Centralization and Decentralization: The Advantages

602 Words2 Pages
1. There are advantages to both centralization and decentralization. Centralization allows for companies to have tight control over how the stores are run. This allows them to have a more consistent customer experience, which can be a draw. In addition, with tighter management control over the procurement and supply chain, the company can extract greater efficiencies throughout the supply chain, allowing it to pass those savings along either to customers (to compete) or to shareholders (in the form of higher profits). There is simply a higher degree of efficiency in centralized businesses (Vitez, 2013). In contrast, decentralization gives the company's local managers the ability to tailor the product mix to local markets. This reduces the ability of the company to extract efficiencies from its supply chain, but does a better job of meeting local market needs. There is inherent logic to this consumers in Minnesota have much different needs for their home supplies than consumers in southern California. As a result, the company should under decentralization be able to better serve customers' needs. The experience would not be as consistent, but would be closer to the optimum experience in each geographic region. Both strategies have advantages and disadvantages, so the company needs to evaluate which is going to be more effective and helping it to achieve its strategic objectives. Home Depot enjoyed some success with decentralization initially, but Lowe's was able to catch up
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