Eskom Procurement Book 2015

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

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