Centralized Vs Decentralized Purchasing
November 20, 2009
Centralized purchasing involves having a central location within the organization to buy goods and services for the organization. An organization has a central procurement department with specialized buyers, project managers would then request certain purchases to be done for their project needs and the procurement department carries out those purchase requests. The centralized purchasing department has individuals who handle bids, quotes and ensure that the corporate purchasing standards are met during a purchasing process. For example, the organization where I used to work the procurement department purchased everything from computers, pens, mineral water to fruits and company cars. They selected the suppliers and providers of services to the company.
Centralized purchasing provides for less duplication because of fewer orders thus less processing, receiving, inspection and accounts payable. (Project management Institute 1997) Centralized purchasing also provides for efficiency and effectiveness in contracting or purchasing because the organization’s procurement department has more management control and are more specialized and they tend to have proper understanding of market conditions. Centralized purchasing also brings about major bulk discounts because of volume purchases for the organization and other benefits that they might get from economies of scale.
The disadvantage of centralized purchasing is that the central office lacks the technical skills or expertise to purchase service or goods that require a person with technical skills e.g. purchasing electronic parts, computer equipment etc.
Decentralized purchasing involves having the project managers, subsidiary, office or departments purchasing their own products or services. Decentralized purchasing normally has individuals attached to the project manager or office responsible for the purchasing needs of the project or office.
The advantage of decentralized purchasing is that it provides for less bureaucracy since the project manager has an individual dedicated to his purchasing needs and thus quick buy decisions can be made. If a manager needs to have software or stationery for his department, he can easily go online and purchase what he needs within no time or he can buy from any office mart just as quickly as he needs it unlike centralized purchasing that needs paperwork to be filled and passed up to the necessary office. Decentralized purchasing also provides for a closer knowledge of requirements since the dedicated buyer has the knowledge of the project needs.
One of the major disadvantages of decentralized purchasing is that there is a lot of duplication of effort in buying, receiving, inspection and accounts payable (Project management Institute 1997). Also decentralized purchasing causes less buyer specialization thus the organization cannot take advantage of discounts from volume buys, negotiations etc.
Some organizations adopt a hybrid system that combines both centralized and decentralized purchasing. They use centralized purchasing for larger organization-wide contracts, but give individual business units autonomy to make small purchases for their departments or subsidiaries.
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Great site. A lot of useful information here. I’m sending it to some friends!