Centralized Purchase refers to purchasing of all the requirements under the central point of the organization. Like wise, Decentralized Purchase refers to purchasing of requirements of each production centre in an organization.
Important points to be considered
There is no hard and fast rule to follow either centralized purchase system or decentralized purchase system. But, the management should consider the following points before deciding either centralized purchase or decentralized purchase for their purchase department.
1. The distance between the production centre and the storage.
2. The nature of materials used i.e. bulky, heavy, fragile etc.
3. The cost of transport.
4. Policy of the company with regard to the materials purchase.
Suitability of Centralized Purchase
1. One or more production centers or plants are closely located.
2. The plant uses one basic raw material or production centers for the production of standard products.
Suitability of Decentralized Purchase
1. Production centers are located distantly.
2. The plants for producing different products produce different raw materials.
Both centralized and decentralized purchase system have its own merits and demerits. Hence, the suitability of purchase system differs from one company to another.
Merits of Centralized Purchase
The following are the merits of centralized purchase.