How Centralized Purchasing Saves Businesses Time & Money

Thanks to cloud-based platforms, centralized purchasing isn’t just for enterprises. Learn how businesses of all sizes can use software to save time and money.
Written by:  Allison Reich
Last Updated:  November 8, 2024
How Centralized Purchasing Saves Your Business Time & Money

Startups and smaller companies often approach procurement with a “get what you need to make the business run” mentality. This may work for those with lower purchasing volumes—but as organizations grow, their buying processes must evolve to maintain cost efficiency and scalability. 

This evolution often includes using the centralized purchasing model to further enhance the procurement process. Centralized purchasing techniques and tools help businesses coordinate their expenses across the organization, resulting in better understanding and control of spending. 

Let’s look at common questions and benefits for centralized purchasing in fast-moving businesses, including:

  • What is centralized purchasing?
  • What are the advantages of centralized purchasing?
  • What limitations does centralized purchasing have?
  • How can software enable centralized purchasing processes?

Download the free ebook: 5 Ways Your Purchasing Process Is Leaking Cash, (and How to Fix It)

What is centralized purchasing?

Centralized purchasing is the process of conducting all business procurement across departments and locations within a single technology solution. With centralization, every purchase goes through a standard intake, purchase order, and invoice processing, approval, and payment workflow. The most effective way to centralize purchasing is with a cloud-based platform.

Businesses that don’t use a centralized procurement process often struggle to monitor orders accurately, making it harder to pinpoint duplication and waste. Manual, decentralized purchasing is also labor intensive, requiring stakeholders to perform redundant work sourcing their own purchases. Without visibility and spend aggregation, companies can easily lose leverage on bulk pricing discounts and contract terms. 

Businesses with only one location can centralize procurement by making purchasing decisions across teams and departments. Those with multiple locations (whether separate offices, numerous retail stores, or remote employees working from home) can use the system to centralize vendor management and payments while delivering goods across the organization. 

Franchises offer an excellent example of using centralized purchasing and standardization. Such brands can coordinate purchases for multiple locations using centralized procurement software and vendors. This allows franchisees to present uniform products and experiences while running independently owned venues. 

Regardless of a business’s size or structure, centralization streamlines purchasing activities, improves management’s visibility into spend, and helps companies take control of supply chain management.

Is group purchasing the same as centralized purchasing?

Many organizations, especially those in industries like healthcare and food service, engage the services of a group purchasing organization (GPO) to control costs and take advantage of standardized pricing based on volume. However, GPOs are not the same as centralized purchasing systems, and they don’t offer the same end-to-end benefits as this type of procurement model. 

woman fulfilling order with box and laptop
Ebook

5 Ways Your Purchasing Process Is Leaking Cash, (and How to Fix It)

Turn your purchasing process into a competitive advantage with this guide. Identify key areas to watch for improved efficiency and savings.

Download the ebook

8 Core advantages of centralized purchasing

Moving to a centralized purchasing policy allows stakeholders to retain their decision-making power while ensuring they use the best suppliers. This helps the organization realize cost savings, create better relationships with vendors, and keep employees productive. 

Using a centralized procurement solution can reduce overhead expenses, strengthen purchasing strategies, automate purchase requisitions and purchase orders, and deliver full visibility to the procurement organization.

Reduces procurement costs

It pays to be organized. When you plan out business expenses and consider all orders collectively, you can save a lot of money.

Centralized procurement management eliminates wasteful spending on duplicate orders or purchases outside company policy. At the same time, it can unlock volume discounts on bulk orders and reduce shipping fees.

Eliminates maverick and duplicate spend

Centralized purchasing reduces the likelihood that businesses will waste capital on duplicate or maverick spend.

But what is maverick spend, and how does it happen? In short, it’s any transaction outside the standard procurement process. It often occurs when people don’t understand the purchasing rules or feel hindered by the official process.

Decentralized spend makes it difficult to catch this uncontrolled outflow of cash. When purchases come in from so many employees across various departments and locations, keeping a watchful eye on spending is challenging.

When purchasing is centralized, businesses implement an approval process that deters employees from purchasing outside company policy. This helps keep vendor relationships strong and purchases compliant while ensuring the procurement team stays informed and empowered to conduct necessary spend analysis.

Centralized spend also makes it easier to prevent two employees or departments from unknowingly paying for the same service, such as the marketing and sales teams independently deciding to buy the same new software tool. Without a centralized purchasing department, both teams could subscribe to the software separately and never know the business paid twice.

Simplifies ordering

Purchasing for a business can take considerable time, especially when company needs are distributed across locations and orders are spread across multiple vendors.

Businesses can simplify ordering by assigning one person to submit each location's orders. To accomplish this, more mature organizations often implement procurement technology solutions that allow users to place orders with approval from direct managers and departments (such as Legal and IT). The system works without getting between buyers and the supplies they need.

Unlocks discounts on bulk orders

Many vendors offer discounts based on volume, but brands must buy in bulk to realize such savings. Centralized purchasing makes taking advantage of volume discount opportunities much more feasible.

When a business makes one collective purchase, it drives up the number of goods ordered and the total price of the order. This boost can qualify the company for a vendor discount, helping it save money on procurement.

Reduces shipping fees

Similarly, businesses can also save money by lumping orders into one shipment. It’s cheaper to ship several items together than individually. Many vendors even incentivize bulk orders by offering free shipping or shipping discounts for high-ticket orders.

Reduces invoices

Operations and accounting departments suffer when purchasing is inefficient due to decentralized processes. Centralized procurement simplifies ordering for operations teams and, in turn, reduces the number of invoices AP must manage.

Saves employees time

Think of all the orders the accounting team processes. How much time could they save if those orders were consolidated into only one invoice?

When multiple locations or departments order together, the number of invoices accounting has to process and reconcile is reduced. This saves the accounting department considerable time at month-end close and during tax season.

Ensures consistent quality across locations

To retain customers, it's essential to manage expectations by offering a consistent experience across locations. When purchasing is disjointed, it’s hard to ensure consistency.

Say you’re operating a fitness chain. If one of your studios offers Kiehl’s products in its locker room but another offers Dove, it creates an inconsistent customer experience. If they take a class at another location that provides different products, they may be disappointed enough not to return. Standardizing vendors and products across all locations ensures clients have the same experience no matter which studio or store they visit.

woman fulfilling order with box and laptop
Ebook

5 Ways Your Purchasing Process Is Leaking Cash, (and How to Fix It)

Turn your purchasing process into a competitive advantage with this guide. Identify key areas to watch for improved efficiency and savings.

"*" indicates required fields

This field is for validation purposes and should be left unchanged.

What are the limitations of centralized purchasing?

All the above advantages are compelling reasons to consider implementing centralized purchasing. Still, there are some limitations to the power of this technique. Technology helps overcome some of these common obstacles.

1. Centralized purchasing is only as good as your process

Before adding a tool to implement a purchasing program, you need to look at your processes from a strategic standpoint. Trace the lifecycle of every purchase to understand how they are triggered, which approvals they require, how they’re paid, and how the procurement team tracks them. A detailed and well-documented purchasing policy will help you overcome unsanctioned spending. 

2. Adoption is critical to success

The best process in the world doesn't help if no one uses it. Documenting and making your procurement policies available to users is a great first step to increasing adoption.

The second step is to offer adequate training on these new policies, tools, and best practices. Getting everyone from the C-suite down on board with the transition is vital to the program’s success. 

3. Procurement professionals can only keep up with so much

Because they are uniquely invested in a company's operational success, procurement departments typically love orchestrating and implementing good practices. But process optimization can’t work unless you have the tools to back it up. A centralized purchasing system gives procurement and finance teams the features they need to drive positive process changes. 

When implementing centralized purchasing, consider the impact on the AP staff as well as future implications as the company grows. Sooner than you think, the need for technology to automate the purchasing process will become non-negotiable.

When should you implement centralized purchasing?

Despite the benefits of centralizing the purchasing and AP process for supplies, many organizations (especially small businesses) soldier on with manual processes. Over 40 percent of respondents to one study said that efficiency and complexity were the main challenges for procurement at their organization

The truth is, with the right platform, it’s never too early to start centralizing. The sooner a company embraces technology, the cleaner the procurement process can be. Centralization and automation allow companies to start using data for strategic decisions much earlier. 

Here are 10 signs it’s time to centralize your purchasing process: 

  1. Finance finds frequent and recurring discrepancies in purchasing data across different departments
  2. The price paid for the same goods or services differs by department or location
  3. The procurement process is time-consuming, involving redundant efforts from several departments, multiple vendor invoices for the same goods, and excessive research into issues
  4. There is a lack of transparency and accountability in spending, making spend management challenging
  5. Your company struggles with maintaining a strategic procurement strategy and resorts to transactional supplier relationships due to siloed negotiations and inconsistent contract management
  6. The finance team notices an increasing amount of maverick spend or purchases made outside of preferred agreements and systems
  7. Inventory management becomes a hassle, with excess stock in some areas and shortages in others
  8. The organization lacks a unified strategy for sustainability and social responsibility in procurement activities
  9. Administrative costs associated with processing purchase orders continue to rise, including labor costs for processing manual orders and payments
  10. The organization doesn’t have full procurement data from its locations, making it difficult or impossible to analyze spending and trends or forecast future demand

Consolidate buying with the right centralized purchasing solution

The simplest way to centralize purchasing is with a sophisticated procurement solution. A centralized platform allows employees from individual departments and locations to order what they need. The organization enjoys more streamlined purchasing, automatic centralization of important procurement data, and smoother operations.

Order.co allows you to centralize every part of your procurement process, from sourcing to