In supply chain management, what is the term for a purchase arranged to ensure price stability despite market changes?

The term for a purchase arranged to ensure price stability despite market changes is forward buying. This practice involves committing to purchase a specified quantity of goods at predetermined prices for future delivery, which protects against price volatility that can arise from fluctuations in market supply and demand. By securing prices in advance, companies can budget more effectively and avoid sudden costs increases, thus stabilizing their procurement expenditures.

Forward buying is particularly important in commodities or markets that are known for their price instability, as it allows businesses to maintain a predictable cost base. The strategy can also help organizations to lock in favorable pricing terms with suppliers, ensuring continuity and security in their supply chains. This approach aligns procurement practices with long-term financial planning, making it an essential concept in effective supply chain management.