Centralize Or Decentralize Purchases In A Company?
Are you undecided about which of these two options is better?
Should you centralize or decentralize your company’s purchases?
How purchases are managed can be a decisive factor for the excellent productivity of your business. Your company needs an excellent organizational design for that essential part of its operation. A poorly functioning purchasing department will hurt the rest of the activities that take place in the company.
Do not worry; we are, and we do the same if you don’t have this department. Therefore, the purchasing department must resolve the different problems and situations that arise daily quickly.
A purchasing department is in charge of absolutely everything that has to do with acquiring merchandise, supplies, and work material.
The heads of the department are, in turn, those in charge of searching for suppliers, communicating with them, and making payments.
Regarding the organization of this department, purchases may be centralized or decentralized. We explain what each one consists of and which one we recommend you put into practice if you have a small or medium-sized business.
Differences Between Centralized And Decentralized Purchasing
In any company, a large number of purchases must be made periodically. In many cases, the products belong to totally different sectors and must be purchased from several suppliers. This can be organized in two ways: doing it in itself or outside.
Decentralize Purchases? Some Keys
This is a management model in which the responsibility for processing purchases is shared between different company departments. Here different organizational points are needed for purchases, and each of them will have its manager and strategy.
For example, there may be a department responsible for acquiring work materials such as computers, chairs, desks, cabinets, furniture, etc.
Other departments could be in charge of merchandise or stock depending on the type of product: clothing area, cosmetic area, leather goods, sports equipment, etc.
In the case of a company that sells products from different sectors, it would have an area specialized in purchasing each of them.
The decentralized purchasing model has several disadvantages to consider, as you will see below.On the one hand, it is a much more chaotic model for organizing work. Different purchasing departments will not be aware of what is happening.
This can be fatal to manage the company’s total budget since each person in charge will spend according to what they deem appropriate. Expenditures taking place in other areas will not be taken into account.
On the other hand, it is a more expensive organizational model since it will require more staff to manage all areas.Decentralizing purchases will require specialized suppliers in each area instead of large suppliers covering several sectors.
Consequently, the purchases of each department will be smaller, wasting the volume discounts. We do not forget to mention that low-volume purchases take longer to manage.
The company will suffer from a lack of schematization in the purchasing processes. Since each department of the company will look for its suppliers, the quality of one and the other may differ.
In this sense, you could find that some products are higher quality than those of another department. There will be little uniformity in the quality of the material. Decentralizing purchases is not the most recommended or profitable option for SMEs or small companies.
However, this method has some benefits. For example, when working with local suppliers, you can create a more direct relationship with them.
In this case, each department will have a more excellent knowledge of the suppliers they work with and the product or service they offer.
Transportation costs can also be reduced when the supplier’s factory or warehouse is close to the company. However, this is not always the case.
Each specialized department can pay greater attention to its part of the company. This means that purchases in each specific area can be made with greater agility, allowing urgent purchases.
Departments will give faster responses to unforeseen events and process immediate actions with suppliers to resolve incidents.
Advantages Of Centralized Purchasing
Centralizing purchasing provides many advantages for small and medium-sized businesses.
The cost of personnel and the efforts required to coordinate the procedure is lower, and fewer dedicated employees are needed for that part of the business.
The work team will have much more complete information on the suppliers and the transactions carried out. A single team controls the entire process, so there will be greater transparency on the data of the operations.
The department heads will have greater control over the budget available in your company and money management, deciding in which products it is convenient to invest more money and in which less according to the needs of the business.
If you have a good purchasing manager, you can take advantage of their ability to negotiate with all suppliers. Remember that centralizing purchases allow a few suppliers to take care of all the company’s demand.
In this way, the negotiating position of the department increases, which will obtain better prices for ordering a high volume of stock.
In addition, when there is only one centralized department, its relationship with the supplier will be strengthened. You will become a trusted buyer with easier access to better conditions.
Another advantage of the centralized model is that it can automate processes, saving time and resources. Any downsides?
In traditional purchasing departments, the only disadvantages this method could cause have to do with agility and ease of response.
Since the same department manages everything, it will sometimes be challenging to meet the needs of all parties. Independent departments can respond more quickly to the demand for the purchases they control.
With a centralized department, sometimes it will be necessary to wait for the next order to receive the missing material. The large volume of purchases with which it works does not allow much room for maneuver to respond quickly.
What Are The Functions Of A centralized Purchasing Department?
We will take everything to you, and you can not worry. The first thing we will do is carry out a purchasing consultancy.
It is a study on the purchasing procedure of your company to see where it can be optimized and improved. The actions of this consultancy will be aimed at reducing costs and increasing the company’s productivity.
We work with many suppliers and companies we work with, so we assure you that we will do a good job. Because we will do a good optimization of suppliers.
If you are a businessman and have a series of monthly expenses such as electricity, office supplies, insurance, courier, cleaning supplies, cleaning and printing services, transport, vending, merchandise stock .
To provide a complete service and avoid worries, some departments also take care of other expenses such as maintenance, and it could be your case if you need it.
We will not only take care of dealing with your product suppliers. We will also take care of other business expenses such as the air conditioning, the fire fighting equipment, or the electrical installation.
You can even search for disinfection and pest control companies, if necessary. We could even optimize your events. We talk about business lunches, parties, conferences, etc.
This includes everything from looking for the most suitable establishment to even the explicit material used in the event, including photographers and audiovisual technicians. In short, you will have centralized purchases.
The Main Objectives Of A Centralized Purchasing Department
Among its most outstanding tasks, the following stand out:
- Manage your budget in a friendly way when making business purchases.
- Look for quality suppliers, trying to get the best price for you.
- Solve and manage incidents that occur.
- Search and optimize the providers of other services necessary for your company, such as maintenance, cleaning, or the Internet.
Also Read: Measurement, The Key To Continuous Improvement Of The Customer Experience