ABC company has 3 manufacturing plants.

I recommebd Hybrid purchasing for ABC company

1-Centralized and De-centralized purchasing organizations had developed to meet the various challenges faced by organizations that spread across multiple locations and had varying products.

2-With the technology advancements in computers, application software and connectivity the best of both of these types of organization can be achieved through a hybrid structure.

3-In a hybrid structure, there is a corporate purchasing function that handles certain procurement functions. Typically, these include making policies, procurement of critical / strategic commodities, recruitment and training of people in the purchasing function and strategic vendor development.

4-In addition, each division has its own purchasing function that handles other procurement functions.

5-All localized buying and servicing of the specific divisional needs are addressed by divisional purchasing. Companies use a common, connected application software across the organization.

5-This allows for both the flexibility required for each divisions specific needs and simultaneously the implementation of strategic purchasing objectives and better control.

I would recommend centralized, because in that way higher authority shall be able to get picture of what's really going on, that is to say capacity usage and purchase of materials and so plan possible extension and question on any unusual combination of facts.

Moreover middle level management are obsessed with natural greed to create an image of their own in market so that one day they may become owners of their own business. With decentralized policy they are in better position to do so, because they deal face to face with company customers and suppliers. This much authority given to them may hurt company horribly, plus if they are allowed to make purchases they shall always look for suppliers who can benefit them personally, in terms of commission. In short their loyalty to company wavers and they don't care to be thrown out of their jobs.

But with centralized purchase policy these risks may be mitigated as they are bound to make purchases from suppliers, who have been already negotiated with by higher authority and have been then included in the panel after market research, regarding rates and terms and condition.

Such policy shall also help keep check on inventory because too high purchases as against low sales can lead to questioning by higher level it shall also induce fear of internal auditors reporting to higher authority any unusual managerial activity, because managers have limited power. This is almost impossible in decentralized policy because then auditors shall be reporting in vain, as managers may distort facts and present it to board, supporting their decisions (I am facing this after decentralization of purchases). Thus, decentralization of purchases help managers cover their tracks pretty well.

However a clause should be there in centralized policy so that in case of emergency a single plant manager should be able to take decision regarding purchases, but from only those suppliers who are on the panel.

Well, answered  by Mr. Wasi..............

I fully agree with the answer been added by you  Wasi Rahman Sheikh. thanks.