Page 329 - DMGT501_OPERATIONS_MANAGEMENT

Unit 14: Purchasing

Centralized purchasing means buying and managing purchases from one location for all locations Notes
within an organization. This can also be run by a central location buying in to distribution
warehouse that feeds smaller warehouses. This is called a hub and spoke system.
In other words, it is the control by a central department of all the purchasing undertaken within
an organization. In a large organization centralized purchasing is often located in the
headquarters. Centralization has the advantages of reducing duplication of effort, pooling volume
purchases for discounts, enabling more effective inventory control, consolidating transport
loads to achieve lower costs, increasing skills development in purchasing personnel, and
enhancing relationships with suppliers.

Decentralized is the opposite where each plant or office buys what it needs. This operation
allows any employee to buy what he needs. You can also run this operation with a designated
buyer assigned to the site to do the buying.
The more decentralized an operation is, the less control the home office has. You have a
duplication of effort in buying and less buyer specialization. You lose discounts on quantity
buys. You lose freight options based on dollars or weight. Also some support is lost from the
supplier as there is no single contact for the supplier to deal with. Volume buying may not be
calculated for all your sites.
Advocates of decentralization claim that local management has the incentive to control cost
when the local operation is set up as a profit center. Many companies operate with a mixed
system. The central operation may buy major commodities but allow local operations to buy all
MRO supplies.
It is difficult to change from decentralized purchasing to centralized purchasing. Employees feel
their privileges are being taken away. They feel they are losing control of their site. Some will
refuse to really cooperate in the changes in hopes to making the program look unsuccessful.

Task List some organisations that have a decentralized purchasing system.

14.5 Ethics in Purchasing

There are several codes of conduct that is followed all around the world. The general ethics in
purchasing involves:
1. Give first consideration to the objectives and policies of the institution that you are working
for.

2. Strive to obtain the maximum value for each penny of expenditure.
3. Decline personal gifts or gratuities.
4. Grant all competitive suppliers equal consideration insofar as state or federal statute and
institutional policy permit
5. Conduct business with potential and current suppliers in an atmosphere of good faith,
devoid of intentional misrepresentation.

6. Demand honesty in sales representation whether offered through the medium of a verbal
or written statement, an advertisement, or a sample of the product.
7. Receive consent of original or of proprietary ideas and designs before using them for
competitive purchasing purposes.

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