Nurul Shahirah Binti Daud
Images : Google Images
In the name of ALLAH, The Most Gracious and The Most Merciful,
Assalamualaikum. For the fifth post, we would like to share about centralized versus decentralized purchasing.
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| Centralized |
First of all, centralized purchasing is coordinating all purchasing activities for the entire plant through one central location. The purchasing department is the one and only place in the firm where the suppliers are selected by the purchasing manager and the raw materials, assembly part and business capital product are processed to be purchase then.
Example of the company which applies centralized purchasing are Apple, General Motors (GM) and Microsoft.
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| Microsoft |
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| General Motors |
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| Apple |
The advantages of centralized
The advantages of centralized purchasing are cost control.
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All the material needed to be purchase will be coordinated into a major purchase, therefore the supplier will be easier to satisfy the order and try their best to please the requirements.
The second advantages are easy to purchase.
When the material needed by each department being centralized to the single purchasing department, the purchasing activities can be handle easily. There will be no redundancy happens at the organization.
The third advantages are get to purchase with quantity discount.
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| Discount give more satisfaction to buyer |
The purchase of goods in bulk and large volume allows buyers to reduce the cost by the availability of quantity discount. Discount will be given by the selling firm to the buying firm in case they are buying in large volume. It helps the selling firm to be able to move more goods and materials, and the buying firm will receives a more favorable price for the goods been bought.
The disadvantages of centralized
The disadvantages of centralized are high communication are needed.
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| Communication can be a bless and also barriers |
A department cannot make the decision on their own. They need to communicate about their department requirement with other department before the purchasing decision is being taken. Thus, high involvement are needed between these department in an organization.
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| Decentralized |
Meanwhile, decentralized purchasing are the distribution of authority and responsibility for supply-related functions throughout the organization or company.
Example of company which applies decentralized purchasing are Amazon and General Electrics (GE).
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| Amazon |
Advantages of decentralized
The advantages of decentralized purchasing are saving more time.
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Each department can make up their own decision whether to buy or not to buy their requirement needed by their own. There are no other department needed to get involve in the decision making process. They can simply contact the supplier and place the order whenever it needed.
Disadvantages of decentralized
The disadvantages of decentralized purchasing are the increase of the purchasing cost.
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| Reduce the cost to gain more profits |
The purchasing cost will be increased due to the transportation and postage cost that needed to be paid by the company to the selling firm and carrier in order to obtain the goods at the exact time. It can be reduced if the company is using the centralized purchasing as the products or raw materials ordered from each department can be consolidate together to gain fully utilize container other than need to pay for full load but not fully utilized.
The second disadvantages of decentralized purchasing are less communication between department.
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| No communication can bring harm to the company |
When there is no communication being make between the department, it will affect the relationship between those department in the organization. In addition, if there are any fraud or mistake while handling the purchase, the department will be liable to the losses being bear. Other department can't be simply asked to be liable as they didn't know the exact purchasing event we are dealing with.
The third disadvantages of decentralized purchasing is increase the lead time.
The production might face problem to satistfy the customer at the right time delivery if the lead time are high. There are possibilities that the selling firm and carrier cannot fulfill the buying firm's need if they are performing decentralized purchasing.
Lead time is the total time taken from the order placement being made by the buying firm until the goods ordered are delivered to the buying firm's doors by the selling firm.
In a nutshell, centralized purchasing are giving much more potential to the company to keep on survive in the field of business. Purchasing need to be manage wisely by the purchasing department as all the logistics activities involved in the company are vital to maintain the company performances.
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