❓What is procurement strategy❓
Procurement strategy is a detailed plan that enables effective management of the procurement and supply process within the broader business goals. It involves selecting Suppliers and products, defining procedures and methods, and regularly monitoring results. Adopting such a strategy allows for optimizing procurement processes and achieving a competitive position in the market. Read more The basics of the Procurement Management.
📃 Types of procurement strategies 📃
“There are many different types of purchasing strategies that can be applied in various organizations depending on their specific needs and business goals. Below, we present a few popular types of procurement strategies:”
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➡️ Risk management
The risk management strategy focuses on identifying, analysing and minimising potential risks associated with the procurement process. Risks may include late deliveries, missed deadlines, delivery errors, problems with the quality of materials or services, and other factors that could negatively impact the business. As part of a risk management strategy, a company can develop contingency plans, maintain flexible supply chains, regularly monitor Suppliers and use other methods to minimise risks.
➡️ Supplier optimisation
This strategy involves identifying and selecting the most suitable Suppliers for the organisation. The Supplier Optimisation process involves comparing different Suppliers in terms of price, quality, on-time delivery, geographical location and other determining factors. The aim of Supplier optimisation is to find Suppliers that offer the best value for the company, both in terms of cost and quality.
➡️ Green purchasing
The green purchasing strategy focuses on minimising the environmental impact of the procurement process. Companies apply this strategy by selecting Suppliers that use sustainable production and delivery practices, preferring materials and services with low environmental impact and minimising waste and emissions. Green procurement is an important part of a sustainability strategy and socially responsible action.
➡️ Supplier partnerships
The Vendor Development strategy is to support and develop the capabilities and efficiency of Suppliers. The company then works with Suppliers to enhance their production, technological and management capabilities. The aim of this strategy is to build long-term and beneficial relationships with Suppliers, which contributes to improving the quality, timeliness and competitiveness of deliveries. Supplier development can include training, joint investment and continuous monitoring of Supplier performance.
➡️ Global sourcing
A global sourcing strategy involves finding and using Suppliers from different parts of the world to gain competitive advantages. Companies use global sourcing to access a larger market of Suppliers, exploit the benefits of differences in production and procurement costs and improve quality, diversity and innovation in the sourcing process.
📚 Steps to create an effective procurement strategy 📚
An effective procurement strategy is a key element in the success of any organisation. It helps to minimise risks, achieve savings and improve relationships with Suppliers. In order to develop an effective procurement strategy, organisations should take the following steps.
1️⃣ Introduction of e-procurement software
Automating the procurement process through an electronic platform allows for faster and more efficient ordering, monitoring and communication with Suppliers. It also enables other departments to access information and make informed decisions. It streamlines the process, increases productivity, enforces rules and provides access to advanced reporting and analysis tools. Investing in the right software is beneficial for these reasons.
2️⃣ Company expenditure analysis
Analysing an organisation’s spend is vital to developing an effective procurement strategy. By collecting and analysing an organisation’s spend data from internal stakeholders, Suppliers and other parties involved in the process, organisations can more accurately assess their spend, identify areas of savings and develop a strategy to minimise costs and increase efficiency.
For example, by analysing raw material spend, they can consult with the manufacturing department to find out which raw materials are most important and where potential savings can be found. Similarly, when analysing technology and software spend, they can consult with the IT department to find out which solutions are most important and whether there are other Supplier options.
3️⃣ Identifying business needs
Identifying business needs is key to developing an effective procurement strategy. Evaluation of current operations, analysis of future procedures, identification of risks and areas for improvement form the foundation of this process. With these factors in mind, it is possible to create a coherent and effective procurement strategy that meets the company’s current and future needs.
For example, if a company is behind in payments to Suppliers, it may be necessary to introduce new payment processes or negotiate better terms with Suppliers. Focusing on areas for improvement allows for precise action planning in the procurement strategy.
4️⃣ Assessment of market conditions
Assessing market conditions is key when developing a sourcing strategy. By understanding the market in which the company operates, it is possible to indentify potential threats, opportunities and challenges that may affect purchasing processes. There are several methods that can be used to conduct this analysis, such as Porter’s five forces, SCOPE analysis, PESTEL analysis and SWOT analysis.
📊 Porter’s Five Forces is a tool that analyses competition in an industry and the impact it has on a company. This includes assessing the availability of substitutes, negotiations with Suppliers and Customers, potential new competitors and the intensity of competition. Conducting this analysis helps to identify the main risks and opportunities that may affect sourcing efficiency.
📊 SCOPE Analysis is a method that focuses on four main areas: availability, flexibility, costs, and quality of Suppliers. This helps assess how Suppliers differ and what prevailing trends exist in the industry. Conducting this analysis allows for the selection of Suppliers that best meet the requirements and goals of the company’s operations.
📊 PESTEL Analysis is a technique that examines external factors influencing a company’s operations. This includes political, economic, social, technological, environmental, and legal factors that may affect procurement processes. These factors may involve changes in legal regulations, the development of new technologies, or demographic changes. Conducting a PESTEL analysis helps understand the impact of these factors on procurement strategy and adapt it to changing market conditions.
📊 SWOT Analysis is another type of strategic analysis that focuses on the strengths and weaknesses of the company, as well as opportunities and threats in the environment. Conducting a SWOT analysis involves identifying factors affecting procurement, such as the company’s competencies, innovation strategies, or market reputation. As a result, the company can focus its efforts on leveraging strengths, minimizing weaknesses, seizing opportunities, and managing threats to achieve an effective procurement strategy.
It is also important to regularly update and maintain collected data to ensure its timeliness and accuracy. Market conditions may change, so regular monitoring and data updates help maintain an up-to-date procurement strategy. Reviewing and analyzing the collected information should be part of periodic procurement strategy reviews to adjust it to current market conditions and achieve desired outcomes.
5️⃣ Setting objectives
One of the key success factors for an effective procurement strategy is establishing clear objectives. These objectives should be based on identified business needs and prioritized according to their impact on the organization’s financial results. Setting such objectives allows for focusing on priority areas and achieving maximum added value for the company.
🖊️ In-depth Analysis of Company Needs: Consider both short-term and long-term goals. Short-term goals may include cost savings, increased efficiency in procurement processes, or risk minimization. Long-term goals may involve developing relationships with Suppliers, ensuring quality and continuity of supplies, promoting green purchasing, or fostering innovation.
🖊️ Results of SWOT Analysis: This analysis evaluates the current state of the procurement function and identifies areas requiring improvement. SWOT analysis identifies the strengths and weaknesses of the company’s operations, as well as opportunities and threats in the environment. Based on the results of this analysis, strategic goals are formulated to help achieve the company’s mission and succeed in procurement.
🖊️ Establishment of Measurable Key Performance Indicators (KPIs): Develop a plan of action based on selected objectives and KPIs to achieve the established goals. This plan should be flexible and account for changing market conditions and the results of ongoing assessments and analyses.
🖊️ Engagement of the Procurement Team: Goal-setting should involve collaboration with team members with direct procurement experience. Their knowledge and perspective are invaluable in setting realistic and achievable goals.
Clearly defined objectives are crucial for an effective procurement strategy. Established goals should be based on identified business needs and encompass the main priorities of the company. Conducting a SWOT analysis and engaging the procurement team are important steps in the goal-setting process to effectively manage procurement and achieve desired financial outcomes for the organization.
6️⃣ Defining Purchasing Policy
Implementing an effective purchasing strategy within an organization requires establishing purchasing policies that serve as guidelines for all employees and stakeholders. Best practices in purchasing also involve adapting existing purchasing policy templates to the company’s needs and ensuring fairness for all stakeholders, with remedies in case of violations.
➰ Analysis and assessment of existing purchasing policy templates – Many organizations already have prepared templates that can be customized to fit their needs. However, it is essential to adapt these templates in a way that aligns with the company’s purpose and goals.
➰ Consulting with various departments of the company, such as finance, legal, and human resources. Each of these departments may have different requirements and expectations regarding purchasing processes. Collaborating with these departments will help create a purchasing policy that meets the organization’s specific needs.
➰ Ensuring fairness for all stakeholders – The purchasing policy should incorporate principles of fair play, especially in terms of competition among Suppliers. Introducing transparency and fairness in purchasing processes is valuable to avoid suspicions of unfair practices.
In the event of a violation of the purchasing policy, the organization should have remedial measures and sanctions in place to act as a deterrent. Sanctions may include warnings, financial penalties, Supplier suspension, or contract termination. It is important for these remedial measures to be clearly defined and applied in a fair and legally compliant manner.
7️⃣ Outlining the procurement strategy
The outline of a procurement strategy is a crucial part of every organization’s operations. It is a detailed plan that outlines the steps and processes associated with acquiring goods, services, or works from external sources. A well-defined procurement strategy helps the organization efficiently and effectively achieve its goals. It encompasses important aspects such as identifying procurement needs, selecting appropriate Suppliers, negotiating contracts, and managing Supplier relationships.
The strategy should include measurable, time-bound, and realistic goals. The tactics used to achieve these goals should be specified. Additionally, the strategy may include a visionary concept to push the boundaries of what is possible. With a clear procurement strategy, organizations can ensure they get the best value for their money, mitigate risks, and maintain transparency and accountability in their procurement processes.
8️⃣ Developing a digital procurement strategy
Developing a digital procurement strategy is essential for organizations looking to streamline their procurement processes and leverage technology to improve cost efficiency. A digital procurement strategy involves the implementation of digital tools and technologies to automate and optimize various procurement functions, such as Supplier management, sourcing, purchasing, and contract management.
By deploying digital solutions, organizations can increase transparency, reduce manual errors, expedite procurement cycles, gain better insights into Supplier performance, and ultimately achieve improved business outcomes. Developing a comprehensive digital procurement strategy requires careful planning, collaboration with key stakeholders, and the selection and implementation of suitable digital tools and platforms.
9️⃣ Implementation, management, and improvement of the strategy
Implementation, management, and improvement of the procurement strategy are key stages contributing to an organization’s success. Implementing a procurement strategy is the first step in the procurement process and involves practical actions aimed at achieving specific business goals.
✔️ Focus on procurement process efficiency: Organizations must make decisions regarding the selection and purchase of appropriate goods or services from suitable Suppliers. It’s important to conduct an initial analysis of Supplier markets to clarify their credibility and ability to meet organizational requirements. Subsequently, evaluate all available options and choose those most suitable for the organization.
✔️ Management of required processes: A group should be designated to oversee procurement and monitor progress in its implementation. These individuals should also review procurement performance data and analyze it to identify potential areas for improvement. This provides organizations with a better understanding of the effectiveness of their procurement strategy and enables them to take appropriate actions for further refinement.
✔️ Incorporating feedback from stakeholders: Feedback, even in the form of ideas for process improvement, should be considered. It is crucial for organizations to listen to and respond to this information to better understand the challenges they face and identify areas for improvement. Open and two-way communication with Suppliers is also essential to understand their perspective and manage their expectations more effectively.
✔️ Analysis of procurement performance data: Monitoring key performance indicators (KPIs) such as delivery time, quality, costs, as well as financial outcomes from purchases is crucial. These data points help organizations identify areas for further optimization and improvement of the procurement strategy. Additionally, organizations can utilize data analysis tools or procurement software that provides highly advanced reports and analyses, facilitating fact-based decision-making.
✔️ Regular assessment and update of the procurement strategy: The business environment is constantly changing, so the procurement strategy should be flexible and open to making changes in response to new challenges and opportunities. Regular strategic reviews, as well as periodic reviews and evaluations of procurement results, are crucial to ensuring that the strategy not only works but also contributes to achieving the organization’s business goals.
🗒️ Procurement Strategy Template 🗒️
Within a robust procurement strategy, there are several key components to consider.
👉 Clear formulation of strategy: This should include the main goal, scope, and specific objectives that the organization aims to achieve through the procurement strategy. It is then important to define desired outcomes, specifying the expected results that should be achieved through the procurement strategy.
👉 Definition of time frames: Specify when the procurement strategy is to be implemented and how long it is to be valid. This is crucial because the procurement strategy should be treated as a continuous process that can be modified and adjusted depending on changing needs and market conditions.
👉 Tactical plans: These are specific actions that will be taken to implement the strategy. In this case, the organization needs to consider what steps need to be taken, what resources are required, and who is responsible for implementing specific actions.
👉 Establishment of key performance indicators (KPIs): Determine the KPIs and the means and tools needed to monitor and assess progress in implementing the procurement strategy and the supply chain. Performance indicators should be measurable, realistic, achievable, and related to the established goals. These could include indicators related to cost reduction, savings, delivery quality, timeliness, or Supplier relationships.
👉 Providing adequate tools and resources: Deliver tools and resources that enable effective implementation and monitoring of the procurement strategy. These could be specialized software facilitating supply management, data monitoring and analysis, or training initiatives for personnel responsible for procurement.
Summary
Having a well-defined procurement strategy is crucial for achieving optimization in the procurement process. With clearly defined goals, tactical plans, effective KPIs, and appropriate resources, organizations can focus on implementing their strategy and contribute to achieving desired results. Implementing and monitoring the procurement strategy requires constant assessment and improvement to adapt to changing market conditions and achieve long-term success.