Centralized & Decentralized Purchase | Suitability | Merits & Demerits | Differences

What are Centralized & Decentralized Purchases?

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.

Centralized and Decentralized Purchase

Centralized and Decentralized Purchase

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.

1. Better materials control

2. Better layout of storage space.

3. Utilization of high technical skill.

4. Minimum finance required.

5. Better supervision of materials usage.

6. Less clerical work.

7. No duplication of purchase.

8. Better facility for stores audit.

9. Quick stocktaking.

10. Lower cost of insurance.

Demerits of Centralized Purchase

The following are the demerits of centralized purchase.

1. High cost of internal transport.

2. Non-availability of materials for production in time.

3. Greater risk of obsolescence.

Merits of Decentralized Purchase

The following are the merits of decentralized purchase.

1. Less cost of internal transport.

2. Timely availability of materials.

3. Lower chance of obsolescence.

Demerits of Decentralized Purchase

The following are the demerits of decentralized purchase.

1. Poor layout of space.

2. More finance required.

3. Less technical skill is obtained.

4. More clerical work.

5. Duplicate purchase of materials.

6. Slow in stock taking process.

7. High cost of insurance.

Differences between Centralized Purchase & Decentralized Purchase

The list of differences between centralized purchase and decentralized purchase is given below.

Leave a Reply

Recent Posts




Recent Comments


Related pages


mercantile lawsfeatures of bombay stock exchangecalculate quick ratio formulastock turnover ratio formula exampleleadership style autocraticdifference between job and process costingadvantages of leasing equipmentrole of international monetary fund in international tradeprivity in contract lawinsurance companies as financial intermediariescalculate material price variancecentralized purchasing systemgross profit ratio interpretationdefinition of paybackwhat are the three types of mixed economiesmaxim caveat emptorcharacteristics of socialist economic systemadvantages of shopping mallswhat is deductive analysiscentralization advantagesinco terms meaningmethods of forecasting exchange ratesunethical practisesfunctions of the rbicalculating inventory turnover ratestock turnover ratio formula exampleprobability and nonprobability sampling exampleslabour efficiencydifference between statutory meeting and annual general meetingdso days sales outstandingskimming policytypes of departmentalization in managementdisadvantages of imfcaveat emptor to caveat venditorwhat is dishonored chequepromoter in company lawadvantages and disadvantages of waterwaysconsumable storesprivity of relationshipwhat is meant by ledgerstationery supplierobjects of vouchingwhat is consumer sovereignty in economicsstratified sampling disadvantagesdirect material in cost accountingarr in accountingadvantages of dematerialisationdifference between formal and informal communication pptretailing advantages and disadvantagesadvantages and disadvantages of division of laborstock turnover ratio interpretationmerits and demerits of probability samplinggratuitous bailmentpremiums sales promotioninarearsperils definition insurancedisadvantages of fdi in indiaaccounting profitability ratiosvestibule training methodtransport and marketing of agricultural producethe advantages and disadvantages of franchisingadvertisement and propagandafranchisor and franchisee meaningconsumer sovereignty definition economicsfactoring calculator step by steplabour turnover meansexamples of probability and nonprobability samplingissue of convertible debenturespros and cons of activity based costingrelationship marketing vs transactional marketingveil liftingdisadvantages and advantages of market economypayout ratio meaningdecentralization of authority in managementtreasury bills in india meaningdefine presentment