Purchasing Organization Structure - Supply Chain Optimization

The Purchasing Organization of Any Company is Vital to Its Success

Illustration representing the Global Supply Chain with an arrow moving around the world.

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A company's purchasing function is critical to the long-term success of a business. Shrewd negotiations with vendors let purchasing departments economically source quality items that are integral to the manufacturing process and essential to providing customers with desirable finished products. Contrarily, a purchasing arm's operational inefficiencies can lead to high material costs, product inconsistencies, and customer dissatisfaction.

Small Business

Unlike large corporations, small businesses tend to have small purchasing desks run by a single individual, who cultivates personal relationships with vendors and can quickly act when issues arise. On the downside, as businesses grow, single purchasing professionals can easily become overwhelmed with the responsibilities of maintaining relationships and tracking deliveries. Therefore, small businesses should grow their purchasing desks in lockstep with their overall growth.

Centralized Purchasing

Larger companies often create centralized purchasing structures, where a purchasing executive leads a team of individuals, housed in a central location. With this hub approach, a company with seven plants across the US would buy materials for all plants. This gives purchasers the advantage of buying in bulk, for lower overall costs. Centralized purchasing also gives professionals tighter control over the purchasing process.

Decentralized Purchasing

Organizations with multiple locations may adopt a decentralized purchasing model, that lets each facility or a group of facilities carry out their own purchasing activities. This model can benefit organizations with multiple profit centers and various business lines. This system is also advised for companies that acquire businesses divergent from their core operations. Decentralized purchasing helps companies deal with local vendors, who can make sudden deliveries at a moment's notice, in order to keep the manufacturing process flowing smoothly. Contrarily, centralized purchasing desks often transact with national vendors who may not be able to nimbly fulfill sudden purchase orders.

Some companies have adopted a hybridized centralized/decentralized purchasing approach. In these cases, certain facilities have the purchasing responsibility for some critical production items, while the central purchasing organization is tasked with purchasing non-critical or shared services items.

This article has been updated by Gary Marion, Logistics and Supply Chain Expert at The Balance.