Centralized purchasing

Centralized purchasing
See also
Indirect sales Horizontal marketing system Marketing information system Bricks and clicks model Benefits of technology in business Top down budgeting Central procurement Trade house Inventory record

Centralized purchising unites all of the company's purchasing demands and consists in communication, collaboration and global coordination between separated parts of organization. Centralized purchasing relates to the providing buying process by a single department of purchases, which chooses potential suppliers, provides negotiations for signing the contracts and creates the purchasing plan. Centralized purchasing provides better specialization, client's influence and discount due to the bigger orders. Larger purchasing quantity is the result of combining orders, that creates a better service and develops lasting delivery sources and networks, and additionally big number of products tends to have less orders.

Purchasing in general is aimed on things like studying organization with regular stream of materials and services to satisfy its requirements. As the result comes maintaining good and effective relations with suppliers, which in its turn guarantees consistency of deliveries, but searching and developing relations with some other sources may be the good alternative in case of emergencies or rising needs. Other important target in process of purchasing is to provide the best possible service at the lowest cost, that can be achieved by regular supervising of inventory. Improvement of staff professionalism, procedures, developing policies and organization in general is also one of significant parts in structure of the companies purchasing management. The last but not the least target is to keep strong and lasting connection with other institution departments by offering them necessary information and consultation, as a consequence it will provide the effective cooperation of the whole organization.

Pros and cons of centralized purchising

As it was already said, all purchases are controlled by one department, which helps to make deliveries and their management easier and provide better control of every department needs. But that is not the whole spectrum of advantages this type of purchasing can bring, here are more of them:

• the ability to standardize requirements and set up overall needs of each department, that provides better understanding of product features which are needed and helps to avoid duplications;
• the possibility of using more accurate and detailed purchase information, which makes purchases more profitable and minimizes inventory costs;
• financial and budgetary control process becomes more precise and administrative cost decreases as the result of purchasing bigger amounts with less occurrence.

But in contrast to the benefits there are some disadvantages which are represented below:

• first of all, problems with communication inside of institution, such as delays in receiving the order from the main store. The main reason may be derived from geographical reasons like separation and long distance between the units;
• second minus is slow reaction to new and unexpected needs in organization supplies and replacing defective products;
• last one is the fact that lead-time of centralized purchasing takes more time than decentralized, because of processing, ordering and then distributing it to all departments.

References

• Grau D. (2016), Buying, Selling, and Valuing Financial Practices: The FP Transitions M&A Guide, John Wiley & Sons, Hoboken, New Jersey
• Johnsen T.E., Howard M., Miemczyk J. (2018), Purchasing and Supply Chain Management: A Sustainability Perspective, Routledge
• Li L. (2007), Supply Chain Management: Concepts, Techniques and Practices: Enhancing Value Through Collaboration, World Scientific Publishing Company
• Monczka R.R. (2015), Purchasing & supply chain management, Cengage Learnin, Boston
• McCue C.P. (2000), Centralized vs. decentralized purchasing: current trends in governmental procurement practices, Journal of Public Budgeting, Accounting & Financial Management, Emerald Publishing Limited, vol. 12
• Wild R. (2002), Essentials of Operations Management, Continuum

Author: Uladzislau Leonau