CENTRALIZED VERSUS DECENTRALIZED PURCHASING

CENTRALIZED VERSUS DECENTRALIZED PURCHASING - CENTRALIZED...

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CENTRALIZED VERSUS DECENTRALIZED PURCHASING The first issue deals with centralized purchasing of decentralized functions. Centralized purchasing involves coordinating all purchasing activities for the entire plant through one central location. That purchasing department is the only place in the firm where requisitions are processed and suppliers are selected. Advantages of Centralized Purchasing In most cases, centralized purchasing results in lower costs because of the availability of purchase quantity discounts. If all material uses are coordinated into one major purchase, the supplier will work harder to service the buying firm. Large dollar purchase quantities equal buying power. Most manufacturing firms spend more than 70 percent of their total revenue on purchasing materials and component parts. Thus, the effectiveness of a centralized organizational design will have a significant impact on profit. As an example, consider a firm that has several departments that use similar components; they could actually
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CENTRALIZED VERSUS DECENTRALIZED PURCHASING - CENTRALIZED...

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