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CHAPTER 1
PRINCIPLES OF SUPPLY CHAIN AND PROCUREMENT MANAGEMENT
1.8.2 ADVANTAGES AND DISADVANTAGES OF A DECENTRALISED
PROCUREMENT FUNCTION
There are several advantages associated with decentralisation. These include
the following:
• Decisions can be made faster in a decentralised procurement
environment,
avoiding delays in procuring the necessary products and
services. This also allows the organisation to be responsive to market needs
and demands without having to wait for approval from head office.
• Procurement personnel from different SBUs or divisions understand
their operational requirements better
than those from centralised
environments since they are more familiar with their own products, processes,
business practices and customers.
• Most new product development happens at the SBU or divisional level.
Decentralisation can therefore support and facilitate faster new product
development processes, which, in turn, can result in a competitive advantage
for the organisation. The procurement function can bring key suppliers in
during the early stages of the new product development process. This will
allow them to evaluate the long-term requirements and develop strategic
plans.
• Ownership.
Ownership is based on the notion that local procurements
staff understand and support the objectives of the SBU or division and that
centralised staff are unable to achieve these objectives. Local staff tend to
be more committed to the goals and objectives of the SBU or division than
the staff from a centralised office [10].
There are also disadvantages to decentralisation. Decentralisation often places
too much emphasis on local sources, ignoring wider supply opportunities.
Next, the SBU or division preferences may not be congruent with corporate
preferences. And, it may be more difficult to communicate between SBUs or
divisions, resulting in a lack of standardisation. This implies that divisions or
SBUs might not communicate the specific requirements of certain products
or materials. Finally, the cost of supply is relatively high since products and
materials are bought in small orders which lead to the organisation foregoing
volume discounts. Administration costs might also be higher owing to duplication
of effort and small orders placed instead of one large order in case of centralised
procurement [10].
1.9 TYPES OF BUYING ORGANISATIONS
Organisations of different types are involved in procuring goods and services
and for different purposes.
• Commercial organisations
– Commercial organisations consist of industrial
distributors, Original Equipment Manufacturers (OEM), users and retailers.
The commercial organisations differ in terms of product use but are similar