Procurement Commodity Strategy
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This is perhaps due in part to the assumption in operational purchasing models (e.g., Economic Order Quantity) that the price of material is “known and fixed” regardless of purchasing policy—however, when large price fluctuations occur for input materials (as can occur in commodity procurement), purchase price becomes more important and “must directly affect the purchasing policy” (Simon 2005).. Product Constraints Company Constraints Service Constraints • Market Efficiency • Budget Constraints • Special Promotions • Perishability • Cooperative/Investment • Supplier Service Level • Seasonality • Limited Supply •Traceability • Storage Requirements • Price Risk Strategy • Commodity Cost Share • Sales Forecast Accuracy • Storage Availability • Volume Commodity Procurement Decisions Figure 1.. Personnel position Commodity Company 1 Head of procurement Wide range of fruits and vegetables popcorn Company 2 Procurement director Packaging procurement director Buyer Assistant buyer Buyer Assistant buyer Company 3 Commodity-procurement director Lead buyer of soft commodities Dairy buyer Meat buyer Meat buyer Fruits Vegetables Fruits Vegetables Meats, Grains, Oils Meats.. Procurement characteristic Product constraints Market efficiency Perishability Seasonality Storage requirements Commodity cost share Company constraints Budget constraints Cooperative/common involvement Limited supply of specified quality Price risk Sales-forecast accuracy Storage availability Volume Service constraints Special promotions Supplier service level Traceability of buyers assigning importance Expected strategy Buyer agreement with expected strategy 10 12 12 3 2 Spot market Forward purchasing Forward purchasing Spot market Forward purchasing 10 12 12 3 2 5 1 3 12 12 0 7 Spot market Forward purchasing Forward purchasing Forward purchasing Forward purchasing Forward purchasing Forward purchasing 5 1 3 10 12 0 7 9 12 3 Forward purchasing Forward purchasing Forward purchasing 9 0 3 Expected procuremen
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