Procurement and Purchasing Strategy – 9 Steps To The Perfect Strategy
During the procurement process, having a procurement strategy is extremely necessary. Not only will it help the procurement manager get the best supplies possible, but it is also an indication of his skills and abilities.
Today, we are going to learn about the procurement strategy. You will define what it is, learn its different strategies, value its importance, and discuss how to create one.
By the end of this article, you’ll be creating your own procurement strategy like a pro.
Procurement Strategy – What is it?
By definition, procurement strategy is the detailed structure of how the procurement is handled by the procurement manager or a company. Think of it as an overview of how the whole procurement process starts, from selecting a supplier until choosing the methods on how to buy or procure the products or services needed for the company.
As a procurement manager, you can either have your very own purchasing strategy or your boss will hand out to you the company’s very own procurement process. Especially when you are filling in for another procurement manager who is on leave or may have resigned already, you’ll be given the option of following the process already used in the past. It is your job though to determine whether the actual strategy is worth following through.
If the procurement strategy does need changing, then it’s also up to you, the procurement manager, to create a brand new one.
What is a Purchasing Strategy?
A purchasing strategy identifies how an organization purchases materials or services. Its main goal is to decrease the bottom line and maximize cost savings.
This can be achieved by reducing inefficiencies, forming buying plans, and establishing approval workflows to get the result that the organization desires.
One of its goals is to establish clear policies when purchasing goods and services. The procurement team and finance department can analyze tail spend by using a great purchasing strategy.
What is the Difference Between Purchasing and Procurement?
Are you still confused about the difference between purchasing and procurement? Do not worry, we will give you a brief overview of its difference.
For starters, procurement means the process of identifying, shortlisting, selecting, and acquiring needed goods or services from a supplier.
The acquisition of goods can be done through direct purchases, biddings, or tendering processes.
On the other hand, purchasing has a league of its own. It means a set of functions that are associated with buying goods and services that the company needs.
The reason why many are confused is that it is often associated with procurement. However, purchasing is just a subset of a portion of the broader procurement function.
The Different Types of Procurement Strategies
Because most companies usually procure goods or services from suppliers, there are also many different types of procurement strategies that can be used by the procurement manager. Some of the most common strategies are the following:
- Risk Management – This is the process of identifying, understanding, and grading risks that you may sometimes face during a procurement. This process seeks to better manage such a scenario.
- Green Purchasing – This is one type of purchase strategy that prefers the procurement of products or services that is environment-friendly. Thus, suppliers and supplies are checked to make sure they do not harm the environment.
- Vendor Development – A procurement strategy that focuses on the vendor and the quality of suppliers delivering them.
- Global Sourcing – A strategy that focuses on how an enterprise works to identify the most cost-efficient location for product manufacturing, even if it’s outside the country or not.
- Supplier Optimisation – This is a strategy where the company chooses the best mix of suppliers who can provide supplies at the best terms and prices.
The Importance of the Procurement Strategy
Without a procurement sourcing strategy, a company is bound to make mistakes during the procurement process. A purchase strategy enables a company to not just save money by making smart procurement decisions, but the company can identify better suppliers too.
Building your own procurement process should also help in identifying the right purchasing goals and the creation of a good procurement policy.
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Purchasing Goals and Procurement Policy
A purchasing goal can either be just one rule or a bunch of rules for the procurement manager. So is a procurement policy.
To be specific, both mean rules that must be followed when creating a procurement plan or strategy.
The ideal framework for your procurement goal or procurement policy should have the following:
- Strategy Statement – The statement should include the basis and rationale for the procurement. For example, your basis for creating the procurement strategy is to buy 1000 new chairs for the office at an affordable rate.
- Desired results – This section is where you place data on the deliverables.
- Timeframe – This means the deadlines you’ve set for the procurement.
- Measures – These are the metrics used for evaluating the whole procurement process.
- Tactical Plan – This is where the steps of the procurement process are discussed in detail.
- Tools used – This is where you enumerate the tools used for the procurement. Tools such as Porter’s Five Choices, SCOPE analysis, Fishbone Analysis, and others.
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Procurement Strategy – How to Make One?
Creating your very own procurement process need not be difficult. You simply need to know and understand the results that you want to get for your procurement. Do you want the company to save on money by getting from a cheaper supplier? Or do you want to get or procure the best materials for your company?
With those goals in mind, create a procurement strategy that is best suited for your company’s needs and budget allocation. Below are 9 simple steps in creating the perfect strategy:
1. Determine your business’ needs – In most cases, you’ll be determining the needs of your company, but just in case you do end up building your own business, then this is the first rule of creating your procurement strategy. You need to understand what your company needs first for you to create the perfect strategy. Check documents, contracts, and other information that will give you an idea of what your company needs for procurement. If you need to use tools, a category positioning matrix should help you in identifying key business requirements while developing your procurement strategy.
2. Analyze your organization’s spending culture – While some would advise procurement managers to keep this on top of their list when developing their procurement strategy, we believe that this should come after determining what your company needs. Analyzing your business’ budget or spending habits is also important though, as it will give you an idea as to how much money you’re going to spend for the procurement as well as looking for options when it comes to sourcing suppliers.
3. Setting clear objectives – Once your company’s needs are identified, it is now time to think of the end goals for your procurement. While you are trying to come up with your procurement strategy, it will also be a good idea to use your company’s existing procurement policy templates that fit your company’s needs.
4. Assess market conditions – You’ve already taken care of your company’s internal procurement analysis, so the next thing that needs doing is to check for external data. Have a look at the supply market and determine its current condition. Data can be collected not just from your current supplier, but with other potential suppliers as well.
5. Procurement policies should be defined – For your procurement strategy to work efficiently, you should also come up with the best procurement policies to follow. We’ve already discussed what the ideal framework should be for your procurement policy, so check it out in the section above.
6. Implementing procurement software – Your company should have its own procurement software if you want to keep getting updates regarding the market trends and information from various suppliers. If your procurement software needs updating, then it should be a part of your procurement strategy. If you don’t update your software, your procurement process is liable to get delays, late payments, and other issues due to human error.
7. Outlining your procurement strategy – Once you’ve finished discussing the nitty-gritty of your procurement strategy, then it’s time to create a draft of it. List down the desired goals, tactics to be used, data that was collated from all sources, and other information that is needed.
8. Developing a digital procurement process – With the data and information you’ve drafted for your procurement strategy, it’s time to create its digital copy. Drafting a digital procurement strategy requires a revamping of your company’s procurement technology, process, strategy, talent, skillset, and supporting systems. Keep in mind that digital procurement helps businesses in deploying the resources they need to procure and it also makes the whole procurement process easier and faster.
9. Refine, manage and execute the procurement strategy – Once you’re finished with developing the strategy, it’s time to start working on it. When it is executed, your strategy will need help from the other departments in the company. This may include human resources, upper management, the finance department, and others. Once your strategy starts working, don’t forget to keep track and measure its progress and success.
What is a procurement strategy?
A procurement strategy is a detailed process of how the procurement manager handles the procurement of materials or supplies.
How to create a procurement strategy?
To create a procurement strategy, one needs data, market and/or product research, sourcing for potential suppliers, and an automated system for assistance.
What is a good procurement strategy example?
A good procurement strategy example is one where the procurement manager is able to buy high-quality supplies/materials for the cheapest price possible. This is achieved thru market research, analyzing data, and sourcing for potential suppliers.
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