Businesses aim to maximise their profits since the beginning of economic thinking. Hence, maximum efficiency and minimum costs play a key role within this thinking (Mankiw, 2011). In this context, purchasing gained much attention in terms of increasingly tough competition as the costs for purchased goods and services add up to around 50 per cent of the total costs for goods sold (COGS) on average (van Weele, 2010). This high proportion illustrates that purchasing encompasses more than the operational buying process. In fact, it is a function that comprises various activities. Van Weele (2010, p.8) defines purchasing as ‘the management of the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the most favourable conditions’. Consequently, all activities to manage the company’s external resources are included in purchasing functions. In recent years it seems this management has become more difficult due to circumstances such as economic, financial and political crises. Even acts of God can lead to greater volatility and uncertainty that may impact the process of purchasing. Hence, in order to cope with the likely tough economic climate in 2012, businesses have to reflect possible strategies. Moreover, due to the increased importance of purchasing and supply management, risks as well as challenges related to these functions have to be pointed out in order to evaluate its contribution for managing the economic situation.
Table of Contents
1 Introduction
2 Characteristics and prospects of the economic climate
3 Global purchasing and its economic contribution
3.1 Display of different approaches applicable
3.2 Risk management
3.3 Saving of costs
4 Conclusion
Objectives and Core Topics
This paper examines how global purchasing functions can contribute to business resilience and profitability within the anticipated volatile and difficult economic climate of 2012. It explores strategic approaches to mitigate market-driven risks and optimize procurement performance.
- Economic indicators and growth forecasts for 2012
- Risk management strategies for supply chain stability
- Cost-saving techniques under varying market power structures
- Strategic shifts from operational buying to long-term value creation
Excerpt from the Book
3.2 Risk management
Hence, what strategies have to be applied in tough economic situations such as the current one? The role of supplier selection and an appropriate risk management are major tasks of purchasing (Ravindran et al., 2010) and also Schuh et al. (2011) set priority to risk management. Being also important in general, it gains in importance particularly in tough economic times as each company can indirectly be struck by ups and downs in the market via its suppliers. This applies particularly to small suppliers that could, for instance, face a dilemma regarding their creditworthiness due to tight bank lending. Hence, in order to ensure continuous performance, the company should conduct an appropriate risk management (Schuh et al., 2011). Correspondingly, the higher the supply risks, the greater the need for action, i.e. risk management is important for bottleneck and strategic products or suppliers in particular.
Summary of Chapters
1 Introduction: Introduces the growing importance of purchasing as a strategic function and sets the context for the challenges businesses face in 2012.
2 Characteristics and prospects of the economic climate: Analyzes global economic indicators, specifically GDP growth, debt levels, and inflation, to characterize the upcoming market environment.
3 Global purchasing and its economic contribution: Discusses how purchasing strategies regarding risk and cost management help firms navigate economic instability.
3.1 Display of different approaches applicable: Explains the categorization of products and suppliers using Kraljic’s purchasing portfolio to determine appropriate strategies.
3.2 Risk management: Details the necessity of proactive risk identification and collaboration to secure supply chains against external economic shocks.
3.3 Saving of costs: Outlines methods for cost reduction tailored to the specific buyer-seller power dynamics within different market structures.
4 Conclusion: Synthesizes findings, concluding that long-term process improvement and risk-aware collaboration are superior to simple price-cutting strategies.
Keywords
Global Purchasing, Economic Climate, Risk Management, Cost Saving, Supply Chain Management, GDP Growth, Strategic Sourcing, Buyer Power, Market Volatility, Financial Crisis, Supplier Selection, Procurement Strategy, Business Efficiency, Commodity Prices, Inflation.
Frequently Asked Questions
What is the core focus of this research?
The research investigates the strategic role of global purchasing in supporting business stability during the difficult economic conditions forecasted for 2012.
Which central topics are addressed?
Key topics include the analysis of global economic indicators, the evolution of purchasing into a strategic function, risk management in supply chains, and cost-saving methodologies.
What is the primary research goal?
The primary goal is to evaluate how purchasing functions can contribute to a firm's survival and performance improvement amidst economic volatility.
Which scientific methods are employed?
The paper utilizes a literature-based analysis and evaluation of economic data from established institutions like the IMF, World Bank, and academic research to substantiate its arguments.
What does the main body of the text cover?
It covers the current economic climate, the application of Kraljic's portfolio for supplier categorization, specific risk management steps, and various cost-reduction strategies based on market power.
What are the characterizing keywords of the study?
The study is characterized by terms such as Global Purchasing, Risk Management, Supply Chain Management, and Financial Crisis.
How does the author define the role of purchasing in crises?
Purchasing is no longer seen as merely operational; it is viewed as a vital strategic function that must handle risk management and long-term value creation, not just short-term cost-cutting.
What role does the Kraljic portfolio play in the author's argument?
The Kraljic portfolio serves as a classification framework that helps companies distinguish between product and supplier categories to implement the most effective purchasing strategy for each.
- Citation du texte
- Christian Krogmann (Auteur), 2011, Tough Economic Climate, Munich, GRIN Verlag, https://www.grin.com/document/195083
