Which of the following is an advantage of a centralized purchasing department in competitive markets?

• A. It allows for bulk purchasing, which can lead to lower average costs.
• B. It increases the likelihood of price discrimination among suppliers.
• C. It leads to less standardization of purchased goods.
• D. It reduces the ability to negotiate with multiple suppliers.

Answer: (A)

Verified step by step guidance

1. Understand the role of a centralized purchasing department: it consolidates the buying activities of a firm into one unit, which can leverage the firm's total demand when negotiating with suppliers.
2. Recognize that bulk purchasing means buying large quantities of goods at once, which often leads to volume discounts and lower average costs per unit due to economies of scale.
3. Analyze how centralization can improve bargaining power with suppliers by aggregating demand, making it easier to negotiate better prices and terms compared to decentralized purchasing.
4. Consider the other options: increased price discrimination is less likely because centralized purchasing tends to standardize orders; less standardization is unlikely because centralization often promotes uniformity; and reducing the ability to negotiate with multiple suppliers is incorrect because centralization usually enhances negotiation leverage.
5. Conclude that the main advantage of a centralized purchasing department in competitive markets is the ability to make bulk purchases, which leads to lower average costs.