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Centralized vs. Decentralized Purchasing
June 19, 2007
There are many ways to run a purchasing department. What business functions are included is one. Some companies include various material management responsibilities, inventory control, warehouse and logistics in the one department. In larger companies you might find all of these functions as separate departments.
The major question is always whether to be centralized or decentralized. This is usually a decision of top management, Chief Purchasing Officer, Director of Purchasing or possibly the Chief Executive Officer or owner. There is no magic formula to determine which way is the best.
Centralized purchasing means buying and managing purchases from one location for all locations within an organization. This can also be run by a central location buying in to a distribution warehouse that feeds smaller warehouses. This is called a hub and spoke system.
Decentralized is the opposite where each plant or office buys what it needs. This operation allows any employee to buy what he needs. You can also run this operation with a designated buyer assigned to the site to do the buying.
The more decentralized an operation is, the less control the home office has. You have a duplication of effort in buying and less buyer specialization. You lose discounts on quantity buys. You lose freight options based on dollars or weight. Also some support is lost from the supplier as there is no single contact for the supplier to deal with. Volume buying may not be calculated for all your sites.
Advocates of decentralization claim that local management has the incentive to control cost when the local operation is set up as a profit center. Many companies operate with a mixed system. The central operation may buy major commodities but allow local operations to buy all MRO supplies.
It is difficult to change from decentralized purchasing to centralized purchasing. Employees feel their privileges are being taken away. They feel they are losing control of their site. Some will refuse to really cooperate in the changes in hopes to making the program look unsuccessful.
I have actually worked under both systems and it would be a toss up to me as to which is best. They both have advantages and disadvantages. We must have faith in management and feel that they have made the best choice in operating the company.
Posted by Mary Walker on June 19, 2007 | Comments (0)