When a business starts, its aim is to make a profit. For-profit to be realized in a business a lot of considerations have to be put in place.
Some of the considerations include making inventories. A list of all goods being bought by the business has to be made.
The inventory can either be centralized or decentralized depending on the owner’s decision-making. Many people have used the terms interchangeably but the two are totally different from each other.
So, what is the main difference between centralized and decentralized inventory? Centralized inventory is an inventory management system whereby operations are carried out in a central location while decentralized inventory is an inventory system whereby products move from the central office to other locations that are close to the customers.
For more information on the difference between centralized and decentralized inventory in tabular form continue reading the article. You will also get to learn of the similarities between the two.
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Comparison Table (Centralized Vs Decentralized Inventory)
|Basic Terms||Centralized Inventory||Decentralized Inventory|
|Definition||It is an inventory management system whereby operations are carried out in a central location.||It is an inventory management system where products are moved from the central office to other locations that are closer to customers.|
|Decision making||It is carried out by top management as it is centralized.||It is distributed throughout respective teams and individuals.|
|Pilferage||Minimum chances of pilferage.||Higher chances of pilferage.|
|Human resource||It has fewer human resources.||It has a more human resources.|
|Price uniformity||It ensures uniformity in product prices.||The price of the product depends on the area.|
|Location||It has a single location where goods and inventories are stored.||There are many locations where goods and inventories are stored.|
What is Centralized Inventory?
Centralized inventory is an inventory management system whereby operations are carried out in a central location.
Many organizations prefer this system as it is simpler and it helps upgrade the operational efficiency and multichannel management of a company.
The centralized inventory has lower management costs as it only needs to rent one building. This makes it increase its profit margins due to a reduction in cost.
The company is also able to improve and maintain its culture as it will seal all the loopholes that may come up in the event of operation.
They can employ qualified manpower as they do not require a lot of human resources hence delivering good services to their customers.
However, this system has its weaknesses whereby the location may be far from the customers discouraging them to go for the good hence the company not having a high stock turnover. The management is good for retail shops as they are small in size hence able to serve a small number of customers.
What is Decentralized Inventory?
Decentralized inventory is an inventory management system where the product is moved from the central office to locations closer to customers.
The locations have different people who are making decisions and running the entire business. This allows the customers to get access to the goods they require fast and without going far.
The system is suitable for industries that have customers all over as it makes the goods available to the customers. This improves customer satisfaction as the goods are delivered rapidly.
The system enables the business to respond to emergencies on time and efficiently. Transportation cost is reduced with this system as they will not need to transport the goods very far when the customer requires them.
However, the operational cost for this system is higher as a more human resource has to be employed to enable the smooth running of all the locations.
Some goods may be misallocated making the owners not receive their orders. The expenditure may also be significantly higher as compared to the centralized inventory system.
Main Difference between Centralized and Decentralized Inventory
- Centralized inventory system all operations are centralized while in a decentralized the products are moved to other locations near the customers.
- In centralized inventory, there is a single location while in decentralized there are various locations.
- There are minimum chances of pilferage in centralized inventory while there are higher chances of pilferage in decentralized inventory.
- There are uniform prices for the products in centralized inventory while the prices differ in decentralized inventory.
- It is easier to make decisions in centralized inventory while it is not easier to make decisions in decentralized inventory.
Similarities between Centralized and Decentralized Inventory
- Both are inventory management systems.
- Both ensure service to their customers.
Centralized and decentralized inventory systems are systems that ensure goods are delivered to their customers. However, the two are different. The main difference between centralized and decentralized inventory systems is that centralized inventory is where there is the single location from where goods and inventories are stored while decentralized inventory is where there are different locations for goods and inventories.
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