Photo credit: PhotoMIX-Company für Pixabay (via Canva pro)
Strategic purchasing and global procurement networks
Strategic purchasing and the establishment of global procurement networks have become a key success factor.
By expanding their procurement radius, companies can reduce their costs, optimise their supply chains and benefit from a greater variety of materials and components.
However, global procurement also brings new challenges, such as more complex logistics, exchange rate fluctuations and increased political or economic risks. A well-planned procurement strategy must take these factors into account to help companies remain competitive and profitable.
In the following, we will explore the fundamentals of strategic sourcing in global markets, look at risk management in global procurement networks, examine the role of technology in modern procurement and present successful examples of efficient procurement strategies.
Photo credit: PhotoMIX-Company für Pixabay (via Canva pro)
Fundamentals of strategic purchasing in global markets
Strategic purchasing goes beyond the simple procurement of goods and services. It is a holistic approach that takes into account a company's long-term goals and aims to maximise value from spend. In a global context, this means that companies need to plan their procurement activities strategically in order to reap the benefits of globalisation.
The basics of strategic purchasing in global markets include
- Market analysis: An in-depth understanding of global markets, including supply and demand, price trends, exchange rate fluctuations and political/legal conditions, is essential. Companies need to continuously analyse market data in order to make informed sourcing decisions.
- Supplier management: Identifying and evaluating potential suppliers on a global level is a critical aspect. Companies should establish criteria for selecting and evaluating suppliers that include their financial stability, production capacity, quality controls and ability to meet delivery deadlines. In addition, companies should select suppliers that are committed to sustainable and ethical practices to ensure that their sourcing activities are environmentally friendly, socially responsible and compliant. Finally, the Supply Chain Due Diligence Act has been in force in Germany since the beginning of the year and the Europe-wide Corporate Sustainability Due Diligence Directive - often referred to as the EU Supply Chain Act - is also likely to be formalised in binding paragraphs soon.
- Cost management: Global sourcing allows companies to benefit from lower prices and more favourable exchange rates. However, it is important to consider the total procurement costs, including transport, customs duties, warehousing and other logistical expenses.
- Supply chain optimisation: Strategic purchasing aims to improve the efficiency of the supply chain. This can be achieved by consolidating suppliers, reducing intermediaries or developing alternative procurement routes. A well-planned global supply chain can lead to shorter delivery times and lower storage costs.
- Risk management: Risk management is an essential part of strategic sourcing in global markets. Companies need to consider a range of risks that may impact their procurement activities and develop strategies to manage them. In the following, we take a closer look at various risks.
Photo credit: PhotoMIX-Company für Pixabay (via Canva pro)
Risk management in global procurement networks
Here are some important considerations for risk management in global procurement networks:
- Political and economic risks: Political instability, regulatory changes or economic crises in a country can have a significant impact on procurement activities. Companies should continuously assess these risks and consider alternative procurement sources or supply routes if necessary.
- Exchange rate risks: Exchange rate fluctuations can have a significant impact on the cost of imported goods. Companies can mitigate these risks through various strategies, such as using currency hedging instruments, negotiating prices in the supplier's local currency or working with financial institutions to minimise exchange rate losses.
- Transport and logistics risks: Global supply chains are more susceptible to transport delays, logistical problems or natural disasters. Companies should develop robust logistics networks, consider alternative transport routes and take out appropriate insurance to manage these risks.
- Supplier risks: Dependence on foreign suppliers harbours the risk of quality or delivery problems. Companies should carefully evaluate and select their suppliers, carefully negotiate contracts and continuously monitor supplier performance.
- Compliance and legal risks: Different countries have different legal and regulatory requirements that must be adhered to. Companies should ensure that they know and understand all relevant regulations, including customs regulations, labour laws and environmental standards.
Photo credit: PhotoMIX-Company für Pixabay (via Canva pro)
The role of technology in modern purchasing
Technological advances have significantly changed the way organisations manage their procurement processes. Digitalisation has made it possible for procurement activities to be carried out in a more efficient, transparent and data-driven way.
Here are some important aspects of the role of technology in modern procurement:
- E-procurement and e-sourcing: Electronic procurement solutions enable companies to handle their procurement processes online. E-procurement platforms provide a centralised location for managing tenders, communicating with suppliers and monitoring orders. E-sourcing tools help companies to find and evaluate new suppliers, making the supplier search process more efficient and comprehensive.
- Data analysis and AI: By analysing large amounts of data, companies can make more informed procurement decisions. Predictive analytics can be used to forecast price trends or determine the optimal procurement quantity. Artificial intelligence (AI) can also be used to evaluate supplier performance or recognise patterns in procurement data to increase efficiency.
- Automation: Many manual tasks in the procurement process can be automated, saving time and resources. This includes the automation of orders, electronic invoicing and the use of robotic process automation (RPA).
- Supply chain transparency: Technological advances are enabling better transparency in the supply chain. Companies can track the movement of goods in real time, which improves planning and inventory management. Blockchain technology is also becoming increasingly popular to increase transparency and traceability in the supply chain. With it, each product or component can be given a unique digital fingerprint, enabling traceability from source to endpoint. This is particularly crucial in industries where product authenticity and quality are of paramount importance.
- Collaboration: Technological platforms enable better collaboration between buyers, suppliers and other stakeholders. By sharing data and information in real time, problems can be solved more quickly and decisions can be made more efficiently.
Success stories for efficient procurement strategies
A well-planned and executed procurement strategy can bring significant benefits to organisations. Here are some successful examples of efficient procurement strategies that lead to positive results.
Apple
Apple's sourcing strategy is based on close partnerships with suppliers from all over the world. In 2022 alone, the company invested €20 billion in European suppliers. In Europe, the company has invested €85 billion in European suppliers over the past five years. These investments have supported innovations that can be found in every product manufactured by Apple. This is because Apple works closely with its suppliers to develop pioneering technologies.
One example is TRUMPF, a family-owned company headquartered in Ditzingen, Germany, which is a leading global supplier of industrial lasers, machine tools and technologies. The company's high-tech components are used in a range of Apple products.
This strategy enables Apple to deliver high quality products and is an example of how companies can drive innovation through strategic partnerships and investment in their supply chain.
Volkswagen
Volkswagen is working systematically on a fully digitalised supply chain to secure supply and leverage synergies. By standardising and automating transactions with suppliers, Volkswagen aims to reduce transaction costs and accelerate business processes. Possible supply risks are to be identified at an earlier stage and appropriate measures and alternatives can be jointly derived more quickly.
Complex challenges along the supply chain are countered by an established crisis management structure and the global supplier network, with access to a large number of locations and technologies.
This structure has made a decisive contribution, particularly in coping with the effects of the war in Ukraine and the associated establishment of back-up sites. The establishment of a task force and the cross-divisional work between procurement, quality assurance, development, production and logistics made it possible to reduce short-term losses and ensure the supply of parts.
This enabled Volkswagen to maintain production for the most part and provided a prime example of successful risk management in procurement.
Conclusion
Strategic purchasing and the establishment of global procurement networks are decisive factors for business success. By expanding their sourcing radius, companies can benefit from cost savings, greater diversity and an optimised supply chain. A well-planned procurement strategy takes into account market analysis, effective supplier management, cost management and risk minimisation.
Digitalisation has revolutionised procurement processes and the use of technology enables more efficient, data-driven decisions. By analysing large amounts of data, automating manual tasks and improving transparency in the supply chain, companies can optimise their procurement activities.
The successful examples of companies such as Apple and Volkswagen show that a well-executed sourcing strategy can bring significant benefits. By adapting their procurement strategies to global markets and utilising innovative technologies, companies can increase their competitiveness and succeed in an ever-changing economy.
Do you want to optimise your procurement strategy? Our highly qualified interim managers and experts are always available to provide you with comprehensive expertise and solutions.
Contact us by e-mail at