Purchasing Strategies: Centralized vs. Decentralized

Introduction

The key strategies in the context of today’s companies’ management are the ones concerning supply and purchasing control. Regarding the company type and size, purchasing strategies are then usually divided into three major categories: centralized, decentralized, and hybrid approach, which serves as a symbiosis of the previous two types. As all of these purchasing strategies have both benefits and drawbacks in terms of management, it is crucial to study the structure of a company carefully to successfully apply one of them. The purpose of this paper is to define the purchasing strategy for a particular company or industry, examining the case from the purchasing manager’s perspective.

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Centralized vs. Decentralized Strategies

Nowadays, there is a growing concern on the topic of the comparison of centralized and decentralized purchasing techniques in terms of their efficiency. However, such a contrastive analysis is quite difficult to execute, as they are both beneficial for particular purposes. For this reason, both strategies need to be characterized in terms of their strengths and weaknesses in order to later define which approach is more efficient for a chosen company.

Centralized Purchasing Strategy

One of the major types of purchasing management is a centralized strategy. According to the scholars, the primary concern of the centralized purchasing strategy is to unite all the purchasing and procurement processes under one supplier unity (Konur and Geunes 100). The organized unity then distributes the goods purchased among the chain entities or departments. The obvious benefits of such an approach are the ability to control the financial flow, establish a centralized procurement system, reduce expenses drastically as well as find credible suppliers. However, the drawbacks of such a strategy are also quite considerable.

For instance, if a company deals with outsourcing, a centralized procurement system tends to fail to deliver goods on time and hence, lose money. The quality of items may also be doubtful due to an inefficient purchasing manager. Thus, a centralized purchasing strategy can be suitable for companies that are not geographically spread and consist of a relatively small number of outsourcing entities.

Decentralized Purchasing Strategy

Another purchasing strategy often goes along with the previous one as it expresses contradictory ideas and is called decentralized. The initial purpose of this approach lies in the synchronic division of supply management across the company’s entities (Bals and Turkulainen 258). Such a technique is extremely beneficial when it comes to big companies that deal with outsourcing and subsidiaries worldwide.

The benefits of a decentralized system would be the relative independence of the company’s departments and a high level of flexibility as purchases can be made almost immediately after the necessary appearance. However, in terms of small companies’ management, such an approach leads to chaos and financial instability. Thus, the strategy should only be applied in cases when a centralized system is not able to keep with the company’s scope.

Case Study

Having analyzed both approaches concerning their effectiveness, it is now possible to apply the received knowledge to an example of a real company. The company chosen for the paper is Mars, Incorporated – a worldwide supplier of confectionery and pet food founded in 1911 (Global Petcare, Food, Mars Wrigley and Edge Brands”). Considering the fact that the company with headquarters in Virginia has subsidiaries on every world continent, it is evident that a centralized purchasing strategy cannot cope with the amount of procurement necessary. Consequently, further analysis of the company’s purchasing patterns will concern the decentralized approach.

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Purchasing Strategy Benefits

First of all, such a system will be beneficial for vendor sourcing as local purchasing managers will be able to hire vendors as soon as the necessity arises. It is quite efficient as companies all over the world have different purchasing load and balance sheets, which makes it challenging for a company to foresee the probability of vendors’ hiring. Secondly, the objectives of supplier cost and supply chain integration are also more efficient in the context of a decentralized structure as local management will rely on the supply costs relevant to the subsidiary. In such a way, supply expenses can be reduced or increased due to the department’s location and the overall economy of the country.

The ways to comply with local and regional regulations are also more available in terms of a decentralized model as the main office placed in the US cannot foresee all the legal nuances concerning purchasing management. Here arises another benefit of meticulous forecasting of deliveries, which impacts logistics as its patterns are highly individualistic for each subsidiary. The overall purchasing competency can also develop to a great extent as management now has the benefit of flexibility and adjustment to the market. The ability to forecast the schedules appropriately can be implemented through the independent purchasing peculiarities of each subsidiary.

Conclusion

Both centralized and decentralized approaches to purchasing patterns are, by all means, beneficial for the overall economic system. However, when it comes to adjusting one of them to a particular entity, it is of high importance to carefully examine all the potential challenges management would have to overcome. On the example of the international company, it was shown that entities that deal with outsourcing and have a lot of subsidiaries all over the world benefit a lot from the decentralized purchasing strategy.

Works Cited

Bals, Lydia, and Virpi Turkulainen. “Achieving Efficiency and Effectiveness in Purchasing and Supply Management: Organization Design and Outsourcing.” Journal of Purchasing and Supply Management, vol. 23, no. 4, 2017, pp. 256-267.

“Global Petcare, Food, Mars Wrigley and Edge Brands.” Mars, Inc.. 2020. Web.

Konur, Dincer, and Joseph Geunes. “Supplier Wholesale Pricing for A Retail Chain: Implications of Centralized vs. Decentralized Retailing and Procurement under Quantity Competition.” Omega, vol. 65, 2016, pp. 98-110.

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StudyCorgi. (2021, June 23). Purchasing Strategies: Centralized vs. Decentralized. Retrieved from https://studycorgi.com/purchasing-strategies-centralized-vs-decentralized/

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"Purchasing Strategies: Centralized vs. Decentralized." StudyCorgi, 23 June 2021, studycorgi.com/purchasing-strategies-centralized-vs-decentralized/.

1. StudyCorgi. "Purchasing Strategies: Centralized vs. Decentralized." June 23, 2021. https://studycorgi.com/purchasing-strategies-centralized-vs-decentralized/.


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StudyCorgi. 2021. "Purchasing Strategies: Centralized vs. Decentralized." June 23, 2021. https://studycorgi.com/purchasing-strategies-centralized-vs-decentralized/.

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StudyCorgi. (2021) 'Purchasing Strategies: Centralized vs. Decentralized'. 23 June.

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