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Decentralized Procurement in Light of Strategic Inventories

Author

Listed:
  • Anil Arya

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

  • Hans Frimor

    (School of Business and Social Sciences, Aarhus University, DK-8000 Aarhus C, Denmark)

  • Brian Mittendorf

    (Fisher College of Business, Ohio State University, Columbus, Ohio 43210)

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. This paper was accepted by Serguei Netessine, operations management .

Suggested Citation

  • Anil Arya & Hans Frimor & Brian Mittendorf, 2015. "Decentralized Procurement in Light of Strategic Inventories," Management Science, INFORMS, vol. 61(3), pages 578-585, March.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:3:p:578-585
    DOI: 10.1287/mnsc.2014.1908
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    References listed on IDEAS

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