Read this article to learn about Centralised Purchasing. After reading this article you will learn about: 1. Meaning of Centralised Purchasing 2. Benefits of Centralised Purchasing 3. Drawbacks of Centralised Purchasing.
Meaning of Centralised Purchasing:
Purchasing occupies such a crucial area of management in a manufacturing organisation that the materials management solely entrusted with the task of handling materials—right from their purchase till their proper utilisation—has to give a very careful consideration on the question of centralised or decentralised purchasing.
The basic consideration is whether the organisation is a single unit or has a number of units. Though there is a definite bias, now-a-days, towards centralized purchasing but this cannot be accepted as a universal principle, centralization or decentralization—both must have their merits and demerits—no system or method can be free from flaw—an unmixed blessing.
The nature and size of firms may influence the decision of centralised purchasing or otherwise. A manufacturing enterprise having only one plant, naturally, should concentrate on centralised purchasing— only one person being in charge of the purchasing function.
But a firm with multiple units should take into consideration a number of factors such as the type of materials needed in large quantity, the vocational pattern of the plants—their geographical separation, homogeneity of products, volume of purchases, supply sources, susceptibility to items of market changes.
Benefits of Centralised Purchasing:
1. More specialised buying personnel whose purchase acumen may save even 10 p.c. on the total volume of purchases.
2. Centralised buying means orders from the single source — saving of clerical cost.
3. It is easier for the top management to exercise control over purchases.
4. More standardisation in designs can be secured.
5. Consistent buying policy can be preserved because of undivided responsibility.
6. Quick and effective advantages due to changes in market condition can be obtained by centralised buying.
Drawbacks of Centralised Purchasing:
1. Control over the purchase is too rigid.
2. Additional freights have to be incurred for sending-materials to local plants.
3. Centralisation may result in quality deterioration of materials and shortages.
4. Minor items do not receive proper attention and service to them becomes slow and complicated.
5. Community goodwill is absent.
6. Autonomy has no place in centralisation.
While concluding, we can say that in spite of some short comings, very big companies prefer centralization for all buying where large sums of money are needed and where buying is highly technical and reciprocal purchases are favoured. For all capital investments also, centralisation is preferred.