PART TWO 



I. METHODS OF PURCHASE 



(EXCLUSIVE OF COAL) 



NEED FOR CENTRALIZATION 



The organization of practically every large private corpora- 

 tion includes a central purchasing bureau through which all 

 supplies and materials used by the corporation are purchased. 

 For example, a railroad extending from Chicago to the Pacific 

 buys all of its supplies and materials through one bureau located 

 in Chicago. A large proportion of the purchases for a group of 

 railroads under one general control are made through a cen- 

 tral purchasing bureau in New York. 



Centralized purchasing is more advantageous than decen- 

 tralized purchasing in that it gives to the central bureau a much 

 larger buying power. Large buying power makes it possible to 

 deal direct with manufacturers, in fact, manufacturers will bid 

 against one another for large orders. Limited buying power 

 on the other hand means small orders. Manufacturers are not 

 attracted as a rule by small orders and they are therefore usually 

 placed with middlemen with the result that middlemen's profits 

 are paid. Even when small orders are placed with manufac- 

 turers, the cost is nearly always higher than on large orders. 



Centralized purchasing also makes it possible to maintain 

 a better equipped purchasing plant. Such plants are usually 

 headed by an official purchasing agent who is assisted by a staff 

 of experienced buyers each proficient in buying some one or 

 more particular kinds of supplies or materials. By devoting their 

 entire attention to market conditions, such buyers are often able 

 to foresee fluctuations in prices and by governing their orders 

 accordingly are able to save large sums of money. The office 

 of a properly equipped purchasing agent contains complete files 

 of trade catalogues, special trade bulletins, trade journals, cur- 

 rent price-lists, etc., all carefully indexed for ready reference. 



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