Distinguish between Centralised Purchasing and Decentralised Purchasing.

Centralized Purchasing vs. Decentralized Purchasing

Centralized Purchasing:
Centralized purchasing refers to a procurement strategy where all purchasing decisions and activities are handled by a single central purchasing department or authority within an organization. This central entity is responsible for sourcing, negotiating contracts, and buying goods and services for the entire organization. Centralized purchasing offers several advantages, including economies of scale, as bulk purchases can lead to lower prices per unit. It also ensures consistency in purchasing decisions and helps maintain control over spending and supplier relationships. However, centralized purchasing can be less flexible and responsive to local needs and may lead to bureaucratic delays in the procurement process.

Decentralized Purchasing:
Decentralized purchasing, on the other hand, involves delegating purchasing authority to individual departments or units within an organization. Each department or unit is responsible for its own purchasing decisions and activities, including sourcing, negotiating contracts, and buying goods and services. Decentralized purchasing offers greater flexibility and responsiveness to local needs, as decisions can be made quickly to meet specific departmental requirements. However, it can lead to duplication of efforts, inconsistent purchasing practices, and difficulty in achieving economies of scale.

Distinguishing Factors:

1. Authority and Control: In centralized purchasing, all purchasing decisions are made by a central authority, while in decentralized purchasing, individual departments have the authority to make their own purchasing decisions.
2. Efficiency vs. Flexibility: Centralized purchasing is more efficient in terms of achieving economies of scale and maintaining control over spending, while decentralized purchasing offers greater flexibility and responsiveness to local needs.
3. Consistency vs. Variation: Centralized purchasing ensures consistency in purchasing practices and supplier relationships, while decentralized purchasing can lead to variations in purchasing practices and supplier relationships across different departments.
4. Costs and Benefits: Centralized purchasing can lead to cost savings through bulk purchasing and centralized negotiation, while decentralized purchasing allows for quicker decision-making but may result in higher overall costs due to duplication of efforts.

In conclusion, both centralized and decentralized purchasing have their advantages and disadvantages, and the choice between them depends on the organization's goals, structure, and requirements.