Centralized Purchasing

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 Merits And Demerits of Centralized Purchasing.)
When the purchasing function is entrusted to a single person, it is said to be centralized purchasing. It means all purchases are made by the Purchasing Officer. Generally large and medium size organisations accept centralized purchasing.
Merits of Centralized Purchasing:
• Centralized purchasing avoids duplication, so buying cost will be less.
• Departments other than purchasing are relieved from the burden of purchasing. As a result of which employees concentrate their mind in own work.
• Transportation cost and carrying cost become economical, because all purchases are made in bulk quantities.
• More trade discount can be availed due to bulk purchase.
• All the records with regard to purchase are kept in one place under the supervision of the purchase officer. It results economy in record management.
Demerits of Centralized Purchasing:
• Delay is caused in centralized purchasing as different departments of different places will send their requirements to the purchasing department. Thepurchasing department will purchase the necessary items and send to other departments.
• In this case centralized purchasing branches of different places can not take advantages of localized purchasing.
• There are chances of misunderstanding between purchase department and other departments because other departments may not get their requirement according to their own will.
• Centralized purchasing is not suitable in case of perishable commodities.
• It results more cost of transportation and botheration, as it is purchased in one place and send to the distance places.