Central Purchasing
Central purchasing is a department within a business or organization that is responsible for making all necessary procurement. Reduces the total number of staff necessary and facilitates training, which may be seen in lower costs Volume purchasing is enabled, which means greater discounts and better terms Potentially lower delivery costs, as well as staffing necessary to move and store goods Allows for centralized record-keeping of orders and inventory Enables the use of computerized systems to automate the purchasing process, as well as integrate it with stock control and accounting Provides a known, centralized contact for suppliers, which can lead to cost and time savings May enable procurement staff to develop better relationships with suppliers, which can lead to greater collaboration and cost-saving suggestions Still, even with the considerable advantages, central purchasing — when executed poorly or employed incorrectly — may come with some disadvantages: Avoids duplication or redundancy of efforts, which means lower costs and standardized processes Allows for more comprehensive control and optimization of inventory Some advantages of central purchasing include reducing redundant work, lowering costs associated with training and supporting additional staff, and better control. Additionally, organizations use a central purchasing department to simplify a procurement budget or to keep the organization's spending contained in a centralized location that can be checked for discrepancies and audited more easily.
What Is Central Purchasing?
Central purchasing is a department within a business or organization that is responsible for making all necessary procurement. Central purchasing works with other departments and agencies to consolidate orders for products to make use of economies of scale for receiving cheaper prices.
Additionally, organizations use a central purchasing department to simplify a procurement budget or to keep the organization's spending contained in a centralized location that can be checked for discrepancies and audited more easily.
Understanding Central Purchasing
Using a central purchasing department is part of an organizational strategy aimed at efficiency. While consolidating may allow the organization to order goods in larger quantities and reduce costs, it may also slow down the procurement process and prevent employees from getting the materials they need on time. Centralized planning may result in more bureaucratic red tape that can stymie innovation by preventing emerging departments from obtaining the materials that they need.
Central purchasing may work better for larger organizations that are less spread out geographically. It may not make sense for smaller companies to engage in a central purchasing strategy given the costs associated with enhanced technology and additional staff.
Advantages and Disadvantages of Central Purchasing
Central purchasing, especially in large, geographically diverse enterprises, provides some key advantages. Still, even with the considerable advantages, central purchasing — when executed poorly or employed incorrectly — may come with some disadvantages:
Disadvantages
Related terms:
Accounting
Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more
Closed Loop MRP
Closed Loop MRP (Manufacturing Resource Planning) is a computerized system used for production planning and inventory control. read more
Consolidate
To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or more entities into one. read more
Economies of Scale
Economies of scale are cost advantages reaped by companies when production becomes efficient. read more
Knowledge Process Outsourcing (KPO)
Knowledge process outsourcing (KPO) involves outsourcing work to individuals that typically have advanced degrees and expertise in a specialized area. read more
Operations Management (OM)
Operations management (OM) is the administration of business practices to create the highest level of efficiency possible within an organization. read more
Organizational Structure
An organizational structure organizes a company’s activities. Explore four types of organizational structures: functional, divisional, flatarchy, and matrix. read more
Procurement
Procurement is the act of obtaining goods or services, usually for business purposes. Procurement is most commonly associated with businesses because companies need to solicit services or purchase goods, usually on a relatively large scale. read more
Purchase-to-Pay
Purchase-to-pay is an integrated system that fully automates the goods and services purchasing process for a business. read more
Rationalization
Rationalization is a reorganization of a company in order to increase its efficiency. Rationalization may also refer to the process of becoming calculable. read more