Centralized Purchasing - 4 Benefits and 3 Disadvantages

Centralized purchasing concentrates all the purchasing power to one, particular department 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 department using an efficient 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 sell out the unit cost so that buying 1000 is only 0.00 reducing the unit cost for each department from.20 to.18 per ball point pen.

3. Report management:
When purchasing is centralized, it is completed straight through a particular man or department, the records are kept in one place development them organized and categorically managed.

4. Focus on core competencies:
Other departments who may have had the responsibility of purchasing along with their other duties can focus their attention 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 firm are sending their purchasing orders to one department (rather than purchasing within their own department), there may be some delay because of multiple orders from several dissimilar departments.

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

3. Perishable quantities:
Many times a centralized purchasing department 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 department that ordered them, they may have spoiled, etc.

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

Centralized Purchasing - 4 Benefits and 3 Disadvantages