A procurement strategy is one of the most crucial processes for a business. It is essential in order to maximize profits and operational success.
Too many businesses approach procurement with the wrong strategy from the start. This can leave a huge impact on how the business performs.
In this guide, we’ll explain what a procurement strategy is, why this strategy is so important, and how to create a procurement strategy in 9 steps.
A procurement strategy is a term used to describe a set of methods and best practices in line with a company’s goals when the business acquires or purchases goods or services.
Procurement is a long-term, strategic approach that involves a company purchasing from selective vendors who meet the company’s specific procurement requirements.
A company procurement strategy is a process that a business undertakes to fulfill its procurement needs. A procurement strategy details each step involved in the procurement process and acts as a kind of roadmap for each new purchase a business makes.
There are various factors involved in putting together a procurement strategy. This includes determining the overall budget available, what the purchase timeline looks like, the total cost of ownership, any risks associated with the procurement, and more.
Implementing a procurement strategy helps businesses choose reliable suppliers, pick the right products and services, and better understand the different processes involved in engaging with suppliers.
Any successful procurement strategy should include the following elements:
No matter the scale or type of business, there are various types of procurement strategies to fit every company size.
Each type has its own unique area of focus and objectives.
Some of these procurement strategy examples include:
Each procurement strategy type has its own unique benefits depending on what the strategy aims to achieve. However, all procurement strategies have a few universal advantages.
A clear strategy provides a framework for any procurement effort. It results in a consistent procurement process that always meets the requirements of the business and maximizes profitability.
Without this clearly mapped-out framework in place, businesses can easily deal with unreliable vendors who aren’t adding any value to the business.
An effective procurement strategy will save time and effort, making procurement more efficient. These strategies also ensure that trusted vendors are used.
This means that the business can access the best quality goods or services while saving money.
A solid procurement strategy is essential to keep businesses operating smoothly and maintaining maximum profitability.
Knowing how to prepare a procurement strategy may differ slightly between different types of businesses.
Here are 9 steps that all procurement strategies should follow:
The ultimate procurement strategy needs to use the right software. If you handle procurement processes manually, you’re just opening up more room for human error, time loss, and additional expenses.
Procurement software speeds up efficiency and reduces the risk of human error. All manual data entry tasks can be automated to streamline the entire procurement process.
When creating a procurement strategy for your business, the first step should be to find the right software solution.
This will make it easier to enforce policy compliance, and make sure that a standardized procurement process is followed.
Proqura is a cloud-based procurement solution that makes the procurement process much simpler and efficient.
The platform offers centralized sourcing, purchasing, and real-time insights to save time and money while delivering stronger procurement results.
The next step is to analyze the spend culture of your organization. This will help you understand how your organization is currently operating.
To analyze organization spending, you’ll need to gather data from internal stakeholders, vendors, and all other relevant parties involved in procurement.
By conducting this analysis, you’ll have a greater understanding of the procurement costs and what the end-to-end purchasing process looks like at your organization.
This will also help you to find unnecessary expenses that are often overlooked, and carefully analyze them.
Procurement is based on the needs of your business. You’ll need to understand the requirements of your business in order to create a solid procurement strategy.
This is necessary to be able to prioritize procurement across all business functions and goals.
Understand your key business requirements and question existing procurement steps which don’t align with them. .
By better understanding the core needs of your business operations, you will be able to develop a procurement strategy that helps save money and achieve the best results for your business.
Once the internal assessment of your business is completed, the next step is to look at the external factors.
Analyze the supply markets and conditions to help you develop a winning procurement strategy. This will involve gathering information from existing and potential suppliers.
All the information collected needs to stay up to date and relevant. This process will give you a better understanding of the current state of the market, which is necessary for creating a strategic procurement network for your business.
Set clear objectives for your business. Have a vision of what you hope to achieve with your procurement function, and understand the possible challenges you may face during the end-to-end procurement process.
A strategic approach is to conduct a gap analysis by taking note of all the procurement challenges your business currently faces, and use these to find new opportunities for improvement.
Follow best practices and set out steps that you need to introduce in order to maximize efficiency, and address any procurement issues that may exist.
A good place to start is to modify your policies based on the challenges and opportunities you found while setting overall procurement objectives.
It’s always easier to adapt existing policies than to start creating new policies entirely from scratch. These policies need to offer clear guidance and be applicable to everyone involved in the procurement process.
With clear policies in place, you’ll be able to set up a more structured and organized procurement system.
Now that you have all of the information you need to set up your procurement strategy, and you understand what challenges you face and how to improve them, and what are your business priorities- all this data can be used as tactics to achieve your procurement goals.
Setting goals is an integral step to achieving a successful procurement strategy. Procurement goals need to be clear, measurable, realistic, and time-sensitive.
Make sure you can clearly monitor the goals and structure a plan that will help you achieve them.
The next step is to create a digital procurement strategy. This step involves bringing the procurement technology, strategy, and any supporting systems up to date with the company’s new procurement plan.
A digital procurement strategy should be a priority as it allows you to spend more time on meaningful procurement tasks and less time on time-consuming administrative items.
At this point your procurement strategy is ready, so now it's time to put it into action.
Implement the strategy and monitor its progress. Track the important metrics that you need to follow to reach your goal. This may require involvement from various other business functions.
An effective procurement strategy helps your business save time, money, and valuable resources while working with the most reliable and efficient suppliers.
Procurement is a long-term process that needs to work towards achieving the overall profitability goals of the business. A systematically developed and clear procurement strategy will help to better target and achieve these goals.
Follow the steps above, and you’ll be able to develop a procurement strategy that delivers maximum value to your business.