Procurement strategy is the cornerstone of every healthy business. To ensure a profitable outflow of goods and/or services, a company must first establish an efficient inflow of materials, inventory, and supplies. Because no company operates in a vacuum, no business is entirely self-sufficient—and because outsourcing dramatically enhances efficiency, no business in the modern international marketplace should aim to be entirely self-contained.
So from business cards to consultancy services to raw materials, companies must position themselves in the heart of a web that spans industries and compiles resources in order to produce an excellent finished product. The most successful companies are therefore those that become hubs, wherein effective procurement serves as a foundation for consistently profitable sales.
The benefits of having a great procurement strategy are therefore manifold. Financial savings, gains in quality, and stability of essential business resources are the key advantages—but excellent procurement also provides a business with many other ancillary benefits that keep the organisation running smoothly and efficiently.
So if upper management at your company is wondering why it is important to establish a clear procurement strategy, the answer is simple: efficiency doesn’t happen by accident. If your company loses a key member of the administrative team, a leading supplier, or goes through a period of transition, a poorly organized procurement plan can quickly fall to pieces. Thus, even for companies who are running smoothly without one, it is essential to craft a comprehensive procurement strategy that will stand the test of time and weather the inevitable fluctuations of the marketplace.
Crafting a Procurement Strategy
When crafting a procurement strategy, companies must focus on short- and long-term gains, while also keeping in mind their overall corporate agendas.
The budget is the staring point, and dictates the overall framework and scale of the strategy.
Next, companies must complete a careful analysis of the economic forecasts for their relevant regions and evaluate relevant factors such as commodity indices, international currency trends, seasonal market fluctuations, and global events that may influence the marketplace.
Finally, the company’s financial standing must be taken into account. So be sure to consider projected earnings, growth projections, tax treatments, and cash flow projections.
Only when these three areas have been comprehensively researched and evaluated will you be ready to put together a procurement strategy. Be sure to approach the project in a methodical manner, and be ready to adjust your strategy as the realities of the marketplace shift and evolve.
Procurement Strategy Checklist
A comprehensive procurement strategy includes the following:
Current Procurement Assessment: This ongoing aspect of the strategy is a project of self-evaluation. To move forward, you must first know where you stand. So this step involves a so-called gap analysis, which defines a detailed list of needs and assesses your current strategy’s shortcomings in meeting them.
Triage: This step requires a careful categorization of needs in order to determine which are the most vital, and which can be postponed. Keep in mind when making this assessment that the needs of the procurement team and the needs of the overall organisation may not always align, and be sure to keep the company’s broader mission in clear view.
Opportunity Analysis: Identifying new opportunities for improvement is a crucial aspect of any procurement strategy. This requires careful research into the offerings of potential new suppliers, negotiation with existing suppliers, and an evaluation of the suppliers who your competitors are sourcing from. Each time the procurement strategy is updated, it should identify a list of opportunities to explore, which will help keep your organisation at the forefront of its industry.
Goals: Progress in the business world depends upon setting clear goals and working to achieve them. So part of your procurement strategy should be outlining what success looks like. Then, when you achieve those goals, don’t hesitate to set new ones that are even more ambitious.
Implementation Plan: This is the point at which your plan translates into action. How will you implement the changes you wish to see?
Assessment: Finally, every good procurement strategy involves constant assessment. Have you succeeded in addressing the company’s needs? Are your suppliers delivering quality goods/services and meeting your expectations? Are there other possible suppliers who could be doing a better job?
Writing a Procurement Strategy
Coming up with a procurement strategy is one thing. Implementing, documenting, and circulating that plan is another. So don’t lose sight of the importance of documentation. An updated procurement strategy should be crafted annually, by following a formal and methodological approach. That plan should be carefully documented and distributed throughout the organisation so the entire company can remain on the same page and any shortcomings can be discussed and addressed in a conscientious manner.
Measuring Procurement Success
Just as there are three critical inputs to evaluate before sitting down to craft a procurement strategy, there are also three important areas of evaluation to monitor when assessing the efficacy of your plan.
1- The first is a savings forecast. How much money are you saving by implementing your procurement strategy? Have the changes you made been beneficial, or have they caused monetary loss? Is the current plan sufficient to meet forecasted demand?
2- The second area to evaluate is quality and efficiency. Are your suppliers providing quality goods and/or services on a consistent basis? Is time and money being wasted by administrative or logistical errors on the supplier’s part? Do you have a good working relationship with the companies you rely on?
3- Finally, the budget is the last area to evaluate. You must determine how closely you are meeting budgetary expectations and whether or not the procurement strategy you put in place will be fiscally viable in the long run. If you are over budget, adjustments will have to be made to cut costs or increase procurement funding. If you are under budget, you have room to evaluate possible expansions or upgrades to the current plan.
Procurement strategy is a fundamental business methodology that no company can afford to ignore. While operations may be moving smoothly in the short term, companies without a proper plan risk a major collapse if crisis strikes. So plan for your organisation’s future, and craft a procurement strategy that will provide the stability and efficiency you will need to thrive for years to come.