Decentralized Purchasing

Decentralization can be viewed as an extension of delegation.
This is where purchasing functions and activities are divided into relatively autonomous units with overall authority and responsibility for the operations delegated to lower levels of authority. The degree of decentralization is determined by:

  • Nature of the authority delegated,
  • How far down in the organization it is delegated,
  • How consistently it is delegated.

Advantages of Decentralization:
1. Reduces the burden on top executives:
Decentralization relieves the top executives of the burden of performing various functions. Centralization of authority puts the whole responsibility of purchasing on the shoulders of an executive and his immediate group. This reduces the time at the disposal
of top executives who should concentrate on other strategic procurement functions. So, the only way to lessen their burden is to decentralize the purchasing process to the subordinates.

2. Facilitates diversification:
Under decentralization, the diversification of supplier markets is facilitated. A centralized enterprise with the concentration of authority at the top will find it difficult and complex to diversify its supplier markets through sourcing for new suppliers for
materials.

3. To provide product and market emphasis:
A product loses its market when new products appear in the market on account of innovations or changes in the customers demand. In such cases authority is decentralized to the regional units to render instant service taking into account the price, quality,
delivery, novelty, etc.

4. Purchasing Staff Skill Development:
When the authority is decentralized, purchasing officers in the organization will get the opportunity to develop their talents by taking initiative which will also make them ready for managerial positions. The growth of the company greatly depends on the talented
individuals.

5. It promotes motivation:
Decentralization stimulates the formation of small cohesive groups. Since local purchasing managers are given a large degree of authority and local autonomy, they tend to weld their purchasing officers into closely knit integrated groups.‖ This improves the
morale of employees as they get involved in decision-making process.

6. Better control and supervision:
Decentralization ensures better control and supervision as the subordinates at the lowest levels will have the authority to make independent decisions. As a result they have thorough knowledge of every assignment under their control and are in a position to
make amendments and take corrective action.

7. Quick Decision-Making:
Decentralization brings decision making process closer to the scene of action. This leads to quicker decision-making of lower level since decisions do not have to be referred up through the hierarchy.

Disadvantages of Decentralization:
Decentralization can be extremely beneficial. But it can be dangerous unless it is carefully constructed and constantly monitored for the good of the company as a whole.

Some disadvantages of decentralization are:
1. Uniform policies not followed:
Under decentralization, it is not possible to follow uniform policies and standardized procedures. Each purchasing manager will work and frame policies according to his talent.

2. Problem of Co-Ordination:
Decentralization of authority creates problems of co-ordination as authority lies dispersed widely throughout the organization.

3. More Financial Burden:
Decentralization requires the employment of trained personnel to accept authority, it involves more financial burden and a small enterprise cannot afford to appoint experts in various fields.

4. Require Qualified Personnel:
Decentralization becomes useless when there are no qualified and competent personnel.

5. Conflict:
Decentralization puts more pressure on divisional heads to realize savings at any cost. Often in meeting their new purchasing plans, bring conflicts among managers.

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