Decentralized purchasing is just the reverse of centralized purchasing. This is suitable in organizations running more than one plant. Under this type each plant has its own purchasing agents. In other words, every department makes its own purchases. This is also called localized purchasing.
Decentralized purchasing is quite flexible and can be quickly adjusted in accordance with the requirements of a particular plant. More attention can be paid by the departmental head on buying problems as he will be carrying limited number of activities in his department and he can be held responsible for the purchase of goods and the overall performance of the plant. The serious drawback which emerges from this type is the lack of uniformity in purchasing procedure in the organisation. At the same time uniformity in prices cannot be ensured and moreover every departmental head may not possess the calibre of an expert buyer. This method also poses the problems of coordination among various departments of the organisation and usually leads to an unplanned buying. In comparison to centralized buying this method involves lesser economy in purchasing.
Centralized Purchasing, Its Advantages And Disadvantages
Centralized purchasing refers to the purchase of materials by a single purchase department. This department is headed and managed by a purchasing manager. Under centralized purchasing, all purchases made by the purchase department to avoid duplication, overlapping and the non-uniform procurement. A company has to follow the centralized purchasing of materials for ensuring proper materials control as well as efficient store keeping. Under this system, the purchasing department purchases the required materials for all the departments and branches of the company.
- Human resource managements
- Business Risks
- Capital Structure
Advantages of Centralized Purchasing
- Bulk quantity of materials can be purchased at a low price with favorable purchasing terms.
- The service of an efficient, specialized and experienced purchase executive can be obtained.
- Better layout of stores is possible in centralized stores.
- Economy in recording and systematic accounting of materials.
- Transportation costs can be reduced because bulk quantity of materials purchased.
- Centralized purchasing avoids reckless purchases.
- Centralized purchasing discourages duplication of efforts.
- Centralized purchasing helps to maintain uniformity in purchasing policies.
- Centralized purchasing helps to minimize the investment on inventory.
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 suppliers.
- Defective materials cannot be replaced timely.