PIM MODULE 2

WHAT IS A PROCUREMENT STRATEGY?

The term procurement strategy refers to a long-term plan to cost-effectively acquire the
necessary supplies from a list of efficient vendors who will deliver quality goods on time,
abiding by the purchasing terms. Typically, a procurement strategy depends on a number
of factors like purchase timeline, the available budget, the total cost of ownership (TCO),
possible risks, and more.

Procurement strategies often focus on options like reducing costs, mitigating risks, and
expanding organically. Organizations can choose to focus on a single priority or more
than one, depending on their business requirements.

TYPES OF PROCUREMENT STRATEGIES

Irrespective of an organization’s size, there are a few common types of procurement

strategies that can be adopted by everyone. They are:

• Cost reduction
• Risk management
• Supplier management and optimization
• Green purchasing
• Global sourcing and
• Total quality management
STEPS TO CREATE AN EFFECTIVE PROCUREMENT STRATEGY

A robust procurement strategy will minimize errors, spot savings opportunities, eliminate
maverick spend, and ensure policy compliance. Listed below are the nine key steps in the
quest towards delivering a successful procurement strategy:

1. Analyze organizational spend

The first step of developing a procurement strategy is to analyze the existing spend
culture of your organization. In order to do this, you need to obtain data from internal
stakeholders, suppliers, and all other parties who are involved in the procurement
process.

The data obtained on this step will not only serve as a knowledge base within your
organization, but also function as the foundation of the procurement strategy. Tools like
toal cost of ownership (TCO) can be used to identify and analyze the often overlooked or
unknown costs that an item/service incurs in addition to its initial purchase price.

2. Determine business needs

To design a robust procurement strategy that provides the best results, it is essential to
understand your organization’s needs clearly. This fact-based analysis will help you align
and prioritize your procurement strategy across other functions and business goals.

A simple ‘what if’ discussion that challenges the status quo and questions the obvious
will reveal a lot more savings opportunities. Tools like a category positioning matrix can
help organizations identify the key business requirements that will go into the
development of your procurement strategy.

3. Assess market conditions

Once the internal analysis of determining the business needs is complete, the next
obvious step is to look at the external side of things: supply markets and their conditions.
Here, the necessary data needs to be collected from suppliers and potential suppliers.

To ensure relevancy, organizations need to make sure that the collected data stays up-to-
date over time. A number of methodologies such as Porter’s five forces and SCOPE
analysis will come in handy during this analysis.

If you follow the procurement best practices of knowing your market and suppliers better,
this step will be relatively easy.

4. Set clear objectives

Once the business needs are identified, it is time to come up with a clear vision of what
needs to be achieved. The data collected in the previous steps can be used to determine
the niggles in your procurement process.

Once those are determined, sort them in descending order of the impact each has on your
organization’s bottom line. Tools like a SWOT analysis can be used to identify the
current state of your procurement functions. For instance, if you need to reduce maverick
spend, you need to implement procurement software that make the process transparent.

5. Define Procurement Policies

Now that you know what needs to be addressed, it is time to create a list of procurement
best practices that will eliminate the existing inefficiencies. You can start the process by
modifying your procurement policy to address risks identified during the SWOT analysis.

When you’re in the process of sketching out a procurement policy for your business, it
would be best to avoid starting from scratch. Instead, you can adapt existing procurement
policy templates to fit around your organization’s business needs. Ideally, procurement
policies need to offer guidance on fair practice for everyone involved in the process, as
well as remedies for possible violations.

6. Implement procurement software

Organizations that handle the procurement process manually are more likely to spend
more due to human errors, delays, and late payments. A procurement system improves
employee productivity and reduces errors by eliminating manual data entry and
associated inefficiencies.

A procurement management system will track the procure-to-pay process end to end.
Every step of the procurement process, from identifying the sourcing needs to completing
payment, will be streamlined. The best-in-class features of a procurement software will
spot and address process gaps and enforce purchasing policy without any manual
intervention.

7. Outline a procurement strategy

With the help of the data and information you’ve obtained, draft a procurement strategy.
This needs to list down the desired goals, and the tactics that will be used to achieve
them.

The goals have to be measurable, time-sensitive, and realistic. The tactical plan will list
down the methods that will be used to achieve the pre-defined goals. A procurement
strategy can also incorporate a ‘big idea’ that will eventually push the boundaries of
possibility.

8. Develop a digital procurement strategy

With the help of the data and information obtained from the previous steps, you need to
draft a digital procurement strategy. In this step, the organizations need to revamp your
procurement technology, strategy, process, talent, skill set, and supporting systems.

Implementing a digital procurement strategy should be considered a priority, since it

enables organizations to spend more time with suppliers and the strategic part of
procurement, rather on administrative tasks and transactions. A digital procurement
strategy will help businesses deploy the resources they need to obtain outsized gains and
make their procurement process agile.

9. Execute, manage, and refine the strategy

Once a digital strategy is created, the next step is to execute it. As the strategy is
executed, it will demand involvement from other business functions (HR, admin, sales,
finance). After executing the digital procurement strategy, you’ll need to track and
measure the progress and success of the implementation.

PROCUREMENT STRATEGY FRAMEWORK

An ideal procurement strategy framework will include the following:

· Strategy statement: the basis and rationale

· Desired results: deliverables

· Timeframe: deadlines

· Tactical plan: how a strategy will be implemented

· Measures: metrics used to evaluate the process

· Tools used: TCO, SWOT analysis, Porter’s Five Forces, Category Positioning
Matrix, SCOPE Analysis, Fishbone Analysis, etc.

Recommended Reading

Top 6 Challenges in Procurement and How to Overcome Those

5 Advancements in Technology That Procurement Needs to Adopt Now

How Manual Processes Are Killing Your Procurement Efforts