Centralized Purchasing – Everything a Procurement Professional Should Know

When we talk about centralized purchasing, we may think of control as one of its elements. However, we know that it is not an easy task in every company.

For this article, we will examine what central purchasing is. We will also check how it benefits a business in using this process.

Once you finish this article, you will be able to know if this can be used for the benefit of your business. Furthermore, this will allow you to recognize its possible effects if this will be implemented in your business. Let’s now begin to explore and get into its core.

Whatis Centralized Purchasing?

Centralized purchasing is a term used to describe a purchasing system where a department manages the entire acquisition of goods and services for the whole organization. In simple words, one department is delegated to purchase all the needs of another department or for the entire organization. 

Commonly, central purchasing works by working with other departments in consolidating their needs to acquire cheaper prices. Also, most organizations use this to simplify their purchasing budget or to keep track of their spending. 

The purchasing department is usually the branch that handles all the purchasing for all the departments of the organization. The purchasing department is led by the purchasing manager to track all the materials and their quantities. 

Benefitsof Centralized Purchasing

1. Reduction of overhead expense

There are a lot of factors that affect purchasing materials. It includes the supply quality of vendors, utility expenses, and lease agreements. Centralized purchasing consolidates all the purchases to reduce the overhead cost of an organization.

2. Control over the process of purchasing

Like what we said earlier, centralized purchasing involves control. When one department handles the purchasing process, it simplifies the purchasing management which allows for transparency and accuracy of materials. 

It eliminates the risk of employees buying unnecessary things for the organization. Also, central purchasing limits outside spending which can be a door for procurement fraud. 

Furthermore, it reduces the countless lapses of employees in terms of spending. Employees may have failures as they may declare an overstated expense, understated expense, duplicate purchases, and unnecessary expenses. These lapses may affect the finances of an organization which may result in huge losses.

3. Saves you money

Central purchasing bundles the needed materials of the organization which can make an organization save money. Purchasing manager buys in bulk which reduces the cost of materials due to discounts that resulted in volume buying. 

Central purchasing does not need to employ another purchasing manager for its various locations of branches. Only one purchasing manager is required which can save the organization a lot as they do not have to hire many purchasing managers. 

4. Improve collaboration

Employees must work together to communicate their needs as they will be consolidated before the materials will be purchased. This allows employees to get to know each other well. This will enable them to collaborate effectively as they know how they will approach each other. 

A centralized system provides the organization to be consistent across all departments and the employees working in it. This system will fortify brand development and customer relations due to being in the same guidelines. 

5. Saves you time in the purchasing process

Central purchasing combines the purchases of each branch in an organization rather than catering to each department what it needs. This allows the organization to save more time needed to manage its transaction as it controls it at a scale.