What Are the Advantages of Centralized Purchasing?

What Are the Advantages of Centralized Purchasing?

This form of purchasing can save a company a lot of money. The greater amount you buy of an item, the better bargaining power you
possess. Consider this method of buying if you know that your company is going to need a large amount of one item. Good relations are developed with suppliers and can open doors for better deals and bargains in the future. Transportation costs are also reduced since fewer shipments are processed. Also, less people are held responsible for an order placement error. Centralized procurement can be very beneficial for a company if it is implemented correctly. The logistics department needs to be run by highly capable individuals. It's a good idea for a growing company to determine how items are purchased throughout its various locations. Choosing the right type can save money and time throughout the entire company.



Example:
A oil services company mandated that a certain type of employees must wear impact resistant gloves.
In a decentralized purchasing system that this company uses each pair of these gloves cost 18 to 26 dollars a pair. Each location buys them from local retailer or via internet.
If this company was to adopt a centralized purchasing program for these consumables the cost of each set of gloves would be $8.42 a pair.



Lets do the math:
15 Employees per location 1 pair of gloves per week. Equal 780 pairs per location.
This particular company has 15 locations per region and 5 regions.
So hiring a supply chain managers at the corporate level and implementing a centralized purchasing program would save $13.58 per pair on average.

Or:

$10,592 per location annually
$158,886.00 per region annually
$794,430.00 corporation wide in annually

Other Advantages: 
Company branding for the price of 8.42 the company can also have its own logo company colors. a uniform appearance of all employees across the entire company. 

Is it time for your company to look at centralized purchasing. If you would like help setting up a centralized purchasing and distribution division in your company give us a call or drop us an Email.



Earle Morris
MBA Supply Chain
CSCP