Concept And Meaning Of Centralized Purchasing
Centralized purchasing refers to the purchase of materials by a single purchase department. This department is headed and managed by a purchasing manager. Under centralized purchasing, all purchases made by the purchase department to avoid duplication, overlapping and the non-uniform procurement. A company has to follow the centralized purchasing of materials for ensuring proper materials control as well as efficient store keeping. Under this system, the purchasing department purchases the required materials for all the departments and branches of the company.
Advantages Of Centralized Purchasing
- Bulk quantity of materials can be purchased at a low price with favorable purchasing terms.
- The service of an efficient , specialized and experienced purchase executive can be obtained.
- Better layout of stores is possible in centralized stores.
- Economy in recording and systematic accounting of materials.
- Transportation costs can be reduced because bulk quantity of materials purchased.
- Centralized purchasing avoids reckless purchases.
- Centralized purchasing discourages duplication of efforts.
- Centralized purchasing helps to maintain uniformity in purchasing policies.
- Centralized purchasing helps to minimize the investment on inventory.
Disadvantages Of Centralized Purchasing
- High initial investment has to be made in purchasing.
- Delay in receiving materials from the centralized store by other departments.
- Centralized purchasing is not suitable, if branches are located at different geographical locations.
- In case of an emergency, materials can not be purchased from local suppliers.
- Defective materials can not be replaced timely.