1. Centralized Vs.
Decentralized Buying
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2. What Is Centralization?
 If top manager make the organization’s decisions
with little or no input from subordinates, then the
organization is Centralized
 The degree to which decision making is
concentrated at a single point in the organization
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3. What is Decentralization ?
“When the managers and supervisors at the middle
and lower levels are given considerable autonomy in
decision-making, the organization is considered to be
decentralized”
“It assumes that those most involved with the
particular product, service, or consumers know what
to do and can do it more quickly if given the
authority to commit resources.”
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4. Centralization Vs Decentralization
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5. Buying Decision
“Purchasing is a window to the outside world.”
 In any industry purchase means buying of
equipments, materials, tools, parts etc. required for
industry.
 The major task of the purchasing decision related
with:
Getting the right quantity of material,
 At the required or right quality,
At the right time,
At the right place,
From the right source, and
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6. Centralization Vs.
Decentralization on Buying
Decision
 The issue of centralization versus decentralization
of purchase function is basically concerned with
decision about the purchasing policies defining the
purchasing authorities and the resultant
responsibilities.
 When an organization has several
facilities, management must decide whether to buy
locally or centrally.
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7. What is Centralized Buying?
 Centralized purchasing is a method of procurement of all types of
materials, supplies, equipment etc. through a single department (not
necessarily centrally located) under the direct control and superintendence
of one responsible person.
 He is directly accountable to the top management for all duties falling
within the broad area of purchase function.
Supplier
Warehouse
Plant A
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Plant B Plant C Plant D

8. What is Decentralized
Buying?
 Localized /Decentralized Purchasing means
that divisions or smaller areas of an
organization have their own purchasing dept.
Head office
Plant A Plant B Plant C Plant D
Purchase Dept Purchase Dept Purchase Dept Purchase Dept
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9. Situations where
conflict occurs
 Single plant with diversified production
 Geographically scattered multi-plant with
diversified production
 Geographically scattered multi-plant with
single product
 Scattered multi-plant with diversified products
with
 Freely availability of basic raw materials etc.
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10. Centralized or not
Centralized?
 Availability of resources
 Transportation costs
 Lead time
 Overhead
 Safety
 Service level
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11. Advantages of
centralized buying
 Bulk buying strengthens the bargaining position of the
buyer.
 Advantage of the quantity discount can be tapped.
 It will reduce the inventory carrying costs
 Lower transportation cost per unit..
 Duplication of efforts in buying function is eliminated
 Skill development of purchase head
 No competition within units
 Easy to procure from foreign supplier
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12. Disadvantages
 Problem when specific requirement needed
 Delay in receiving the materials
 Problems to use local resources in small
quantity
 Helps for autocratic management style
 Central purchasing staff may not be expert in
buying various types of items
 Loss of local control
 Creates another level of hierarchy
 Suitable more for small organization
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13. Advantages of
Decentralized buying
 Closer knowledge of requirement
 Reduction on transportation costs (central
warehouse to units)
 Reduction in lead time
 Close coordination with local production
schedules
 Suitable when head office is in foreign nation.
 Promotes democratic management practices.
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14. Which is the best?
 According nature and size of the organization, buying
decision depends either centralized or localized.
 Perhaps the best solution is a compromise
strategy, whereby both local and central buying are
possible.
 For a large group company with multiple plants at
several locations it is advisable to have both
centralized and decentralized purchase.
Hybrid Buying
System
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15. Hybrid buying system
 It is the system derived by taking advantages from both
centralized as well as localized buying.
 High value and large consumption items can be procured
through centralized purchase for cost effectiveness.
 whereas plant operating supplies, purchases can be
decentralized and can be made to be procured by the plant
as they are of day to day requirements.
 For instance, the corporate group of IBM negotiates
contracts on centralized basis only at the request of local
plant and day to day requirement are procured at plant
level.
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16. Thank You !
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17. Any Queries
Please…….?
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