The Impact Of Centralization Of The Procurement Function On Service Delivery In An Organization A Case Study Of Kenya Electricity Generating Company Limited (Kengen)

Abstract

This refers to how an organization structures its decision making authority. Probably the best way to reface this discussion is to begin by evaluating where the authority for decision exists within the organization versus the physical location of personnel. If an executive at the corporate headquarters must approve a decision, then a firm maintains a centralized authority structure for that decision even if the purchasing personnel are located through the organizational hierarchy. If the purchasing authority for a decision exists at the divisional, business unit, or plant level, then a firm has various levels of decentralized decision making authority. 1.2 Background of the Study We can envision different types of purchasing organization structures as existing on a continuum, with complete centralization at one end and complete decentralization at the other end. Few organizations lie at the polar extremes; rather most organizations lie somewhere towards one end or the other of the spectrum. Certain decisions or tasks such as evaluation and selection of suppliers that will support the entire organization may be centralized. The authority to generate purchase orders however rest with local buyers. A firm might centralize the authority for capital expenditure purchase over a specified shilling with lower - shilling decision made at facility level. (Trent Handfiel, Purchasing and Supply chain Management, 2 nd Edition) In 1970s version of centralized purchasing authority often resulted in complete purchasing control, along with a large staff placed at the corporate level. If a plant or divisional management required material sourcing or engineering changes, these changes had to be approved through the centralized office. Obviously this additional layer of decision making quickly becomes unresponsive to the fast paced needs of new product development. Moreover, bloated organizational charts represented a major barrier towards a strategic approach to supply chain management. As foreign competition attacked different markets during the early 1980s, organizations increasingly experienced lost market opportunities because of many levels of decision making. Today's version of centralized purchasing should emphasize support, integration and coordination of different tasks at different levels to achieve maximum performance rather than strict control over the entire purchasing process. The challenge today is to know which activities, processes, and tasks to control or coordinate centrally and which to push down the operating units. (Trent Handfiel, Purchasing and Supply chain Management, 2nd Edition) Kenya Electricity Generating Company Ltd (KenGen) is the leading electricity generating company in Kenya producing about 80% of electricity consumed in the country. The company utilizes various sources to generate electricity ranging from hydro, geothermal, thermal, and wind.