Procurement strategy refers to the plan of buying items from a supply list in efficient ways. That also means reducing costs, delivering value and accomplish on time orders.
You must consider a lot of aspects for a procurement strategy, like lead time of order, company’s budget, annual spend. Controlling those things help mitigate risks and expand more.
So, the procurement strategy will guide a business in the buying process. It will provide a better understanding of the steps involved in procurement and may be use as a map to the procurement team.
Developing a Strategy
When developing your procurement strategy, you must pay attention to a lot of details. For instance, you need clear objectives. It may be cost reduction, risk management or supplier optimization. But the objective will guide your plans.
You also need to set an expected result. This will help you evaluate if the strategy was a success or not and at what level. The results must be managed accordingly to the stage you are, setting too high will not reflect the real potential.
A timeframe is an important aspect. You need to know when the strategy will be finished and when you can expect to evaluate and collect results. That’s also important to keep track of everything that’s being done.
For a more practical approach to your strategy, you need to develop a tactical plan. That’s going to explain to everyone on your team how the strategy will be implemented, and the steps involved.
Finally, you need to set Key Performance Indicators (KPI’s), that are metrics for evaluating your project and strategy and dedicated tools for study of your market environment.
How to implement a procurement strategy?
Of course, there are different ways to be successful in a strategy and make your company more efficient and profitable. But there are a few points that can help even the least experienced professional with their procurement environment.
- Spend analyses: as a procurement professional, you need to know how the current expenditure of your company is. You need to evaluate how you can improve. Their past activities will be the start of your strategy and you will know how things work and what to expect from your partners.
- Identify Needs: now that you know your company’s market and environment, you need to identify what it needs the most. You will want to identify what’s the critical items and what’s more common. What’s taking too long to deliver and what’s working properly. From that point, you can choose suppliers and reduce costs.
- Know your market: once you know your company needs and procedures, you must look for an overview of your market. You need an external analysis to study market and know their conditions. What your competitors are doing, what you can learn from them.
- Have realistic goals: with all the information you gathered you are now able to define what you can expect from the strategy. What are the potential gains and savings. You also know the dynamics of your market and the best suppliers and possible partners.
- Set your guidelines: after the research, you can create a list of practices that will help your business improve. They will work as a reference point for everyone in the procurement team.
By the end of this process, you can draft a strategy that will benefit your team and company. It contains your objectives and goals, your tactics and the results you expect.
The SMART criteria
Some procurement professionals recommend using the SMART criteria to define your goals and objectives. This will make your strategies easier to achieve and less probable of being interrupted.
The SMART acronyms mean setting goals that are:
Although it’s not a method, having the smart criteria in mind may be a good way to establish parameters for goals and results. It focuses on results that can be achieved so you can implement a strategy step by step.
You can accomplish a lot with a good procurement strategy. You can choose the best supplier for your company and be more profitable and efficient.
Also, you can order better quality goods, making your production more valuable and desired in the market, or making you spend less on damaged items and warehouse problems.
A good strategy may help you established more robust relationships with suppliers, with contracts that will last longer and be more advantageous for both of you.
Another good thing of an procurement strategy is that it reduce the supply chain risks, because it may identify suppliers that are closer to you, or that deliver on shorter times with the same quality.
By the end, focusing on a procurement strategy will free time, reduce damages and make your company more profitable. Considering that, strategic procurement is a important role on a business and can deliver value on every process of your business.