Centralised purchasing depends on many factors. They are: location of plants, nature of product manufactured, type of material, quantity of material, location of supplier, and other conditions peculiar to industry.
Advantages of Centralised Purchasing
The various advantages of centralised purchasing are as follows:
UJ Fixation of responsibility: The purchase department can be held responsible for inefficient purchasing.
(2) Economy: Economy in compilation of records is achieved as all records of purchase are kept at one place.
(3) Specialised knowledge: Concentration of expert purchasing staff in one department develops specialised knowledge and skill.
(4) Favourable terms: There may be favorable terms with reduced cost due to more trade discount, quantity discount and less transport cost because materials are purchased in bulk quantities.
(5) Better Control: Better control on purchasing is possible under centralised purchasing. There is no chance of reckless purchase since one person is authorised to make purchase for the whole organisation.
(6) Firm Policy: A firm policy can be initiated under centralised purchasing, this makes possible in reduction of prices of various commodities.
Disadvantages of Centralised Purchasing
The main disadvantages of centralised purchasing are as under:
(1) Delay: Centralised planning causes delay as plants may be situated in different places. It is really very difficult to consolidate the requirements of all items different factories and then place orders with suppliers.
(2) High initial cost: It leads to high initial cost because a specialised purchase department for purchase of material has to be established.
(3) Local Purchase: The benefits arising out of local purchase cannot be availed of where there is centralised purchase in operation.
(4) Emergency Purchase: In case of centralised purchasing, emergency purchase cannot be made.
(5) Communication difficulty: This system of purchase leads to communication | difficulty between centralised purchase office and the plants.
(6) Less flexible: The purchasing procedure under centralised purchasing is flexible.