Question

Assuming you are working with one manufacturing company with several branches
within Ghana and West Africa sub-region, discuss arguments for and against centralizing
or decentralizing procurement/purchasing function and recommend suitable method or
function for your organisation

Answer 1

Centralisation is when decision making authority is held by top managers, lower level managers are not involved in decision making in a centralised system.

Decentralisation is when decision making authority is delegated lower level managers. These decisions are mainly that effect the performance of these lower level managers.

Advantages of centralised purchasing

If purchase is done centralised, the company can make benefit of the huge volume and negotiate discounts with the supplier. There by reducing per unit cost of procurement.

Advantages of decentralised purchasing

If purchase is done by managers at each branch, they can minimise cost by limiting the purchase to only required quantity. Thus, the efficiency of each branch in utilizing procurements will increase.

Disadvantages of centralised purchasing

The top level managers will not have the ground reality on actual quality of procurement expected, actual quantity of procurement for smooth running of each branch, as it is actually the branch level managers who are actually utilising the procurement

Disadvantages of decentralised purchasing

Since purchase is made at branch level, the quantity will be lower. Thus, huge volume discounts cannot be negotiated, with suppliers.

Centralised purchasing is more suitable, this is because the benefits of huge volume discounts overweigh the disadvantages of centralised purchasing