
    10. A centralized store can be maintained under centralized purchasing.

Centralized Purchasing – Cons

  1. High initial cost can be a deterrent.
    2.  People in charge of purchasing may not be efficient and this can lead to poor quality of materials purchased and even incorrect quantity being purchased.
    3.  If branches are spread out geographically, then centralized purchasing may not be suitable.
    4.  In case of an emergency, work can be delayed drastically since materials cannot be purchased locally.
    5.  Delay in replacement of defective materials.
    6.  If the wrong amount of material is purchased, it will be a loss to the organization.

In the end, it depends completely on the company to decide which approach is better for them. While a centralized purchasing will save money for the company, decentralized purchasing will give authority to individual departments to purchase what they require. The way the business is run will decide which method of purchasing will benefit them the most.

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