Advantages and disadvantages of Centralized Purchasing by V S Rama Rao on October 3, 2009
The centralized purchasing avails the following advantages:
1) As the duplication of efforts in buying function is eliminated, its cost will be relatively less and it will be managed efficiently
2) The Manager of manufacturing departments, departmental heads and office managers are relieved from the responsibility of purchasing their own requirements. They can concentrate in their assigned areas of activities in a better way.
3) It is possible to tap the advantage of the specialized skill of the buying staff.
4) Bulk buying strengthens the bargaining position of the buyer. Moreover, the advantage of the quantity discount can be tapped. Direct contact with the suppliers will be possible which will eliminate the link of the intermediaries
5) It enables to develop and maintain good relations with the suppliers. Moreover, it facilitates the supplier to maintain relations with few buyers and thus it enables him to pass over some benefits on buyers.
6) It will enable the purchase of standardized items through standardized procedure.
7) It will reduce the inventory carrying costs. The minimum level of inventory are not maintained at different centers but at centralized center which reduce investments in inventories along with the other incidental storing costs. The central buying staff manages the stock levels, recording material usage, lead time and prices effectively.
8) The receiving of large supply through consolidated orders reduces the transport cost per unit.
9) The cost of order processing such as order placing, receiving, inspection, accounts etc are reduced substantially due to few orders of large quantities
10) As the responsibility center is fixed on one departmental head, the shifting of responsibility for wrong decisions is eliminated.
11) The inter-section