Exercise 2: Centralization vs. Decentralization
Identify whether your organization has a centralized or decentralized approach to procurement.
My organization has a decentralized approach in which our stores play a big part in procurement. Even though purchasing makes all the decisions on product, the stores and the field operators make the final call. In comparison with other retail chains, decisions are mainly dealt at head office and the field would not have input on what is shipped to stores. Although my department (purchasing) has main control of the procurement process, we still need to advise our stores of what product has been ordered and shipped.
When purchasing prepares for an upcoming event, we provide our stores the details of the feature products and recommend how much product they should order. However, stores have the ability to adjust their orders based on how much they can sell/lease. In terms of replenishment, we send an availability report to stores on a weekly basis that breaks down their inventory by idle/on order and identifies if store are over or below their optimal levels by category. This report is a good tool for our stores to recognize any gaps in their inventory and gives them the opportunity to move inventory within other stores and provides them a guideline on what they should replenish. Stores have the ability to order product through our internal ordering system by creating requisitions. The system will automatically approve orders based on their inventory level and purchasing will roll them up on a weekly basis and send to vendors. Although our department reviews and recommends, we must always include our stores in our procurement process. The disadvantages of being decentralized would be that we don’t have full control of our store’s inventory and the ability to order based on what they need. The challenge we have experienced with stores ordering through our system would be that we don’t have the ability to watch what they are ordering. Are they ordering for customers? Are they replenishment orders? Are they ordering correctly? Are they tagging orders properly? Without theses controls, it will cause problems in the purchasing department and may lead to complaints by customers if product doesn’t arrive in stores, wrong product has been ordered etc. How can decentralize affect other business units in my organization? In general, departments are losing their sense of team spirit and putting their own priorities first instead of those of our company as a whole. Working in the purchasing department, I feel we are “the glue the binds all the departments together”. Without a purchasing department, there would be no sales at stores, no product for marketing to advertise, no invoices to pay, no inventory to receive etc. All of our departments are like a “domino effect”, our jobs affect each other. Therefore, areas such as productivity and serving stores/customers may suffer as a result.

If you organization is decentralized, how could it move towards centralization? If our company could move into a centralized approach, it will benefit our stores and overall business. Being able to make full decisions on behalf of our stores will definitely help in our procurement process. More decisions made in our department will be efficient and therefore lead to achieving our company’s overall goal. By looking at store’s overall inventory, we can have the ability to order product based on what the stores need and ensuring that their inventory is managed by the expertise of our department. Our category managers have the most skill to negotiate good value for our stores and are able to identify emerging product trends. Placing orders will be all centralized by the purchasing department. This will help purchasing manage all the orders being processed and will be easier for the department to follow up with vendors. Store order requests will be reviewed closely by purchasing based on store’s inventory and will only be approved at head office level. With stores not being involved, we can react and be proactive on how we can increase or improve our business by gathering valid information and efficiently review the pros and cons before making a decision. Once decisions are made, communications will be sent out with directives to our stores. Having the ability to make decisions will cause less conflict between the field and the purchasing department. This helps our stores know what to expect and prevents some of the frustration that can come from constantly changing decision patterns.
By reviewing both approaches, it is evident that our company should move to centralization especially in our purchasing department. Processes within head office and the field would be simplified and easy to follow. Having more than one business unit involved will definitely cause confusion with our stores. Taking the control away from the stores will help relieve some of their responsibilities and let them concentrate on the business by serving their customers. In addition, inventory levels will be managed better by the specialized skills of our purchasing department.