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The Role of Value‐at‐Risk in Purchasing: An Application to the Foodservice Industry
Author(s) -
Sanders Dwight R.,
Manfredo Mark R.
Publication year - 2002
Publication title -
journal of supply chain management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.75
H-Index - 92
eISSN - 1745-493X
pISSN - 1523-2409
DOI - 10.1111/j.1745-493x.2002.tb00128.x
Subject(s) - purchasing , portfolio , commodity , context (archaeology) , downside risk , value (mathematics) , business , marketing , process (computing) , purchasing process , computer science , finance , machine learning , biology , operating system , paleontology
SUMMARY Value‐at‐Risk (VaR) estimates the downside risk of a portfolio of market‐priced assets at a particular confidence level over a specified time horizon. This article is a tutorial that introduces purchasing managers to the concept of VaR and its potential applications in the purchasing process. It discusses estimation alternatives and issues, and then examines and highlights the role of VaR in the context of a commodity end user with a specific example for a foodservice business. Further, the practical implementation issues of VaR in a corporate environment in general and the purchasing function in particular are discussed. The example and discussions are widely applicable to any commodity end user (e.g., energies, metals, or food‐related commodities), providing potential applications to practitioners and research ideas to academics.