Purchasing and profitability: a taste for performance?

Both profitability and purchasing have significant impacts on a company’s financial performance. In this essay, we will examine the relationship between purchasing and profitability, and investigate how a company’s purchasing strategy can affect its financial performance. Companies face many challenges when trying to implement a buying strategy that improves profitability.

Here are some working hypotheses to support this essay

1. A company’s profitability can be improved by having a strong purchasing strategy.
2. Inadequate purchasing strategies can result in decreased profitability.

Theoretical development

The acquisition of the goods and services necessary to run a business is an important aspect of its operations. The buying process involves activities like identifying suppliers and negotiating contracts. It also includes managing logistics for goods and services. The purchasing function also plays a key role in the company’s supply chain, and can have a significant impact on the company’s overall performance.

One of the key factors that affects a company’s profitability is the cost of goods sold (COGS). COGS stands for the price of goods and covers labor and overhead costs. A company’s profitability can be improved by controlling the price of its goods.

A company’s profitability can be improved by having a strong purchasing strategy. A company may negotiate lower prices with its suppliers to reduce costs, which can lead to increased profitability. Additionally, by diversifying the company’s supplier base, a company can reduce its dependence on any one supplier, which can help to mitigate the risk of supply chain disruptions.

Companies face many challenges when trying to implement a buying strategy designed to improve profitability. A company might have difficulty finding suppliers who can supply the products and services it requires at a reasonable price. If a supplier holds a market dominance, it may be difficult to negotiate positive terms.

Recommendations to Operational Actions

A variety of operations can be taken by companies to boost their profitability and purchase.

1. Create a strategy procurement function: Every company should have a separate procurement function responsible for the identification, evaluation, and selection of suppliers. It is possible to make sure that your company receives the best deals for the services and goods it uses.
2. Establish a sourcing policy: This strategy will help companies identify and negotiate the best deals and best pricing. It is possible to do this by thoroughly analysing suppliers including their financial stability as well as delivery history.
3. Do supplier performance assessments: To identify issues or problems with suppliers, companies should conduct regular evaluations of them.
4. Establish a risk management policy: It is important for companies to develop a plan that mitigates the potential risk in their supply chains. You can do this by diversifying your suppliers and creating contingency plan to deal with any disruptions to the supply chain.

Future Research: Proposals

Reflection suggests that there are many areas in which future research can be done to better understand the relation between profitability and purchasing.

1. Examining the effect of digitization and the automation of the procurement process on financial performance.
2. It is important to examine the impact of procurement on innovation and the long-term sustainability for organizations.
3. The effect of procurement on supplier performance, selection and supplier relationships management.
4. Examining the potential benefits of procurement for organizations addressing the globalization challenges.