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What is Centralized and Decentralized Purchasing? Explain its Advantages and Disadvantages.

What is Centralized and Decentralized Purchasing? Explain its Advantages and Disadvantages.

Course: B.Com

1 Answer
There are two system of purchasing department: centralized and decentralized.

Centralized Purchasing:

In centralized purchasing all the purchases should be done by purchasing department except for the small purchases which maybe done by department managers. Specialized knowledge of purchase manager will result in efficient buying. In medium size and big size companies purchasing function is generally centralized.

Advantages of Centralized Purchasing:
  • It brings economy on purchasing.
  • The specialized knowledge of purchasing department helps in economical buying. It also helps the department to focus on the purchase alone.
  • Unnecessary investment in inventories can be avoided by the preparation of duplication of the same material.
  • It helps management to have a better control over the purchases.
  • It reduces the various responsibility of management like purchasing variety of materials.
  • Centralization helps vendors in reducing their selling cost. AS they can easily supply goods directly to one buyer.

Disadvantages of Centralized Purchasing:

  • There may be delay in placing the purchase order, as the requirements of material by different departments may not be received in time.
  • It involves huge cost in terms of setting of separate purchasing department.
  • Any misunderstanding between the departments i:e. the one which require material and purchasing department will result in wrong purchases.

Decentralized Purchasing:

Some firms may prefer to have decentralized purchasing where each factory or department will make its own purchase. Each, organization has to adapt a system which suits it most keeping in view. its circumstances. Decentralized purchasing is also known as “localized purchasing “.

Advantages of Decentralized Purchasing:
  • Due to its flexibility, it can be easily adjusted with the changed requirements of plant.
  • It is most favorable in case of emergency.
  • In this technical requirements of each plant can be easily determined.

Disadvantages of Decentralized Purchasing:

  • It offers less economy in buying.
  • Due to lack of coordination between various departments there is unplanned buying.
  • As each department may not have an expert purchaser, it is tough to obtain uniformity in price.

After analyzing merits and demerits of both the systems it can be concluded that centralized purchasing is better than decentralized purchasing. Centralized purchasing is best suited to the firms which operates only one plant whereas decentralized purchasing is best suited to manufacturing concerns which operates several plants.

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April 6, 2019