Function Centralized purchasing
In this type of purchasing all purchasing activities are done at the head office of the organization and the supply effects through Head office to the branch office. It is very common in government organization. In considering a centralized option, a number of critical questions should be considered:
- How is the buying function to co-ordinate the acquisition of products and services?
- Where in the organization are buying decisions to be made?
- How are purchasing decisions and activities to be split between corporate and local facilities?
Advantages of Centralized purchasing
- Ability to enjoy economies of scale due to bulk purchases
- Availability of large trade discounts
- Better coordination of purchasing requirements through the creation of a single supplier order
- More efficient utilization of scarce resources among competing facility units
- Development of specialized professional staff.
- Centralized purchasing helps to maintain uniformity in purchasing policies.
- Better layout of stores is possible in centralized stores
Disadvantages of Centralized purchasing
- High initial investment has to be made in purchasing.
- Delay in receiving materials from the centralized store by other departments.
- Centralized purchasing is not suitable, if branches are located at different geographical locations.
- In case of an emergency, materials cannot be purchased from local supplier
- Defective materials cannot be replaced timely
- Fragile items may be destroyed during handling, transportation and movement.
- Defective materials cannot be replaced timely.
Decentralized purchasing is where the power of purchasing is delegated to branch offices and departments to purchase all materials independently to fulfill their needs. Under this method, there is no one purchasing manager who has the right to purchase materials for all departments and divisions. This also happens in multinational companies. The manufacturing company which is running several plants at different locations and manufacture different items may have different type of material requirement, hence necessary to decentralize purchasing power.
Advantages of Decentralized Purchasing
- Materials can be purchased by each department locally as and when required
- Purchase orders can be placed quickly
- No heavy investment is required initially.
- The replacement of defective material takes little time.
- Materials are purchased in right quantity of right quality for each department easily.
- Elimination of transportation costs.
Disadvantages of Decentralized Purchasing
- Organization losses the benefit of a bulk purchase
- There is a chance of over and under-purchasing of materials.
- Specialized knowledge may be lacking in purchasing staff.
- Fewer chances of effective control of materials.
- Lack of proper co-operation and co-ordination among various departments.