Midterm

Discuss the concepts of centralized vs. decentralized purchasing authority, identify their relative advantages and disadvantages, and provide examples of when each may be appropriate.

Centralized purchasing authority relies on one person to make decisions and direct the company. Sometimes in small businesses this is used because the owner is typically responsible for the operations of the company. The person held accountable in centralized authority structures is held accountable by the top management for proper performance of the purchasing activities. Often in smaller businesses this is necessary to attain a high operating efficiency and to maximize profits. The power of decision making is in just a few positions and there is typically little input from other positions. In large organizations this can be a good tactic if there is little segmentation among the business.

In decentralized structures there are several people making decisions and running operations. In decentralized styles there is a team of people and different levels in the business. With having a larger team making decisions employees are usually empowered to make business decisions.

Centralized authority can create extreme efficiency for a business. Usually the owner of the business can develop a mission and vision and set specific objectives for the managers to follow to achieve the desired goals. There is potentially a reduction of potential duplication of effort and the ability to leverage volume purchases. There is a possibility of discounted when similar items are consolidated. The inventory levels can be controlled more closely due to have more effective inventory control. The financials could benefit by having lower administrative costs.

In decentralized authority businesses use people with the expertise they have to run different business operations. In decentralized the broad management team can help ensure the company has knowledgeable leaders to handle the...