Contents
What is centralized procurement?
Centralized procurement is a process in which a company has a dedicated purchasing department that makes procurement decisions for all other departments and business units within the company.
What are the advantages of centralized procurement?
The major advantage within centralized procurement is a stream-lined process with suppliers that the purchasing department builds over time. They are able to control everything at a ground level which includes the use of funds for each department. Other advantages include:
- Enhanced spend management leading to economies of scale
- Development of comprehensive categorization strategies and tactics
- Improved compliance with standardized processes
- Establishment of a dedicated, specialized purchasing team
- Centralized data and information management
- Effective risk mitigation
- Centralized oversight of environmental, sustainability, and governance initiatives
- Strengthened relationship management with a single point of contact for key suppliers
What are the disadvantages of centralized procurement?
The struggle with this style of procurement is the lack of understanding individual department needs at a granular level especially when there are different geographical locations involved. This also means that while they have good relations with their current suppliers, there may be opportunity lost to deal with local and diverse suppliers within different geographical location based departments. A list of disadvantages of centralized procurement include:
- High initial costs for staffing and establishing a purchasing department
- Potential inefficiencies as operations become too large or complex
- Unsuitability for geographically dispersed organizations
- Lack of understanding of local requirements
- Missing out on localized discounts
- Disempowerment of staff
- Delays in delivering goods and services to end-users
