Scenario Analysis for Strategic Purchasing: Development of a Scenario Simulation Tool for the Villeroy & Boch AG

Zusammenfassung

Enormous competitive advantage can be realized by the way the procurement department tackles its external spending. A profound knowledge of how to manage the external parts of the company’s supply chain ensures the ability of a company to survive on the market. Volatility in value chains has been aggravated by natural disasters and scarcities of raw materials. Volatility disrupts operations and the thereby evoked swings in input pricing force CPOs to rethink their so far established tools and methods used. “Across all the companies listed in Standard & Poor’s 500 stock index, external spend as a fraction of total cost has increased by an average of 40 percent since 1970. Specifically, it has grown from roughly 60 percent of a company’s total expenditure in 1970 to an average of 85 percent in 2010. … In parallel with this increase of external spend, the employees of those companies have been expected to deliver more. In 1970, companies on the S&P 500 were realizing $ 40,000 in revenues per employee (RPE). That value has risen almost 22-fold, to roughly $ 900,000 per employee” (Spiller et al., 2014, p. xiii).

To deal with this challenges the paper focuses on analyzing future trends in purchasing and tries to specify what consequences have to be considered when defining fluctuation of prices of the most strategic procurement items of a company. To support a corporate purchasing team in decision making and establishing appropriate purchasing strategies to adequately respond to environmental changes a scenario building process is discussed to develop a scenario simulation model. This model is to be developed by using a concrete company example and enables purchasers to examine the impact of modified conditions on purchasing activities as well as being able to simulate effects of economic developments on total cost of purchasing items.