Market Factors that Impact on a Procurement and Supply Function

Market Factors that Impact on a Procurement and Supply Function

Demand and Supply

  • Demand and supply are the key market forces that impact procurement and supply functions.
  • The laws of supply and demand state that if all other factors are equal, an increase in the demand for a product will result in an increase in its price, prompting suppliers to produce more. Conversely, if demand decreases, prices drop and less is produced.

Price Fluctuation

  • Price fluctuation due to changing market conditions directly impacts procurement and supply functions.
  • Companies must monitor and anticipate changes in prices to reduce potential risks and optimise purchasing decisions.
  • Factors affecting price can include changes in demand, increased production costs, inflation, and shifts in the overall economy.

Market Competition

  • The level of market competition affects the procurement and supply function.
  • High competition often drives prices down, while monopolistic or oligopolistic markets could lead to higher prices.
  • A company’s procurement team must be aware of the competitive landscape, evaluate alternative sources of supply, and determine the best options.

Supplier Power

  • Supplier Power: Should a few providers control the bulk of the market, they may exert a significant influence on prices, terms and quality of goods and services.
  • It is essential in procurement to assess the bargaining power of suppliers to anticipate potential supply chain constraints.

Quality Considerations

  • The quality of goods and services procured can directly impact a company’s reputation, customer satisfaction, and bottom line.
  • Procurement must ensure suppliers maintain appropriate quality standards, comply with regulations, and address any quality issues promptly.

Technological Advancements

  • Advancements in technology plays a significant role in shaping procurement and supply functions.
  • They can impact the manufacturing process, lead to new products or services, or alter the methods of distribution, all of which can affect prices and availability.
  • It’s important for procurement to stay up to date with relevant technological changes.

Legal and Regulatory Factors

  • Legal and Regulatory Factors can have a significant impact on procurement practices.
  • Laws related to competition, consumer protection, and ethical sourcing among others can influence the choice of suppliers and the cost of procurement.
  • It’s crucial for businesses to monitor legal changes and comply with all relevant regulations to avoid reputational damage and financial penalties.

Economic Factors

  • Economic factors such as inflation rates, exchange rates, interest rates, and overall economic growth can greatly impact procurement costs and supply chain management.
  • Companies need to monitor and adapt to these changes to maintain cost-effective procurement practices.