Risk management in purchasing is essential to hedge against price, commodity and foreign exchange risks

• In the wake of the credit crunch and recession of 2008 and 2009, purchasing is becoming ever more important
• Automotive manufacturing, retail and electronics are the industries with the best risk management in purchasing
• Increasing respect for purchasing within companies: 54% view it on a par with functions such as finance and sales & marketing
• Purchasing plays a central role in hedging against price, commodity and foreign exchange risks
• Purchasing helps companies optimize their performance – major impact on cost improvements and working capital

Corporate purchasing and procurement felt the impact of the credit crunch and recession of 2008 and 2009. Two thirds of companies therefore view risk management as a top priority in purchasing in order to hedge against supplier, commodity and foreign exchange risks. There is renewed respect for purchasing within companies: 54% of executives view it on a par with other key corporate functions. The automotive manufacturing, retail and electronics industries are the pioneers in this. Those are the findings of the "Purchasing Excellence" study by Roland Berger Strategy Consultants, which surveyed 500 CEOs, COOs and purchasing directors worldwide.

"The economic crisis and market volatility affected corporate purchasing around the world," says Axel Schmidt, Senior Partner at Roland Berger. "The trend now is toward risk management: purchasing and procurement divisions are increasingly being used to hedge against exchange rate fluctuations or supplier risks."

Purchasing more important

The new study clearly shows that purchasing is becoming more important to companies. On all three levels of activity – strategy, performance and enablers – we can see major improvements year on year. We identified 15 key trends, such as the increasing respect for purchasing in the boardroom. 77% of companies say that purchasing enjoys broad-based support at management level. For 58% of respondents, the purchasing division has now been put in charge of cross-functional projects to save money – an increase of 12 percentage points on 2009.

Hedging against price, commodity and foreign exchange risks

One of the key tasks attributed to purchasing is to manage price, commodity and foreign exchange risks – especially when procuring production material. For just under 70% of respondents, purchasing plays this role for production materials and for 46% of respondents, it does so for non-production materials. "Purchasing managers play an extremely important role in hedging against price, commodity and foreign exchange risks," explains Roland Schwientek, Partner at Roland Berger. "With their close contact to suppliers and knowledge of the commodity market, they are in a position to spot certain risks and take timely action."

Over 80% of respondents conduct supplier audits to find out about upcoming price rises in good time. 62% of companies create procurement alternatives to actively combat rising prices or exchange rate fluctuations. In doing so, companies also increasingly consider the sustainability of the materials supplied – especially in production materials, sustainability is important (74%).

Purchasing helps optimize performance

Optimum purchasing management also helps companies boost their own performance. Purchasing plays an important role in supply chain financing (68%), for example. "Since the last financial crisis, firms urgently want to optimize working capital," says Schwientek. "And purchasing can have a strong influence on payment terms, delivery frequency and the various discount options. This in turn has a positive effect on the company's working capital."

That is why companies are increasingly integrating their suppliers into various processes early on to achieve better results. Just under 80% of respondents involve strategic suppliers in the innovation process. To optimize costs, 63% of companies focus on close collaboration with their suppliers of production materials; for non-production materials the figure is just 37%. "To optimize costs, companies are increasingly applying sophisticated levers such as standardized technical solutions, improving product and service costs and focusing on strategic suppliers," explains Axel Schmidt.

There is also more focus on international procurement activities – in production materials, 63% of procurement is now global. In this context, the requirements placed on a company's logistics network play a key role for 87% of respondents and geographical proximity to individual sites is important to 69%.