Centralized Purchasing

A term denoting a process of selecting a supplier whereby corporate headquarters makes the decision of which supplier or suppliers the field will use for a particular product/service and in what proportions.
(See also
Independent Purchasing

Standardized Purchasing


Example 1:

In the past, Boise Cascade Office has chosen vendors and let its distribution center decide when to reorder from them. Now it will select about 3,000 most frequently ordered items for centralized buying.
(SIC 5112-Year 1995)

Explanation: For the 3,000 most frequently ordered items, Boise Cascade will use Centralized Purchasing: the headquarters purchasing group will determine the supplier, the amount of the purchases and the timing of the purchases.

Example 2:

Allied-Signal is generating major savings by consolidating purchases of raw materials at single locations, resulting in better prices and lower transaction costs.
(SIC 3724 – Year 1992)

Explanation: Purchases for the company are Centralized at one location.

Example 3:

Coulter found that the same three-way solenoid valve cost $20.87 in France, $17.50 in the UK, and $10.54 in the US. By consolidating the purchasing of this valve, Coulter saved over $100,000 annually.
(SIC 3845-Year 1992)

Explanation: Coulter has Centralized its purchases of this valve at one location.

Example 4:

At both GM and Ford, purchasing executives note that approximately 98% of their auto parts made by outside suppliers are single-sourced.
(SIC 3711-Year 1989).

Explanation: Headquarters purchasing groups at both GM and Ford have directed the use of specific suppliers for many of the auto parts the companies purchase. This is an example of Centralized Purchasing.

Example 5:

Shell replaced all 25 of its suppliers with a single firm, Pool Energy Services. Pipe replacement costs are down significantly.
(SIC 3498-Year 1995)

Explanation: Shell moved from a Standardized Purchasing approach to a Centralized Purchasing approach, where headquarters determines both the supplier and the price.