What is strategic procurement?
Strategic procurement is utilized for the procurement of raw materials and direct spend categories or large ticket and complex purchases. For most companies, strategic sourcing comprises the bulk of purchases in terms of value. These purchases are budgeted for and planned in advance, require an evaluation of suppliers and the company's strategic needs, and tend to have long lead times.
In strategic procurement, large sections of an organization tend to be involved in planning, determining volume requirements, agreeing on quality specifications, pre-qualifying suppliers, and negotiating terms and agreements. Strategic procurement processes are consequently long-cycle processes with substantial back and forth correspondence between buyers and suppliers and within the buyer's own team or organization.
Availability, price, and quality are important considerations in the purchase decision, but just as important is the relationship with the supplier. Strategic procurement therefore requires close coordination and communication between buyer and seller through the lifecycle of the purchase contract.
How can Proqura help me manage strategic procurement?
Although organizations typically plan their purchases in advance, there are a number of cases in which spot buying takes place. This can be in the event of an emergency, but more often, spot procurement occurs in cases where the purchase is unique or one-off, or in cases where the transaction is not complex or is for an inexpensive item. Even in companies where there is rigorous procurement planning, it is estimated that as much as 40% of spend is conducted on the spot.
These include structured and easily customizable requisition formats through which to invite supplier bids, bid evaluation tools that enable all relevant stakeholders in the organization to review, evaluate and comment on bids, and supplier communication and negotiation tools, which enable buyers to log and document all discussions with the supplier through the negotiation cycle.
Once an offer is selected, Proqura helps buyers create a contract with detailed terms and conditions that can be agreed with the supplier, and used to govern the lifecycle of the purchase.Requisition formats:
Proqura offers a number of different requisition formats in its strategic procurement module to enable buyers to manage and negotiate large ticket or complex purchases. These include:
- Requests for Information (RFIs) which are floated before a formal requisition has been developed, to scope out the market, product availability, or supplier appetite for the transaction.
- Requests for Quotations (RFQs) which are structured formats for requesting pricing and commercial terms for a well-defined product or set of services, and
- Requests for Proposals (RFPs) which are documents providing suppliers with context and details on what is required and the scope of the procurement, and include detailed questionnaires requiring suppliers to answer provide specific information and details on their technical and commercial offering.
Each of these requisition formats offer a high degree of customization. RFPs in particular can be created to fit any design, and enable the buyer to set a number of question types and formats which the supplier is required to respond to. Customized RFPs can be saved as a template for reuse in the future, thus minimizing rework.
Bid evaluation tools Strategic procurement RFPs allow buyers to set scoring parameters for each section so suppliers have transparency on how their bids will be graded and evaluated.
Bidding formats available in strategic procurement include open and closed bidding, as well as sealed bids (single stage and two stage, single envelop and two envelop), and reverse auctions.
When suppliers' offers are received, Proqura converts them into an easy to compare format where suppliers responses can be compared and evaluated against one another on both technical and commercial parameters.
Transaction stakeholders on the buyer's side can review these bids, and submit their comments and observations against individual bids or line items so that the entire team can transparently evaluate and discuss the offers and make an informed decision.
Supplier negotiation tools Proqura enables buyers to send counter-offers to suppliers or request revised bids in an effort to negotiate and improve pricing or terms. The built-in email synchronized messaging system allows back and forth messaging with the supplier, and maintains a record of the complete conversation for record-keeping all in one place.
Contracts and master agreements Requisitions can sometimes be closed through a purchase order, but more often culminate in the creation of a contract or master agreement. This agreement governs the transaction during its lifetime.
In a master agreement, for example, a buyer may agree on a price for the purchase of a large volume of items to be received over a predefined time period. This fixed price is set in the buyer's catalog against the relevant item for the duration of the master agreement. End users in the buyer's organization can place orders for this item with the selected supplier at this agreed price throughout the year without needing to request competitive quotes each time. This reduces the requisitioning and ordering time and maintains compliance throughout the organization. When the pre-agreed quantity threshold has been met or the agreement time period has lapsed, the agreement can be considered closed.