Merits or Advantages Of Centralized Purchasing
The main advantages of centralized purchasing can be expressed as follows:
1. Lower Purchase Price
In centralized purchasing, materials are purchased by central department. So, company can enjoy the benefit of economies of scale, cash discount and quantity discount. Bulk buying also reduces ordering and carrying costs that lowers the purchase price of materials.
2. Better Supervision And Control
It eliminates recklessness, overlapping and duplication in the process of purchasing. It ensures uniform procurement and effective storing of materials. So, centralized purchasing helps to establish better material supervision and control system in the organization.
3. Systematic Recording
All buying functions are performed through purchase department which is properly managed by procurement manager and skilled buying staffs. So, material related records (purchasing, supply, inventory etc.) can be properly and systematically.
4. Better Relationship
It helps to maintain better relationship with suppliers/sellers which increases the bargaining power. It is also helpful at the time of shortage and emergency.
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5. Relief To The Managers
All the materials are purchased and supplied by a purchase department. Managers of other branches, departments and units do not have purchasing responsibility. So, they can focus on their main duties and responsibilities.
4. Not Suitable For Large Companies
Demerits Or Disadvantages Of Centralized Purchasing
The main disadvantages of centralized purchasing can be expressed as follows:
1. Requirement Of High Investment
The main drawback of centralized purchasing is that it requires huge amount of initial investment to purchase materials for all branches and departments.
2. Complexity
It is very difficult to purchase and supply materials to different branches and departments according to their needs and requirements. Buying staff cannot handle purchasing activity properly if the organization is very large with several branches located at different geographical regions. So, this procurement is more complex than decentralized purchasing.
3. Chance Of Delay
In this system, procurement process is longer than decentralized purchasing. So, it is difficult for the branches to receive materials in time.
It is not suitable for large companies with many branches located far from the headquarter.
5. Emergency Situation
Branches and departments are not allowed to purchase materials from local market. So, organizational activities can be delayed at the time of emergency because of the shortage of materials.
Pros And Cons Of Centralized Purchasing In Short
Pros:
- It minimizes purchasing price because of large scale buying and less carrying costs
- It ensures supervision and better material control system
- It eliminates recklessness and duplication in purchasing
- Inventory records can be maintained properly and systematically
- It maintains better relationship with seller
Cons:
- It requires high initial investment
- It is not suitable for large firms having several departments and branches because there is a chance of delay in receiving materials
- It will be difficult to replace defective materials
- This procurement system is not suitable at the time of emergency