18 Must-Have Negotiation Skills For Procurement Professionals
Strategic Procurement — Everything You Should Know
Strategic procurement allows businesses to meet the demand of the current procurement landscape by making sense of the data and automating the procurement process. However, what is it?
In this article, we will discuss what strategic procurement is. We will tell you about the activities that comprise strategic procurement. Additionally, we will talk about the importance and how you can implement strategic procurement.
Having an insight into strategic procurement will enable you to streamline your current procurement process effectively. So without further ado, let us now delve into strategic procurement.
What is Strategic Procurement?
Strategic procurement is a crucial aspect for businesses across the globe as every organization wants to create an effective procurement strategy to ensure success and maximize value contribution.
Strategic procurement is a term used to encompass different procurement processes that support the long-term development of an organization. It aims to ensure that the goods and services that the business needs are delivered on time and purchased within the budget.
Additionally, it involves a careful analysis of supplier selection, payment terms, contract negotiation, and acquisition of goods.
Strategic procurement is data-driven and uses a combination of tools and techniques that go far beyond unit price reduction. It is fueled by data and powered by technology that helps companies to get as much value as possible from available resources.
However, the entire department must work together for a strategic procurement process to happen.
When strategic procurement is done correctly, it can help an organization to optimize its profit margin, reduce risks, and streamline the process of purchasing goods and services needed to achieve business goals.
Activities Compromising Strategic Procurement
1. Procurement Strategy
This key element of strategic procurement is a long-term plan that ensures purchased goods and services from suppliers at the agreed terms, quality, and delivery time are cost-effective.
2. Category Management
Category management sorts your spending into areas with the same supplier markets. This sorting or classifying enables you to analyze the costs and identify your needs to uncover savings, open new opportunities, and reduce risks.
3. Strategic Sourcing
Strategic sourcing assesses the patterns of business spending in order to find and choose the best suppliers that align with your business goals and objectives.
4. Supplier Management
Supplier management involves the handling of relationships between suppliers and the company. It enables the company to foster a deeper collaboration with its suppliers.
5. Contract Management
Contract management is an important part of strategic procurement as it lays out the foundation of the relationship between the supplier and the business.
This key element manages the contract creation, implementation, and analysis to reduce costs and improve the performance of the business.
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Importance of Strategic Procurement
Strategic procurement is important as it allows companies to align their sourcing strategy with their business goals resulting in an increase in efficiency and minimizing risks within the supply chain. The importance of strategic procurement is visible at the time of COVID-19 when every company all over the world is severely affected by its effect. In the midst of the pandemic, those companies that had the right strategic procurement processes and technologies in place were able to lower the risks and stay proactive, agile, and profitable. The disruptions brought by the pandemic highlighted the flaws and weaknesses in the way companies perceive procurement. Thus, strategic procurement will continue to redefine procurement and continue to help businesses stay competitive in the coming years.Implementing Strategic Procurement Within Your Company
A well-constructed strategic procurement process helps companies to minimize errors and identify cost-saving opportunities. Thus, here are the steps to implement a strategic procurement process within your company:1. Assess business spending
Before you make any changes in your current procurement process, you must first gather information from relevant internal stakeholders which include suppliers and procurement executives. Acquiring information and insights will allow you to know the foundation of your indirect procurement process. This information anchors your procurement strategy which will provide lasting value through cost-saving opportunities.2. Identify your needs
It is much better to identify what your company needs before making a procurement strategy. You can conduct an analysis to prioritize and align your strategies across functional business areas of the company.3. Assess the market
Once you are done with your internal analysis, you must check the market in order for you to know what your suppliers face on a regular basis. This will help you understand how you can fit your strategy based on the shifting needs of the supplier. Additionally, you must collect data from suppliers and keep the data current to ensure it remains relevant. You can also make use of Porter’s five forces or other strategies to improve your strategic procurement strategy.4. Set goals
After you identify your business needs, you must come up with a clear vision of what you want to achieve. You can use the data obtained from your current procurement process to create informed strategic procurement goals.5. Create a procurement policy
Defining your procurement framework and policies is critical to your strategy. You must establish best practices in order to help you eliminate inefficiencies.6. Integrate procurement software
Companies that manage their procurement manually are susceptible to human error, delayed payments, and non-compliance. Thus, integrating procurement software eliminates errors and improves productivity within procurement. It can also help you with contract management and compliance processes.7. Execution of your strategy
The final step is to execute your procurement strategy. To successfully execute it, you will need active contributions from different departments of your company. Additionally, you need to continuously assess your strategy to ensure it conforms to the changing demands of your company.Frequentlyasked questions
+ What is strategic procurement?
It is a term used to encompass different procurement processes that support the long-term development of an organization.
+ Why is it important?
It is important as it allows companies to align their sourcing strategy with their business goals resulting in an increase in efficiency and minimizing risks within the supply chain.
+ What is a procurement strategy?
A procurement strategy refers to a long-term plan to create strategic relationships with competitive suppliers to acquire the needed materials and services with the best quality at the best possible price.
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