Centralized Purchasing - 4 Benefits and 3 Disadvantages

Centralized purchasing concentrates all the purchasing power to one, singular division with staff professionally trained for the sole purpose of procurement.

There are a estimate of benefits to centralizing the purchasing efforts of a business, for example:

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1. No duplication:
When there is only one person, or even one division using an productive procurement system, there should be virtually no duplication of purchased items because the authority to buy is vested in one centralized purchasing man or department.

2. Bulk purchasing:
Purchasing officers can buy in bulk quantities thereby reducing communication and unit costs. From there, quantities would be distributed to their designated locations. For example, ten departments have submitted requisitions for 100 ball point pens each. While 500 might cost 0.00, buying in bulk will typically reduce the unit cost so that buying 1000 is only 0.00 reducing the unit cost for each division from.20 to.18 per ball point pen.

3. Article management:
When purchasing is centralized, it is completed straight through a singular man or department, the records are kept in one place making them organized and really managed.

4. Focus on core competencies:
Other departments who may have had the responsibility of purchasing along with their other duties can focus their concentration on their sole responsibilities leaving that of procurement to the purchasing department.

Unfortunately, there are some down-sides to centralizing purchasing, as well. For example:

1. Delay:
When all the personel departments of a company are sending their purchasing orders to one division (rather than purchasing within their own department), there may be some delay because of multiple orders from some distinct departments.

2. Cost Increase:
If the purchasing division is placed in other location or state, there may be increased communication costs associated with purchasing and the division may not be able to take benefit of buying local or the incentives associated therewith.

3. Perishable quantities:
Many times a centralized purchasing division does not work with goods that will perish. The goods must be received by the centralized location and by the time they get to the designated division that ordered them, they may have spoiled, etc.

Given the importance of centralized purchasing in some industries, it is wise to reconsider both the pros and the cons of such a model before making the decision of either to centralize your purchasing efforts.

Centralized Purchasing - 4 Benefits and 3 Disadvantages