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Centralized Purchasing

Centralized purchasing is purchasing that runs through a purchasing group. With centralized purchasing, requisitions for goods and services go through an approval process after which they are sent to a centralized purchasing group. The purchasing group selects the suppliers, often utilizing requests for quote. They also issue the final purchase order and own the purchasing and delivery process.

Centralized Versus Decentralized Purchasing

Decentralized purchasing is a system where individual departments or divisions of an organization are responsible for their own purchasing activities. Each department is responsible for researching and selecting vendors, negotiating prices, and managing their own inventory. This system is used to give departments more autonomy and to ensure that departments are able to select the best vendors and prices for their own specific needs.

There currently is a trend toward decentralized purchasing due to the costs associated with centralized purchasing and their distance from purchasing needs. However, in many situations, centralized purchasing is the right choice.

The top advantages of centralized purchasing are:

    • Reduced costs (theoretically) - Centralized purchasing can reduce the cost of goods and services for an organization by allowing for better price negotiations and bulk purchases.

    • Improved quality - With centralized purchasing, the purchasing team can ensure quality standards are met.

    • Improved efficiency - Centralized purchasing creates a more streamlined process that saves time and resources.

The top disadvantages of centralized purchasing are:

    Higher costs - Over time, many centralized purchasing organizations add more and more requirements to the suppliers and purchasing processes dissuading supplier participation which leads to higher costs.

    • Less autonomy - Departments may not be able to buy the exact product or service that best fits their needs.

    • Limited vendor selection - With centralized purchasing, departments may not be able to select their preferred vendor.

    • Decreased flexibility - With centralized purchasing, departments may not be able to adapt quickly to changing market conditions.

Centralized Purchasing Software

Centralized purchasing systems often utilize multi-supplier requisitions (purchase requests), sourcing RFQs, perhaps RFX's (requests for proposal, information, verification, quotation, etc), and purchase orders.

The best purchase order software, like the systems provided by Aestiva, are configured around the business process of the purchasing group since they vary from organization to organ Aestiva's large inventory of purchasing and procurement modules, that can be combined together as needed. The high level of flexibility is used when Aestiva assembles centralized purchasing solutions to meet the needs of the centralized purchasing body.

Aestiva deploys both centralized and de-centralized purchasing systems based on the needs of the customer. Sometimes multiple forms are needed and sometimes just one. With membership in Aestiva's Software Unlimited Plan the modules are free; giving you the freedom to match your system to your processes.

Example Usage

"Our procurement used centralized purchasing. We have three buyers and a coordinator."

See Also

Purchase Order Process, Purchase Order Receiving Process, Decentralized Purchasing