The Economic Impact on Purchasing Management Decisions

Purchasing Management

A Purchasing Manager must ensure that all the necessary supplies, tools, and stock inventory are available for operations to proceed smoothly and at an undisturbed pace. Counting inventory, ordering goods/items, and keeping stock of prices in a fluctuating market so as to not go over budget at any given time are all important aspects of the job.

In today's market conditions, one of the main challenges that a Purchasing Manager can face, however, has to do with global economic conditions, which are hovering on the brink of recession or even outright depression if the warnings of some economic analysts are to be taken seriously. As Zorzi, Chudik and Dieppe (2012) assert, fundamental imbalances in the accounting practices of banks, corporations, multinationals and governments around the world have tilted the playing field in such a way that it is now a veritable slope, with all players losing their footing as a result: indeed, "the chance that current accounts were aligned with fundamentals prior to the financial crisis appears to minimal" (p. 1319) the researchers state. This may be taken as a condemnation of the whole, a new generation of Enron-style "mark-to-market" practitioners playing with fire.

How does this impact the Purchasing Manager's ability to budget, order and plan for production flows within his own company? Some items, goods and commodities may be hit harder than others in this market while others may be viewed as a store of wealth. Palladium and gold, for instance, are rising in price at this moment, as the value of currencies drop in countries like Canada, South Africa, Russsia and China. Furthermore, a strong USD impacts the exchange that can be made as various countries (like China) seek to export deflation.

Thus, there is an economic cost that must be considered in today's on the verge of being depressed global economy. Scarcity and abundance will be issues that affect pricing. Oil costs have plummeted recently and for individuals and companies looking to purchase cheap oil, this may be viewed as a good thing -- but for oil producers it is devastating, with shale oil companies having to close their doors all over the U.S. as it is not profitable for them to maintain their businesses with barrels of oil selling at such a low price. With more businesses shuttering their doors and more workers left without the jobs, the U.S. economy will tilt even more in a dangerous slope towards full-blown depression.

This will weigh on the Purchasing Manager as well. In a depression, what is the expectation of goods being sold to consumers? Does the company manufacturer items or products that are deemed a necessity or a luxury? If the latter, the Purchasing Manager may do well to assess whether supplying an over stock of inventory would be appropriate, given the cost of storage that might accrue over time as less inventory is turned over as a result of a slowdown in production. In a stagnant and/or down-turning economy, a company's sales are not likely to stay up unless it is producing necessity items, such as health products. Therefore, the Purchasing Manager's decisions will be impacted by the way in which he discerns the relationship between a good/bad economy and the demand for the company's product.

Just by analyzing what happened in the wake of the 2008 economic crisis, the Purchasing Manager should be able to prepare accordingly. From countries like Iceland to Spain to Greece to the U.S., it may be seen how an economic implosion due to faulty management of assets by the banking sector and shoddy loans impacted citizens on an emotional level, which in turn clouded the consumer-driven marketplace as a whole (Ragnarsdottir, Bernburg, Olafsdottir, 2013). The stock market cratered at the same time and consumer confidence was at historic lows -- and even today it lingers on the verge of collapse as fewer and fewer jobs are created (except in the minimum wage job sector known as the service industry).