A procurement strategy is a comprehensive plan designed to ensure that a procurement function focuses on the most important challenge, solving which can have a huge benefit to the organization. Typically, a strategy will cover what, why, and how,
- What is the biggest challenge that has a negative impact?
- Why is it important to solve this?
- How are we going to solve it?
Your procurement strategy will guide the decision making on resources, policies, and processes to overcome the ear marked challenge.
What is a procurement strategy?
A procurement strategy is a comprehensive plan that outlines how an organization will acquire the goods and services it needs to achieve its goals. It defines the approach and methods for sourcing, purchasing, and managing these acquisitions to maximize value and efficiency.
5 Steps to Develop a Procurement Strategy
Procurement strategy is essential for organizations to streamline and optimize their spend. Developing an effective procurement strategy involves several key steps, each critical to ensuring that procurement activities align with the overall goals of the organization. Here’s a detailed guide on how to develop a successful procurement strategy.
1. Diagnose and Analyze the Current Situation
The first step in developing a procurement strategy is to thoroughly diagnose and analyze the current procurement landscape within your organization. This involves a comprehensive assessment of existing purchasing processes, supplier relationships, and spending patterns.
Key Actions
- Conduct a SWOT Analysis: Identify the Strengths, Weaknesses, Opportunities, and Threats related to your current procurement practices. This helps in understanding where you stand and what areas need improvement.
- Evaluate Current Suppliers: Assess the performance of your current suppliers in terms of quality, reliability, and cost. Identify any gaps or issues that need to be addressed.
- Review Historical Purchasing Data: Analyze past procurement data to identify spend trends, recurring issues, and areas where efficiencies can be gained.
- Engage Stakeholders: Gather input from internal stakeholders to understand their needs and expectations from the procurement function.
Outcome
A clear understanding of the current state of your procurement processes, including strengths to build on and weaknesses to address. At the end of this exercise, you might have a list of challenges or opportunities to work on. Some examples could include:
- Lack of purchasing data
- Limited spend visibility
- Maverick spending
- Lengthy purchasing cycles
- Potential areas for cost savings
- Weak supplier relationships
- Issues with process and policy compliance
- Opportunities for more sustainable procurement practices
2. Define Objectives
With a clear understanding of the current situation, the next step is to define the objectives of your procurement strategy. These objectives should align with the overall goals of the organization and provide a clear direction for procurement activities.
Key Actions
- Set Clear Goals: Define specific, measurable, achievable, relevant, and time-bound (SMART) goals for your procurement strategy. Examples might include reducing procurement costs by a certain percentage, improving supplier performance, or increasing the use of sustainable materials.
- Align with Organizational Goals: Ensure that procurement objectives support broader business objectives, such as enhancing operational efficiency, promoting innovation, improving the bottomline, or supporting corporate social responsibility (CSR) initiatives.
- Prioritize Objectives: Rank your objectives based on their importance and impact on the organization. This helps in focusing efforts on the most critical areas.
Outcome
A set of well-defined procurement objectives that provide a clear focus and direction for your strategy. Typically it eliminates vagueness and gives clarity for your team. An objective might look something like,
- Improve our supplier performance by XX% by MM/YYYY
- Speedup our procurement cycle times by YY% by MM/YYYY
- Increase our spend under management by $XX or YY% by MM/YYYY
3. Develop a Plan
Once the objectives are defined, the next step is to develop a detailed procurement plan outlining how these objectives will be achieved. This involves identifying specific actions, resources, and timelines required to implement the strategy.
Key Actions
- Action Planning: Break down each objective into actionable steps. For example, if one objective is to improve supplier performance, specific actions might include conducting supplier audits, implementing performance metrics, and establishing regular review meetings.
- Resource Allocation: Identify the resources needed to execute the plan, including budget, personnel, and technology. Ensure that you have the necessary tools and support to carry out the planned activities.
- Timeline Development: Create a timeline for implementing the strategy, with milestones and deadlines for each action. This helps in tracking progress and ensuring that the strategy stays on track.
- Risk Management: Identify potential risks that could impact the implementation of the strategy and develop mitigation plans. This includes assessing supply chain risks, financial risks, and operational risks.
Outcome
A comprehensive plan that details the actions, resources, and timelines needed to achieve the procurement objectives.
4. Implement the Strategy
With a detailed plan in place, the next step is to put the strategy into action. This involves executing the planned activities, managing resources, and ensuring that all stakeholders are engaged and informed.
Key Actions
- Communication: Clearly communicate the strategy and plan to all relevant stakeholders, including procurement staff, suppliers, and internal departments. Ensure that everyone understands their roles and responsibilities.
- Training and Support: Provide training and support to procurement staff to ensure they have the skills and knowledge needed to execute the strategy effectively.
- Execution: Carry out the planned actions, closely managing resources and timelines. This includes negotiating with suppliers, implementing new processes, and deploying technology solutions.
- Change Management: Manage any changes in processes or systems smoothly, addressing any resistance or issues that arise. Ensure that there is a clear process for handling change requests and feedback.
Outcome
The procurement strategy is put into action, with all planned activities being executed effectively and efficiently.
5. Monitor and Review
The final step in developing a procurement strategy is to continuously monitor and review its performance. This ensures that the strategy remains effective and allows for ongoing improvement.
Key Actions
-
Performance Measurement: Establish procurement performance metrics to measure the success of the procurement strategy. Examples of procurement KPIs include cost savings, supplier performance ratings, and procurement cycle times.
- Regular Reviews: Conduct regular reviews of the procurement strategy to assess progress against objectives and identify any areas that need adjustment. This might involve quarterly performance reviews, annual strategy reviews, or ad-hoc assessments as needed.
- Continuous Improvement: Use the insights gained from the procurement performance measurement and reviews to continuously optimize the strategy. This includes making adjustments to actions, resources, and timelines based on what is working well and what is not.
- Stakeholder Feedback: Gather feedback from stakeholders regularly to ensure that the strategy continues to meet their needs and expectations. This helps in maintaining alignment with organizational goals and adapting to any changes in the business environment.
Outcome:
A dynamic and effective procurement strategy that is continuously monitored, reviewed, and improved to ensure ongoing success and alignment with organizational goals.
Procurement Strategy Template
The structured approach of the procurement strategy framework helps organizations effectively manage their procurement processes. It includes various important elements:
- Analyzing the Current Situation
- Prioritizing Most Important Problems to Solve
- Estabilishing Measurable Targets
- Planning an Approach to Achieve it
Download Procurement Strategy Template
Deliver value through effective procurement strategy
Developing a procurement strategy is a critical process that involves diagnosing the current situation, defining clear objectives, developing a detailed plan, implementing the strategy, and continuously monitoring and reviewing its performance. With the outlined steps, organizations can create a procurement strategy that not only meets their operational needs but also supports their strategic goals, driving cost efficiencies, improving supplier relationships, and enhancing overall business performance.