Does Centralization Lead to higher Efficiency? – An Industry-specific Analysis of Purchasing Functions

Abstract

Very few empirical studies have investigated the factors influencing the operational efficiency of purchasing functions let alone the impact of the degree of centralization on their efficiency. Through the perspective of the organizational information processing theory, we examine the relationship between the degree of centralization and operational efficiency of a purchasing function. We use survey data, interviews and company documents from 68 multinational companies to empirically investigate industry-specific centralization-efficiency linkages.While the combined sample does not provide insights about the optimal degree of (de-)centralization, results from the homogenous sub-samples offer statistically significant findings. We find strong support towards decentralized purchasing function in Automotive and High-tech industries to improve purchasing efficiency. In Food & Beverages and Financial industries, the findings indicate that centralized purchasing functions are more efficient. Our empirical research offers new insights into the understanding of the linkages between various organizational structures and purchasing efficiency in different industry settings.

Strength in numbers: collaborative procurement and competitiveness of craft breweries

“…One of the most interesting findings from this study was the impact of coopetition on supply chain decision-making and the conundrum that it presents for CP opportunities when brand differentiation is perceived as paramount. Essig (2000) recognises economies of scale as a mechanism for cost savings, but this requires a move towards material standardisation to be truly effective (Hirschinger, 2016;Rego et al, 2014). This is a viable option (and may even be mandated) for non-competing or public sector organisations (Gobbi and Hsuan, 2015).…”

“…Third party aggregators are not the most cost-effective solution because the breweries cannot use their own staff or utilise group resources, which can occur with other structures. This is problematic because centralisation is a key mechanism for CP efficiency savings (Essig, 2000;Hirschinger, 2016).…”