Decentralized Procurement in Light of Strategic Inventories

Anil Arya, Hans Frimor, Brian Mittendorf

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

The centralization versus decentralization choice is perhaps the quintessential organizational structure decision. In the operations realm, this choice is particularly critical when it comes to the procurement function. Why firms may opt to decentralize procurement has been often studied and confirmed to be a multifaceted choice. This paper complements existing studies by detailing the trade-offs in the centralization versus decentralization decision in light of firms' strategic use of inventories to influence supplier pricing. In particular, we demonstrate that a firm's decision to cede procurement choices to its individual divisions can help moderate inventory levels and provide a natural salve on supply chain frictions.

Original languageEnglish
JournalManagement Science
Volume61
Issue number3
Pages (from-to)578-585
ISSN0025-1909
DOIs
Publication statusPublished - 1. Mar 2015
Externally publishedYes

Fingerprint

Procurement
Centralization
Decentralization
Organizational structure
Suppliers
Trade-offs
Friction
Supply chain
Pricing

Keywords

  • Decentralization
  • Inventory management
  • Supply chain coordination

Cite this

Arya, Anil ; Frimor, Hans ; Mittendorf, Brian. / Decentralized Procurement in Light of Strategic Inventories. In: Management Science. 2015 ; Vol. 61, No. 3. pp. 578-585.
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Decentralized Procurement in Light of Strategic Inventories. / Arya, Anil; Frimor, Hans; Mittendorf, Brian.

In: Management Science, Vol. 61, No. 3, 01.03.2015, p. 578-585.

Research output: Contribution to journalJournal articleResearchpeer-review

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AU - Arya, Anil

AU - Frimor, Hans

AU - Mittendorf, Brian

PY - 2015/3/1

Y1 - 2015/3/1

N2 - The centralization versus decentralization choice is perhaps the quintessential organizational structure decision. In the operations realm, this choice is particularly critical when it comes to the procurement function. Why firms may opt to decentralize procurement has been often studied and confirmed to be a multifaceted choice. This paper complements existing studies by detailing the trade-offs in the centralization versus decentralization decision in light of firms' strategic use of inventories to influence supplier pricing. In particular, we demonstrate that a firm's decision to cede procurement choices to its individual divisions can help moderate inventory levels and provide a natural salve on supply chain frictions.

AB - The centralization versus decentralization choice is perhaps the quintessential organizational structure decision. In the operations realm, this choice is particularly critical when it comes to the procurement function. Why firms may opt to decentralize procurement has been often studied and confirmed to be a multifaceted choice. This paper complements existing studies by detailing the trade-offs in the centralization versus decentralization decision in light of firms' strategic use of inventories to influence supplier pricing. In particular, we demonstrate that a firm's decision to cede procurement choices to its individual divisions can help moderate inventory levels and provide a natural salve on supply chain frictions.

KW - Decentralization

KW - Inventory management

KW - Supply chain coordination

U2 - 10.1287/mnsc.2014.1908

DO - 10.1287/mnsc.2014.1908

M3 - Journal article

VL - 61

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