What is centralized purchasing? Outline the merits and demerits of centralized purchasing.

The Merits And Demerits of Centralized Purchasing. (Cost Accounting)

When the purchasing function is entrusted to a single person, it is said to be centralized purchasing. It means all purchases are made by the Purchasing Officer. Generally large and medium size organisations accept centralized purchasing.

Merits of Centralized Purchasing:

  • Centralized purchasing avoids duplication, so buying cost will be less.
  • Departments other than purchasing are relieved from the burden of purchasing. As a result of which employees concentrate their mind in own work.
  • Transportation cost and carrying cost become economical, because all purchases are made in bulk quantities.
  • More trade discount can be availed due to bulk purchase.
  • All the records with regard to purchase are kept in one place under the supervision of the purchase officer. It results economy in record management.

Demerits of Centralized Purchasing:

  • Delay is caused in centralized purchasing as different departments of different places will send their requirements to the purchasing department. The purchasing department will purchase the necessary items and send to other departments.

  • In this case centralized purchasing branches of different places can not take advantages of localized purchasing.

  • There are chances of misunderstanding between purchase department and other departments because other departments may not get their requirement according to their own will.

  • Centralized purchasing is not suitable in case of perishable commodities.

  • It results more cost of transportation and botheration, as it is purchased in one place and send to the distance places.