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In recent years there has been a shift to centralize purchasing within the organization. On the surface this seems to be a good “bang for the buck”. By having a single point of contact, internal departments as well as vendors know who to contact. Centralization often reduces the number of personnel needed, and the big win is usually volume to gain greater discounts and contract negotiation leverage.
This concept works splendidly when procuring general company needs, for example, office products, printing & stationery, or bulk stock of packaging materials and the like. But what happens when the distribution center needs a specific piece of material handling equipment (MHE), or HR needs new timekeeping hardware and software? Are purchasing agents really versed in the specifics of such specialized products? This is usually the first problem, as centralized procurement does not know the intricacies of the aforementioned type purchases. Most procurement specialists know the fine are of bidding, working through legal department to complete negotiations and contracts, and how to “haggle” for bargain basement pricing. Some procurement departments may even base bonuses on the amount of dollars saved during negotiation. But did they really save the company money? Thus problem number two.
Just getting the lowest price is not necessarily the best price. Vendors have become all to savvy in dealing with these centralized procurement specialists. They simply leave out pertinent features, functions, or services to lower the price to win the deal. Later after securing a contract each aspect of the product or service becomes an "add on" making the original deal less than desirable.
Possible alternatives such as a hybrid of centralized and department specific purchasing may be the answer. If the department manager understands the specific needs and problem that requires solving, they can become the point person for inquiring and obtaining what they believe is the best product or service for the solution. In turn the purchasing agent can then guide the negotiation and contract completion in conjunction, since that is their area of expertise. This situation may create a win-win and actually save the company money.
If the business is small, departmental purchasing may still be the right thing to do. However, the larger the company, the more risk of departmental duplication if there is not some sort of centralized procurement. Whatever your business needs, examine all alternatives before just settling on price. After all, we usually get what we pay for.
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Introduction
