Businesses are vulnerable in many ways as they are at the mercy of the whims of external forces. These can be financial, political, technological, sociocultural or environmental in nature.

All of these factors have an impact on procurement ranging from price negotiation to trading to supplier management.

How External Factors Affect Procurement

The financial environment

The financial environment including economic performance has a significant impact on how buyers proceed with their procurement activities.

One of the biggest challenges related to the financial environment is currency fluctuations. If you buy at the right time, you have the chance of a high return. An investment at the wrong time, on the other hand, can lead to financial losses.

Banks’ policies also affect procurement departments as it controls inflation and investor behaviour. This, in turn affects cash flow.

Meanwhile, banks’ lending behaviour can also constrain procurement activity and shift the focus to cost savings when securing funding becomes difficult. In addition, a credit crunch often endangers smaller suppliers and thus increases the risk for buyers.

Political changes

A change of government or changes in domestic politics or international relations can have a tremendous impact on who and how buyers do business.

At the national level, changes in government and political changes can lead to reforms in legal requirements. There will be changes in support measures and in the representation of companies. This affects how companies structure their supply chains. How well they comply with regulations on employment, tax, health and safety, ethics and quality assurance, and how their growth develops.

Internationally, severing ties with supplier countries can significantly affect trade dynamics, while opening a country to the free market opens up new opportunities and challenges. Similarly, a change of government or political shifts in other countries, regions and territories can present companies with whole new challenges in terms of compliance, financial and supplier management. Not to mention the disruption of supply chains in cases of political collapse, destabilization or revolts.

Procurement departments must keep pace with global political events and respond quickly to mitigate risk and maximize opportunity.

Technological progress

The technology landscape is constantly changing. Customers today expect companies to operate faster, be better connected and always offer them the latest developments.

Companies like car wraps long island need to keep track of the changes in the technological environment and how it affects their own company. From the products and services offered to the way buyers work with suppliers, technology is having a significant impact on procurement.