Centralization vs. Decentralization in Purchasing

Question 1

• Centralized purchasing

Answer 1

o A single purchasing department handles all purchasing and related functions
o They make all decisions related to purchasing including order quantity, pricing policy, contracting, negotiations, and supplier selection

Question 2

• Advantages of centralized purchasing:

Answer 2

o Ability to obtain quantity discounts due to large volume generated. Achieve Economies of Scale and increase buying power of a firm.
o Better service and closer attention from suppliers due to high volume
o Ability to maintain specialized staff who can concentrate on a select few items consistent with their background and expertise
o Avoid duplication in what is ordered for the firm
o Reduced shipping and transportation costs due to consolidating orders into large shipments

Question 3

• Decentralized purchasing:

Answer 3

o Individual departments or separate locations are responsible for their own purchasing requirements.

Question 4

• Advantages of decentralized purchasing:

Answer 4

o Ability to respond to local or department specific needs
o Less bureaucracy. Quicker response to purchase orders. Efficient communication between buyer and supplier
o Ability to save on transportation costs by buying locally