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Procurement Plan – 10 Easy Steps to Create One Yourself
A procurement plan is essential for efficient procurement processes, outlining key steps, roles, and responsibilities.
Successful procurement planning leads to cost savings, optimized timelines, and effective stakeholder collaboration.
Key elements of a good procurement plan include contract types, performance metrics, and vendor management techniques.
Do you have a procurement plan ready? As a procurement manager, it’s your job to always create a good procurement plan and to have it ready and up to date all the time.
And so, we are going to discuss just that. We are going to learn about the procurement plan and how to create one using simple yet proven effective steps.
Once you’re done with this article, you will be able to write your own procurement plan and your team can start calling you “The King of Procurement Plans.”
Whatis a Procurement Plan?
A procurement plan, also known as a procurement management plan, is a document that is used to direct the process of selecting and finding a supplier.
It justifies the necessity for an external supplier and describes how the process of finding a supplier will be done.
The objective of a procurement plan is to improve the efficiency, transparency, and effectiveness of the procurement process.
It explains how products or services are acquired and how the suppliers will be supervised during the project.
The plan includes the types of contracts that will be utilized, terms of delivery, metrics used to evaluate supplier’s performance, and how the procurement process will commence.
How to write your own Procurement Plan
Writing the procurement plan may sound like a big task, but if you have everything that is needed right, then you should have no problems writing and building the plan.
1. Explain the procurement process
This is where you provide a section of the procurement plan that needs to be taken to get the needed products or services from a supplier. There should also be an explanation of what must be done to manage the process
2. Identify roles and responsibilities
This section is where you identify the different people who are working on the project and all stakeholders who will be affected by the project. The different roles involved in the procurement process should include:
- Technical managers who create the statement of work and oversee the technical vendor requirements.
- Project managers monitor the process and control the budget, schedule, and project risks.
- Contract managers who provide advice and documentation related to the project’s contract requirements.
- C-level executives who provide services on a contract and make decisions related to the contract. These executives are responsible for reviewing and approving the final contract agreements.
- Lawyers who help with the creation of the contracts and provide advice for any related legal requirements.
3. Identify the procurement needs and requirements
The first section of the procurement plan should describe the services or products the company is looking to buy. It should also have an explanation and justification for why the products or services are brought from an external supplier.
4. Define the procurement timeline
This section is all about the timeline for the project and it describes the timeframe in which the services or products are needed. This section helps procurement teams better by understanding when the procurement process should be started and when it needs to be completed.
5. Define change approval processes
This part is where the company’s change management processes, specifically how changes can be made to the procurement processes and documentation. The section should include an explanation of how to ensure the changes are necessary, understood, and approved by the right people.
6. Identifying vendor management techniques
This section of the procurement plan should explain the techniques used to manage vendors once they have signed the contract. The goal of this area in the procurement plan should be to ensure vendors must fulfill their side of the deal and provide the company with the products or services they requested at the quality that the company expects.
Vendor management should include the following:
- Creating an SOW that outlines the project timeline, deadlines, and compliance requirements.
- Detailing vendor selection criteria that are based on cost and risk analysis.
- Using key performance indicators (KPIs) to measure the product or service quality.
- Conducting regular meetings.
- Requiring the vendor to provide the project owner with regular project updates.
7. Define relevant legal jurisdiction
Legal requirements for the procurement process must be identified to ensure the company and vendor follow the law.
Legal requirements must also be identified to ensure all stakeholders are aware of the laws and that they do not violate the legislation.
8. Identify payment methods
This section of the procurement plan identifies the different payment methods and currencies that will be used and accepted during the procurement process.
If payments are to be made periodically, such as monthly or annually, then the terms for these payments must be detailed to ensure that there is no conflict between the company and the vendor regarding payments.
9. Explain risk management processes
Working with an external supplier can expose you to new risks to a procurement process that would not be relevant if the process was internally sourced. This section of the procurement plan should explain the risks of the project, including:
- Risk tolerance
- Risk probability
- Risk severity
- Types of contracts used
- Policies and procedures outlined in the contracts
- Review and approval processes for requirements
The statement of work is an important element of an organization’s risk management processes. The SOW defines the necessary project activities, deliverables, and timelines that the vendor needs to follow to fulfill half of the deal. Giving vendors an SOW reduces risk by ensuring that the supplier knows exactly what is expected of them.
10. Identify project constraints and limitations
A procurement process is not one without limitations and constraints. This section provides all the constraints and limitations that the procurement team and vendor must deal with. It can include the following:
- Legal compliance
- Budget restrictions
- External stakeholders
- Scheduling limitations
- Geographic restrictions
- Security requirements
- Specifications and standards
Procurement Planning– The Basics
Procurement planning is the process of consolidating and identifying requirements and determining the timeframes for procurement to have them as and when they are required.
To put it into simple terms, procurement planning is about creating a schedule of when and where the procurement will happen. The planning also includes making sure that the items or services procured are in good condition and exactly what you are looking for.
In order to plan for procurement, it is essential to have a comprehensive understanding of all the elements involved in producing your company’s goods and services.
This includes being knowledgeable about material utilization rates, skillful negotiation techniques for securing favorable pricing, efficient coordination of transportation and supply chain processes, and the ability to address and minimize the impact of potential challenges. Additionally, incorporating a supply and demand analysis into the planning process can be beneficial.
Procurement Planning– The importance
Creating a procurement plan is a must. It’s not just because a company demands a plan must be made, but because the law also in some areas requires the creation of a procurement plan:
1. Aggregating Requirements
The plan aims to consolidate and streamline requirements within procuring entities and the organization itself. This approach helps optimize procurement processes, ensuring value for money and reducing overall procurement costs.
2. Utilizing Rate or Running Contracts
The plan encourages the use of rate or running contracts when necessary. These contracts offer an efficient, cost-effective, and flexible means of purchasing the necessary supplies for the company’s ongoing operations.
3. Integration with Expenditure Program
A well-designed procurement plan integrates seamlessly with the expenditure program of the company. This alignment ensures that procurement activities are in line with the broader financial goals and objectives of the organization.
4. Avoiding Procurement Splitting
The plan addresses the issue of splitting procurement to deal with a larger procurement concern. By avoiding such practices, the company can maintain transparency, fairness, and efficiency in its procurement processes.
What should be includedin a good Procurement Plan?
As stated, the procurement plan is an important tool for the procurement manager. You need it. You can’t start the procurement process without it. You and your procurement team should build a concrete procurement plan to buy the supplies needed in a timely and orderly fashion.
The procurement plan should always have the following elements for it to be efficient:
- Identification of the type of contract that will be used in the deal.
- An explanation of the metrics that will be used to judge the supplier’s performance.
- Identification of the organizational standards that must be followed.
- Planned delivery or implementation dates for the products or services being provided.
- The number of suppliers involved and an explanation of how they will be managed.
- An explanation of how acquiring the new services or products will affect the constraints and limitations of the project plan.
- Identification of all vendors who have prequalified for the project.
- An alignment of lead times with the project schedule.
The Benefits of a good Procurement Plan
Procurement plans provide documentation for the whole procurement process, which is very valuable to all procurement teams in any company. They can use the procurement plan as a reference or guide if there is a need for a procurement project once again.
Other benefits of having a procurement plan include:
1. Helps Consolidate Similiar Requirements Under One Contract
By grouping similar requirements for goods or services together and awarding them under a single contract, organizations can benefit from bulk purchasing power.
This approach often leads to more favorable terms with suppliers, lower unit costs, and reduced administrative overhead. Moreover, managing fewer contracts simplifies the procurement process, making it more efficient and easier to monitor.
2. Divide complex requirements into multiple contract packages
When faced with complex procurement needs, dividing them into smaller, manageable contract packages encourages a broader pool of suppliers to participate. Increased competition drives suppliers to offer more competitive bids, potentially lowering costs.
Breaking down large projects also allows for more targeted supplier expertise and facilitates better risk management, as smaller contracts are generally easier to monitor and control.
3. Assess additional staffing needs
Developing a procurement plan involves evaluating the scope and volume of anticipated procurement activities. Based on this assessment, organizations can identify whether they require additional procurement staff or resources to efficiently manage the workload. Adequate staffing ensures that the procurement process runs smoothly and can meet deadlines effectively.
4. Optimize cost savings
Aggregating similar requirements leads to economies of scale, reducing costs per unit. Additionally, breaking down complex requirements into smaller contracts promotes competition among suppliers, driving down prices and achieving cost savings. This strategy also provides flexibility, allowing companies to negotiate more tailored terms and conditions with suppliers.
5. Facilitate stakeholder collaboration
Engaging stakeholders throughout the procurement planning process ensures that the needs and preferences of various departments and individuals are considered. This collaborative approach helps avoid potential misunderstandings, enhances the accuracy of requirements, and increases stakeholder buy-in, fostering a smoother procurement process.
6. Estimate procurement timelines
Developing a clear timeline for each procurement activity helps project managers and teams plan their tasks effectively. It allows for better resource allocation, monitoring progress, and meeting critical project deadlines. Timelines also help anticipate potential delays or bottlenecks, enabling organizations to take proactive measures to address issues and ensure a timely and successful procurement process.
Procurement Expert’s Advice on Procurement Plan
For this article, we asked a seasoned procurement professional to share his insights regarding procurement plan.
Owner, Goedhart Interim Management & Consultancy
LinkedIn Profile: https://www.linkedin.com/in/sjoerdgoedhart/
1. What should readers know about procurement plan?
“The procurement plan is an important tool for the procurement manager. A procurement manager can’t start the procurement process without a procurement plan. He and his team should build a concrete procurement plan to buy the supplies needed in time.”
Follow-up Question: In your experience, what are some challenges or obstacles that organizations may face when attempting to create or implement a procurement plan?
“Organizations often face challenges in creating and implementing a procurement plan due to competing priorities, limited time, and workload constraints. The importance of procurement may be overshadowed by other urgent matters, leading to insufficient attention and resources allocated to this critical aspect of business operations.”
2. What is the biggest misconception about procurement plan? What do most people get wrong about this topic?
“Creating a procurement plan is not something you just do. You do this not only because the company wants it, but in some areas, this is even legally required. Without a good procurement plan, there will be no good result.”
Follow-up Question: How about in a startup or small business, is a procurement plan still needed when acquiring goods or services?
“Yes, a procurement plan is essential for startups and small businesses when acquiring goods or services. Even for a digital marketing agency, purchasing services requires strategic planning. Prioritizing procurement, especially in less mature organizations, is crucial for efficient operations and growth. It’s advisable for founders to invest in expertise if they lack it, as strategic planning can significantly impact business outcomes.”
3. What are the essential elements of a comprehensive procurement plan?
“Essential elements of a comprehensive procurement plan include:
- Type of contract used in the tender.
- Metrics for evaluating supplier performance.
- Organizational standards to be followed
- The number of suppliers involved
- Planned delivery or implementation dates for products or services.
- Identification of all vendors who have prequalified for the project.
- An alignment of lead times with the project schedule”
Follow-up Question: How often should procurement plans be reviewed and updated, and what factors might prompt revisions to the plan?
“Procurement plans should be reviewed and updated annually, with the frequency of adjustments based on business priorities. Factors prompting revisions include changes in purchasing strategies, market conditions, and business requirements.”
4. How should a procurement plan be adapted to respond to changing market conditions and business needs?
“The business environment and market conditions are always changing, so the strategy should be adaptable. Continuous improvement is key to maintaining relevance and effectiveness. This can be done by:
- Periodically review your procurement strategy to ensure it aligns with current business goals and market conditions.
- Integrate feedback mechanisms within your organization and with suppliers.
- Be updated about market trends, new technologies, supplier landscape shifts, and best practices.
- Invest in training and development for your team
- Use data to gain insights into your procurement processes. Data can reveal trends, inefficiencies, and opportunities for cost savings.”
5. Up to what extent should stakeholders be involved in the development of the procurement plan?
“Engaging with your stakeholders can be challenging, but it’s one of the most critical contributors to your organizational success. Stakeholders must be involved from start to finish. Depending on which type of stakeholder, stakeholders will need to be involved in each phase of the process. The most important stakeholders will have to be involved in the entire process.
Interacting and communicating with crucial decision-making stakeholders helps your organization strategize its short and long-term goals.”
6. When should procurement professionals take into consideration when making a procurement plan?
“The procurement process is fundamental for ensuring that an organization operates efficiently and effectively. It’s necessary for several reasons:
- Strategic Alignment
- Compliance and risk management
- Cost efficiency
- Quality assurance
- Supply chain reliability
- Innovation and improvement”
What is a procurement plan?
A procurement plan is a detailed walkthrough of how the procurement process should go from start to finish.
How to make a procurement plan?
To make a procurement plan, you need to have all details fleshed out. Details include vendors selected for the procurement, the budget allocated, and contracts used for the procurement.
How do you plan the procurement process?
To plan the procurement process, you and the team must discuss how the procurement should start, how to source vendors, make sure the contracts follow the law, and that the supplies procured are in good condition.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.