Centralized vs.

Decentralized Procurement: A Literature

Review

Edgars Kanepejs and Marite Kirikova

Riga Technical University, Latvia

[email protected], [email protected]

Abstract. Often centralization is viewed as a means for complexity reduction,

as well as a means for achieving higher efficiency. However, in reality this is
not always true. This systematic literature review examines different aspects of
centralization vs. decentralization in the procurement domain. The results of the
review give a better insight into benefits and drawbacks of centralization and
decentralization; and help to find the ways of proper combination of both cen-
tralized and decentralized methods in procurement. While procurement as a
specific domain is in focus of the paper, still the results might be interesting al-
so for researchers and practitioners working in other domains where the central-
ization and decentralization issues are relevant.

Keywords: Centralized systems, Decentralized systems, Procurement, Types of

centralization.

1 Introduction

In this paper we address the problem of centralization and decentralization which

often has to be handled in complex business and other types of systems. There are
particular benefits and drawbacks in decentralized and centralized activity handling.
The purpose of this research was to analyze related work on centralization and decen-
tralization in one domain to have a practical and manageable scope of research. While
there are many works on centralization and decentralization, an overall survey of
different aspects of them so far is missing. In this paper we close this gap of research
in one area by providing a literature review in the context of procurement systems.
Procurement is defined as all activities that are required in order to get the product or
service from the supplier to its final destination [1], [2]. The aim of the review of
related works is to examine existing researches while finding evidence of positive and
negative impacts caused by both centralized and decentralized procurement systems.
The procurement context was chosen due to a particular problem that had to be solved
in a middle-sized construction company that had to deal with the problem of finding
the effective way to obtain materials for different construction sites. It was less ex-
pensive to by larger amounts of materials, but this had to be balanced with the specif-
ics of construction sites and resources needed for materials redistribution. The review
presented here was used as background knowledge in designing new procurement
procedures in the company.
The paper is structured as follows. Section 2 presents the research method used.
Further sections are explaining the research results on different aspects of centraliza-
tion and decentralization. Section 3 concerns the structure of organizations that are
performing procurement activities. Section 4 considers types of centralization. Section
5 discusses the notion of degree of centralization. Benefits and drawbacks of centrali-
zation and decentralization are amalgamated in Section 6. Section 7 concludes the
paper with a brief conclusion.

2 Literature Review Method

For clear understanding for reader and convenient usage of results, the review should
be based on some structure [3], [4], because initially established review execution
structure reduces potential misinterpretations, bias or gaps. In this paper the review is
based on the structure suggested in [3] and reflected in Fig. 1. It consists of 10 stages
combined in three phases. This literature review model comes from the research area
of software engineering; however, it is appropriate for being used to execute literature
review on procurement systems, because it is rather universal and includes all neces-
sary steps in logical sequence.
The first step is to identify questions that should be answered during the review.
These questions will largely determine what data should be extracted from previous
studies and what should be entered in search engines. The questions are based on the
research objectives stated earlier and they are:
 What benefits and drawbacks come from a centralized procurement?
 What benefits and drawbacks come from a decentralized procurement?

1. Specify research questions

Phase 1:
2. Develop review protocol
Plan review

3. Validate review protocol

4. Identify relevant research

5. Select primary studies

Phase 2:
Conduct review 6. Assess study quality

7. Extract required data

8. Synthesise data

9. Write review report

Phase 3:
Document review
10. Validate report

Fig. 1. Literature review process [3]

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The second step is to develop a review protocol that defines plan, specifying proce-
dures to follow and conditions to take in consideration during the selection of primary
studies. It lists:
 What databases will be used?
 What types of resources will be used (research articles, conferences, books)?
 What will be used as search strings in automated searches (keywords, phrases)?
 What parts of articles will be used for search (titles, abstracts, conclusions, full
text)?
 What will be the eligibility criteria?
The search was executed in IEEE, Springer, ACM, Science Direct, Wiley and
DOAJ resources; also Scopus and Web of Science indexes were considered. The en-
tered search strings were:
 Centralized procurement;
 Decentralized procurement;
 Procurement centralization;
 Procurement decentralization.
The search criteria were set to Articles. The search was performed among articles
written in English. To retrieve recent trends, creation date was set between year 2010
and 2018.
Articles were considered for review according to inclusion criteria:
 Article provided answer to research question;
 Article provided relevant information that could be useful for achieving research
objectives.
Articles were rejected according to exclusion criteria:
 Article did not provide answer to any of questions.
 It was not possible to retrieve any information that could be useful for achieving
research objectives or suggesting future research related to research objectives.
The article selection started with automatic search comparing article titles and texts
to entered search strings. Then all articles that conformed to other pre-set conditions
like language and publication year were individually opened and reviewed. Initial
review consisted of reading just abstracts for each article. If the abstract featured any
of inclusion criteria, then the article was considered for reading its full text. If abstract
did not contain any of including criteria, then the next step was trying to find evidence
of relevant information judging by titles of article sections and conclusions. If they
did not reveal any signs of useful information for research objectives, then the article
was excluded from the future use in this research. If there was at least one of includ-
ing criteria fulfilled, then the article qualified for reading its full text. However, if
after reading the full text it turned out that the article did not provide any appropriate
information after all, it was excluded from further consideration. Knowledge from
those articles, what were not excluded after reading full text, formed the scope of the
literature review.
The literature search and application of article selection criteria resulted in the list
of 27 relevant articles. All these articles provided evidence of potentially useful
knowledge for the research objectives. Obviously, all the articles were based on in-
formation obtained from other previous research, and, in some cases, it was necessary

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to search deeper for the original information source and increase the number of re-
viewed articles. Fig. 2 represents home countries of academic institutions involved in
developing research articles identified by the original literature search. It shows the
countries, where in the last decade issues regarding procurement centralization have
been explored. They include such global economic powers as the United States,
China, Japan, India and Europe’s Germany and Great Britain.

Fig. 2. Research geographical distribution. (Created with AMCharts Pixel Map Generator)

Although the selected articles provided sufficient amount of relevant information to

satisfy the research objectives, they did not fully satisfy all previously stated ques-
tions. Numerous researches had identified large number of positive and negative as-
pects that could be caused by implementing a centralized or decentralized procure-
ment system. However, practically, none of them provided a clear sequence of actions
that shapes procurement execution in a centralized or decentralized system. During
the review two general characteristics of the articles were outlined. They can be
grouped either by type institution they are dedicated to or by type of the research
method (see Table 1).

Table 1. Reviewed article comparison by the context

Type of institution
Public institutions Private enterprises
[1], [5], [6]
Research method

[1], [6], [7], [8], [9], [10], [11],

Descriptive [12], [13], [14], [15], [16], [17],
[18]
[19], [20], [21] [2], [17], [21], [22], [23], [24],
Mathematical [25], [26], [27], [28], [29]

Two types of institutions featured in the articles are public institutions – governmental
entities, and private enterprises. Types of research method are a descriptive analysis
of a model application in different situations or a mathematical model that eventually
serves to support decision making. Some of the articles contain both values, so they

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can be included in several groups. Most of initially selected articles contained re-
search about processes in private enterprises. Slightly larger part of researchers had
used descriptive approach.

3 Structure of a Purchasing Organization

Procurement is defined as all activities that are required in order to get the product or
service from the supplier to its final destination [1], [2]. Procurement refers to a proc-
ess in which organizations establish agreements for the acquisition of goods or ser-
vices or purchase of goods or services in exchange of payment [1]. In most of re-
viewed articles words “procurement” and “purchasing” were used as synonyms. Pre-
vious studies have reviled that centralization is only one of structural characteristics
of a purchasing organization. Glock in his research [15] has identified six main struc-
tural characteristics of a purchasing organization. They are centralization, standardiza-
tion, specialization, formalization, involvement, and configuration.
All the characteristics are gathered, together with supply chain questions and types
of organizations, in a diagram that is reflected in Fig. 3. It represents key study ob-
jects in the reviewed articles. Red line in Fig. 3 outlines study objects for this review.
To reach better result in the procurement process, selection of degree of centralization
is not the only variable that should be adjusted. It should be complemented with im-
provements in the area of specialization, formalization and standardization [18] that
will be investigated more closely, too. Supply chain management questions like calcu-
lation of order quantity or replenishment period will not be widely studied.

Institutions Organizations Enterprises

Public Private

Procurement system's
structural characteristics
Centralization
Standardization
Formalization
Specialization
Involvement
Configuration

Supply chain questions

Order quantity
Replenishment period
Warehouse organization

Fig. 3. Research outline

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The structural variable called configuration refers to the design of the authority struc-
ture of the organization and includes dimensions such as vertical and lateral spans of
control, criteria for segmentation and numbers of positions in various segments [15],
[30]. A high degree of configuration in purchasing results in a purchasing organiza-
tion that implements a high number of different design elements, such as positions,
departments, formal communication channels or control structures. Another system
design element that may be summarized under heading “configuration” is the hierar-
chical position of the purchasing department [15]. The position of organizational unit
helps to assess the status this unit has in the organization and the degree to which an
organizational unit can influence decisions on the strategic and tactical levels [31].
Involvement is a structural character that is rather similar to configuration. They
both describe physical structure of purchasing organization. Involvement may be
subdivided in lateral involvement and vertical involvement. Lateral involvement
measures the number of separate departments, divisions or functional areas participat-
ing in the purchase decisions, but vertical involvement measures the number of hier-
archical levels involved [32]. As the number of departments involved in the purchas-
ing process increases, more information becomes available, which helps to reduce
uncertainty [15].
Another structural characteristic is formalization. It describes the degree to which
an organization relies on rules and procedures to direct the behavior of its members
[33]. Formalization can be achieved by defining roles and authority relations or by
establishing rules that regulate decision process, the communication of employees, or
the processing of information in the organization [34]. The definition of roles and
authorities along with the description of rules, procedures and policies should be re-
flected in formal documents [17], [35]. Organizations formalize the behavior of their
members to reduce its variability and to predict and control it [15]. Higher degree of
formalization is achieved by establishing rules, regulations and guidelines that dictate
how each procedure is supposed to be executed ensuring that identical operations are
performed identically by different members of the same organization. One benefit of
high degree of formalization, possibility, is to switch among employees from different
organizational units with the same everyday responsibilities. Since one type of proce-
dure in whole company is executed in the same way, no additional training is re-
quired. Formalization is all about reducing variability in process and it is opposite to
creativity. That can result in reduction of employee motivation and finally lead to
lower efficiency. In other words, formalization is standardization of procedures.
Several authors define standardization of process similarly to formalization. The
only difference is that formalization require establishment of tangible documents.
However, Quintens, Pauwels and Matthyssens regarding standardization of purchas-
ing have conceptualized three distinct dimensions [36]:
 Purchasing process standardization;
 Product standardization;
 Purchasing personnel standardization.
Although their provided definition: “standardization of purchasing process is de-
fined as the degree to which purchasing takes place in a standardized way”, does not

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say much about purchasing, they have identified the following four main phases of
purchasing process:
 Investigation of the market and screening of suppliers;
 Supplier selection;
 Negotiation and contracting;
 Supplier evaluation and follow-up.
Product standardization is defined as the degree to which characteristics of the
product that is bought are standardized in the same way throughout the company [36].
Using a set of the same components or materials that are used in production of differ-
ent final products would provide reduction of types of materials. Standardization of
purchasing staff is a unified way how employees and their tasks are structured and
organized throughout whole organization.
Another structural characteristic is specialization that refers to the division of la-
bour in the organization [15], [37]. Specialization is subdivided in two directions – by
functions or by objects. Functional specialization implies jobs being broken down into
simple and repetitive tasks that may be efficiently executed. Object-oriented speciali-
zation helps to reduce interface problems since employees are responsible for differ-
ent tasks that are logically interconnected [15]. Employees, who are specialized in
specific fields, may perform particular tasks more efficiently than those, who have
wide range of different responsibilities. In addition, specialization may provide higher
procurement quality, because the likelihood that an experienced specialist would
make a mistake is lower than for employee who has to take care of different kinds of
tasks.
Centralization is defined as the degree to which authority, responsibility and power
are concentrated within an organization or buying unit [11]. The degree of centraliza-
tion – decentralization in purchasing organizations is the structural variable that has
most often been used in purchasing research [15]. Different aspects and consequences
of centralization and decentralization will be described in detail in further sections.
Similarly, structural characteristics are described in research articles [6] and [11].
However, the authors call them differently – micro-level dimensions of purchasing
and supply chain organization. One alteration comparing to division in [15] is that
involvement and configuration are combined and substituted by participation. In addi-
tion, they propose that distinction of the previously mentioned characteristics is not
enough to fully describe and analyse a procurement system. Therefore, they provide
four macro-level dimensions [11]:
 Category;
 Business unit;
 Geography;
 Activity.
In a category based division, departments or employees are organized by what is
procured. It can be, for instance, separation by raw materials, outsourced services or
manufacturing equipment. Business unit based structure implies that, for instance,
procurement functions are organized within business units. Geographical division
means that departments are organized according to geographical location. In activity

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dimension departments are organized by certain process into different activity clusters
[11], [6].

4 Types of Centralization

One of definitions for centralization is “the degree to which authority, responsibility

and power are concentrated within an organization or buying unit” [11], [30]. The
literature review has revealed that in previous studies two different constructs have
been meant by the centralization. Suppose, in one company different organizational
units individually purchase materials directly from different suppliers. This is a fully
decentralized procurement system and it is represented in Fig. 4, with arrows repre-
senting directions of orders.

Company

Organizational unit 1 Supplier 1

Organizational unit 2 Supplier 2
Organizational unit ... Supplier ...
Organizational unit N Supplier M

Fig. 4. Representation of decentralized procurement system

The two types of centralization that are used by the authors of the reviewed articles
are centralization of outgoing orders and centralization regarding number of suppliers.
They can be referred as internal centralization and external centralization. Strangely
enough, none of the articles provided an explanation of which of these types the study
is referred to. Moreover, no one has mentioned such classification.
Centralization of outgoing orders is when all organizational units in the company
according to the structure of macro-level dimensions, mentioned in the previous sub-
section, place orders for required materials to their internal procurement departments,
which summarize them and then place orders to material suppliers. It is discussed in
[1], [6], [8], [10], [12], [14], [15], [18], and [19]. Fig. 5 illustrates this type of cen-
tralization.

Company

Organizational unit 1 Supplier 1

Organizational unit 2 Supplier 2
Organizational unit ... Supplier ...
Organizational unit N Supplier M

Fig. 5. Representation of centralized procurement system with internal procurement department

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 Centralization regarding number of suppliers means that most of materials are pro-
vided by one supplier and it is responsible for dealing with wholesalers [5], [7], [9],
[22], [26]. Fig. 6 illustrates this type of centralization. Research works that were dedi-
cated to this type of centralization mostly contained evaluation of risks that were de-
pending on only one supplier.
As another structural organization oriented option, an assessment of exclusion of
the procurement functions is provided; in other words – outsourcing. Outsourcing in
the context of purchasing and supply management refers to transferring tasks, such as
order placement and source selection, outside the boundaries of the firm [6], [29].
Previous studies provide conflicting opinions about potential benefits of outsourced
material procurement functions. Several researchers [6] used data that predicted that
outsourcing of purchasing and supply management is expected to grow by near future
(data from year 2014). However, other studies claimed that the costs of procurement
were lower for integrated systems [24].

Company

Organizational unit 1
Main supplier
Organizational unit 2
or
Organizational unit ... Outsourced
procurement unit
Organizational unit N

Fig. 6. Representation of centralized procurement system with one main supplier

5 Degree of Centralization

Very rarely firms use completely centralized or completely decentralized procurement

systems. Decentralized systems could be more frequently found in new businesses –
not because of choice or decision, but usually because of the lack of experience and
management skills. Centralization is very common in public procurements. Public
institutions tend to have larger buying centres and use a higher degree of specializa-
tion, formalization and complexity in organizing their purchasing functions. That
might be caused by legal regulations, which require that public funds have to be spent
transparently and which necessitates a formal and complex public purchasing process
[15]. The service supply chain differs from a manufacturing supply chain to a certain
extent because a quality product (service) requires a careful coordination of all activi-
ties [14]. Service providers cannot store their products – services in warehouse. They
must perform when the customer is present, very similar to just-in-time production.
Manufacturing companies and project based companies have a stronger tendency to
decentralize or more often partially decentralize their purchasing activities [15], [8].
Most companies use a hybrid system that contains elements of both centralized and
decentralized systems. It is an attempt to obtain benefits from both systems at the
same time excluding drawbacks of both systems. Centralization or decentralization of

225
a purchase structure depends on how the responsibilities are divided [6]. The success
of any supply chain system depends on its level of collaboration and integration [24].
This proposes that in order to achieve more successful procurement all business units
have to cooperate. Cooperation between different business units has been studied in
several articles. One of them provides comparison to autonomous intelligent agents.
The agent paradigm originates from the distributed artificial intelligence domain.
Three types of agents and corresponding three types of behaviours of separated busi-
ness units were identified [21]:
 Cooperative agent – aims at maximizing the sum of the agents’ profits. Simi-
larly, it is a business unit that works in a manner that serves for increasing total
profit for whole company, even though that could mean losses or require more
effort from the particular units.
 Self-interested agent – wants to maximize its own profit and has no interest in
others’ well-being. This is close to situation with full decentralization where
each unit individually takes responsibility for its performance, receiving awards
and punishment individually.
 Hostile agent – also aims at maximizing its utility which increases with its own
profit but decreases when the competitors’ profits increase. It is even higher
level of individualism than in self-interested agent’s case. From the perspective
of top management that kind of behaviour of business units is unacceptable.
The way how the agents – business units – are supposed to behave should be regu-
lated by company’s internal documents and structure that everyone must comply to.
Three decisions that should be made regarding the degree of centralization are the
following: (1) whether to price centrally, (2) whether to actually purchase centrally
and (3) whether to store the materials in a central warehouse [12].
The first option is price individually. Each business unit or department select their
suppliers and negotiate on prices separately. That logically leads to individual pur-
chasing and delivering directly from supplier’s factory or warehouse to warehouse,
production plant or construction site assigned to the business unit. This is complete
decentralization.
The second option is centralized pricing that requires negotiation with vendors
about company-wide contracts that includes fixed prices for orders from all business
units. At the same time each unit can place orders, purchase and store materials indi-
vidually. Goods are delivered directly from supplier’s factory or warehouse to a loca-
tion assigned to the business unit. This is called centralized pricing with decentralized
purchasing [12].
The third option contains centralized pricing and centralized purchasing. The items
are purchased from one location and delivered to a central warehouse where they may
stay for some time until requested for distribution to the individual sites
The fourth option is centralized pricing and purchasing without central warehouse.
The company purchases the items from a supplier and all items are delivered to a
location assigned to the business unit. Purchases are made on a periodic basis, so this
represents a type of joint replenishment problem [12].

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6 Positive and Negative Aspects of Centralized and
Decentralized Procurement Systems

There are positive as well as negative aspects of both, centralized and decentralized
procurement structures. As the most of authors of the reviewed articles consider cen-
tralized procurement system as more mature and sorted out; this section of the review
will start listing benefits that could be obtained with centralization.
Procurement centralization creates purchasing synergy benefits, which can be di-
vided into three main categories [31], [18]:
 Economies of scale;
 Economies of process;
 Economies of information and learning.
Economies of scale refer to attaining lower unit costs by increasing market power
through volume bundling and standardization of categories [31], [18]. Centralized
procurement could provide maximum discount from the supplier, because large quan-
tity of required materials in one purchase allows supplier to feel safe about higher
revenue and it would be willing to reduce the price. Some cost estimates of the sav-
ings achieved through centralized purchasing have been presented in the literature,
and they vary between 10% and 20% comparing to the decentralized purchasing [18].
In purchasing the two most common quantity discount forms are [12]:
 All units – the lower price applies to all units purchased, not just those above the
price break;
 Incremental – only those units within a price break interval receive that inter-
val’s discount.
Economies of process mean less administrative work and a decrease in administra-
tion duplication in addition to reduction of purchasing organization expenses as a
purchasing synergy benefit [18]. The company that is making the purchase should at
first collect information about material requirements from all units internally. That
would reduce number of outgoing orders and incoming invoices, what would reduce
work load on accountants who register expenses. The same improvement would hap-
pen on supplier’s side as well leading to mutually beneficial cooperation. It is conven-
ient for modern management and reduces the management on repeating actions [8].
Economies of information and learning mean sharing all available purchasing
knowledge on suppliers, new technologies, internal users, applications and the pre-
vention of mutually incompatible negotiating strategies [18]. Centralization often
enables companies to assign certain categories of items to specialists, who tend to be
more efficient because they are able to concentrate their efforts on relatively few
categories, which they are responsible for when negotiating the agreements [31]. Sev-
eral authors emphasize importance of a unified reasonable bid evaluation program
that allows dealing with all suppliers in already established understandable way [8].
Bid evaluation program can help to reduce time on decision making in supplier selec-
tion. Most companies do not form an effective evaluation system; they still adopt
subjective methods such as the review of vendor qualification, consulting the ven-
dor’s promotional materials and so on to evaluate suppliers [25].

227
 One more advantage for centralized bulk procurement is a limited number of sup-
pliers. While, this is not an advantage as such, it would provide a limited number of
used material brands that could improve quality control. Using the same material in
whole company is an increase in other structural variable – standardization, and it
would reduce risk of shortage of materials, because in case of sudden need for extra
materials, it is possible to borrow materials from other departments safety stocks. It is
quite often that working with different materials requires specific knowledge and
skills. Limited number of brands of the same type of material would reduce the set of
knowledge and skills required to successfully execute construction works. That would
allow quick integration in work for construction employees rotated from other de-
partments without any additional time-consuming training.
Centralized procurement is not without drawbacks. The disadvantages of centrali-
zation stem largely from attitude problems, such as maverick buying, and difficulty of
controlling process remotely. Another identified problem is related to excessive over-
head costs and slow response to divisional matters [33], [18].
Reduced number of orders usually means reduced number of deliveries. That al-
lows reducing cost on transportation. Especially big improvement would be achieved
with relatively cheaper materials comparing to transportation cost. Cost for dry land
transportation by trucks basically consists of fuel, salary for the driver and mainte-
nance for the truck. However, researches show that, for example in construction, in-
stead of collecting all deliveries in the warehouse and then distributing materials to
construction sites, it would be more cost and time efficient to send materials directly
to the construction site [8]. This works for big deliveries, when it is possible to load
full truck with materials required by one construction site. Regarding difficulties in
making decisions about the most suitable material transportation strategy, decentral-
ized procurement system could provide better cost economy for projects with con-
struction sites on remote locations [20]. If distances between central warehouse or
supplier that would be selected according to lowest price offered for the centralized
procurement and construction site or manufacturing plant, or any other type of place,
where materials are supposed to be consumed are too huge, that positive advantage
achieved by discount for big centralized order would disappear. Or even expensive
transportation in that case can make the centralized procurement structure disadvanta-
geous comparing to the decentralized structure. Decentralized procurement buying
locally and having direct deliveries from supplier to constriction site can be more
suitable decision for geographically distributed projects.
Many tasks in companies are based on projects with defined schedules. If one
company is working on several projects at the same time, project development for
different projects most probably are in different phases as well as defined material
usage schedule. That could propose that for project based business model decentral-
ized procurement procedure would be more suitable, because it would be easier to
purchase materials considering just one project without taking in account needs for
other projects. Another positive feature for decentralized procurement is flexibility.
That is very important while working on tight schedules. Suppose that it is necessary
to urgently buy more materials, because it has happened that something has been
broken during the assembly or has not been ordered in a required number in the first

228
place. Pushing the order through a centralized procurement system would take a lot of
time or even cause delay of whole project that could cost in fines. Fast and flexible
procurement system could prevent from that.
Another reason for choosing decentralization is related to reducing risks related to
sudden supplier failure to supply [22], [9]. This is a problem for regions with high
probability for natural disasters like Japan, where earthquakes are common thing. An
earthquake can damage supplier’s manufacturing facility and it is unable to ensure
deliveries that could cause blockage of production processes. Solution for that could
be diversification in number of suppliers. It means working with several suppliers at
the same time with proportion of delivered materials according to price, probability of
breakdown and recovery time [22]. When one supplier breaks down, there is hope that
deliveries from other suppliers keep coming and they could even compensate the
missing supplier.
There are researches, which conclude that organizations with a centralized pro-
curement structure perform only slightly better than those with decentralized. The
results indicate that organizational structure is not necessarily the primary factor in
obtaining superior procurement performance [10]. What makes bigger influence on
cost reduction is improvement in procurement processes like unified purchasing, in-
ventory and billing. Market analysis helps to select the most suitable solution. If there
is one system understandable for everyone, it is easier to monitor and adjust the proc-
esses.

7 Conclusion

This paper contributes a literature review on centralization and decentralization issues

in the domain of procurement. It amalgamates knowledge on the following issues of
centralization and decentralization: (1) the issues of organizational structure, (2) types
of centralization, and (3) degree of centralization. The review revealed that procure-
ment centralization creates purchasing synergy benefits, which can be divided into
three main categories: economies of scale, economies of process, and economies of
information and learning; it also helps have a high level of standartization. The disad-
vantages of centralization stem largely from attitude problems, such as maverick buy-
ing, and difficulty of controlling process remotely. Other identified problems are re-
lated to excessive overhead costs and slow response to divisional matters. The bene-
fits of decentralized procurement are fast action, flexibility, and reducing risks related
to sudden supplier failure to supply. The drawback of centralized procurement is the
lack of synergetic benefits mentioned above.
Finding the right balance between centralization and decentralization is a problem
of high complexity. Knowledge amalgamated in this article may help to solve this
problem. This knowledge has been successfully applied in a middle-sized construc-
tion company for developing its procurement processes and procedures.
While the knowledge presented here concerns solely a procurement domain, it still
can be useful in other domains to the extent that the aspects discussed in this paper are
applicable in these domains.

229
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