What is decentralized purchasing?
With this model, purchasing control is granted to local branches or sites instead of being managed by a centralized unit. The branch/site managers have the authority to purchase items based on their branch’s requirements. The decentralized purchasing model is usually adopted by businesses that are geographically diverse because it can be beneficial for the long-term development of the firm.
Pros of decentralized purchasing
There is comparatively less bureaucracy in decentralized purchasing since the branch manager is given complete authority over the expenditures of the branch and its procurement process as well as overseeing its operations and performance.
One of the best advantages of having a decentralized arrangement is that the procurement unit is located in the operating site and can coordinate procurement activities at a regional level. Items can be easily purchased by each department on-demand to meet short- and long-term needs. With a smaller set of offices or departments to serve, the purchasing team is much closer to the requesters—which helps the team understand the requirements better and purchase the items at better prices as they are required.
Local sources and suppliers
For firms that have a global presence with branches worldwide, it’s difficult for a central team to locate local suppliers for each branch. This ultimately deprives the firm of the benefits of working closely with local vendors. Decentralized purchasing helps open up personalized relationships between site personnel and suppliers, leading to more opportunities for lower prices, valued customer bonuses, and reduced transportation costs.
Accelerated purchasing process
Timeliness is an important factor in the purchasing process. Since this model has purchasing units present at each branch, the team can quickly respond to the requester’s requirements. In an emergency affecting an individual branch, the purchasing team is aware of the situation and can quickly help to mitigate the issues.
Decision-making is quicker in a decentralized model as well, since the approval workflow is shorter, and the turnaround time in communication between the requesters and the purchasing team is significantly reduced. Orders can be processed swiftly since materials can be sourced and fulfilled right away. Also, replacement requests for defective items can be initiated promptly without the involvement of the central purchasing team.
Limitations of decentralized purchasing
Diminished purchasing power
In the decentralized purchasing model, the purchases are curated by site managers and administrators as opposed to a trained central procurement team. This makes it hard to ensure that purchasing staff are evaluating suppliers carefully, consolidating orders to purchase in bulk, and negotiating the best deals. The absence of procurement experts can also make it harder to control expense fraud, duplicate purchasing, and uncontrolled spending.
Inadequate visibility and control
Since each site has its own purchasing process, the number of contracts, requisition forms, purchase orders, suppliers, and price agreements across the organization as a whole can be enormous. All this critical data is unlike to be standardized if the organization has a large number of sites or branches. In the end, this disorganized data can impact policy compliance and cause difficulty in performing spend analysis.
Here’s your takeaway!
Organizations can use either a decentralized purchasing model which allows each team or department to manage its procurement or a centralized purchasing model that handles purchasing for the entire company. There are several influencing factors that determine if a model is suitable to a company or not — the operational sector (public or private), the industry type, and even the region the firm is located in. Making a decision on whether to adopt a decentralized procurement model requires extensive analysis of the firm’s surroundings, supply chain logistics, supplier relationships, and the requirements of individual departments.