Looking to improve the operational performance of your business? This can all start with developing and implementing an effective procurement strategy that puts your acquisition and purchasing processes on the right track. Whether you work in the catering sector or retail, procurement is an important step in your operations that should be given the attention it deserves.
Here, we’ll delve into the meaning of strategic procurement, the benefits of developing an effective strategy for procurement and how you can set the wheels in motion for developing your own.
What is a strategic procurement?
Procurement refers to the processes involved in acquiring or purchasing goods and services on a large scale. But to be effective, these processes should be backed by a well-considered plan focused on goals like cost reduction, risk mitigation and company growth. This is where the term strategic procurement comes from.
Properly executed strategic procurement will involve a long-term plan for acquiring the necessary goods and supplies from reputable vendors on realistic but efficient timelines while meeting your purchasing terms.
Types of procurement strategies
There are various types of procurement strategies commonly found in businesses, including the following:
- Cost reduction
- Risk management
- Supplier optimisation
- Green purchasing
- Vendor development
- Global sourcing
- Total quality management
Depending on the needs and goals of your organisation, different strategies can prove to be more useful than others. For example, a green purchasing strategy will be a top choice for businesses striving to improve sustainability within their procurement process. Meanwhile, a business operating internationally might follow a total quality management procurement strategy to help make sure their purchasing processes don’t falter on quality regardless of where they are in the world.
Benefits of a well-considered procurement strategy
What are some of the advantages of a well-considered procurement strategy? From reducing risks and costs to boosting relationships with vendors, here are just a few of the top reasons it’s worth rethinking your procurement.
Stronger relationships
Supplier relationship management can be more important than you think, and with an effective procurement strategy under your belt that outlines your purchasing terms, goals, costs and more, you can ensure your relationships are stronger than ever where they matter most. When supplier relationships are strengthened, your business can benefit from a more reliable service, improved pricing and higher-quality goods and services.
Achievable goals
An effective procurement strategy can help your business set clear goals and objectives that can be worked towards within your plan. Whether the goal is minimising costs, improving sustainability or streamlining your purchases and acquisitions, you’ll be able to see how the plan is unfolding and measure the relevant KPIs.
Ensures the best costs
Lowering costs is at the top of the agenda for most businesses, and since a well-considered procurement plan will take pricing into account, you can assess where costs could be cut. Ultimately, this helps save money for the business and can boost profit margins.
Reduced risks
Reducing risks is a battle that businesses are constantly fighting, but this is especially important in procurement. But if you can successfully establish a well-considered procurement strategy, this should address any potential risks involved, and help minimise or even avoid them. Whether you regularly face supply chain disruptions or procurement is affected by market highs and lows, being able to identify these risks and take steps to avoid them can streamline the process for everyone involved in this arm of your operations.
How to develop a procurement strategy
Ready to get started developing an effective procurement strategy that optimises your business operations? Below we’ve broken it down into eight easy-to-understand steps.
1. Analyse the current situation
The first thing to do is take a look at everything involved in your current procurement process, including how orders are placed, how your suppliers are picked and contract management. This will help you develop a clear picture of your process from start to finish and should make any gaps more obvious.
2. Review market conditions
Once you’ve analysed the internal processes, the next step is to conduct an external review of the supply markets and their conditions. This procurement best practice will help you stay on top of the market conditions and optimise your procurement strategy based on this data. It can also help you identify any risks the market poses to your processes.
It can also be good to look at your competitors to find out how they handle procurement. From this, you can create a procurement benchmark to work towards that will help you gain an edge over other businesses in your sector.
3. Define goals & KPIs
Clear goals and KPIs must be set early on to ensure the strategy is backed by the needs of the business. These can be created using the gaps, risks or issues that were brought to light through the evaluations of internal and external processes and conditions. KPIs like TCO (total cost of ownership) can help you work towards cutting costs, while vendor availability and performance can help you measure supply chain issues. Be sure to choose KPIs and goals that align with the needs of the business, rather than things you think you should be working towards and monitoring.
4. Review budgets
Knowing where the money trail starts and ends in your procurement process is essential, especially if cost reduction is something you’re focused on. To do this, you’ll need to gather data from everybody involved in the procurement process. This might include people involved in the ordering process and those managing supplier relationships, although your finance department should also be able to provide some useful insight.
5. Set clear business objectives
Although you should now have your goals and KPIs for procurement, it’s also worth evaluating the current overall business objectives. At this stage, these could be amended to include your procurement goals. Any goals found contradicting or not aligning with your new procurement strategy should also be discussed and potentially changed to ensure the business is heading in the right direction and everybody is on the same page.
6. Investigate sustainability/ethics of supply chain
Even if sustainability isn’t high up on your priority list, it’s still worth investigating. Assess the sustainability and ethics of your current suppliers and operational processes to see if any areas could be improved in the short term or long term. This might include looking at things like packaging, shipping methods and emissions produced during the process.
7. Invest in software
Investing in and implementing effective software can give your procurement process a much-needed overhaul in some cases. Not only can this streamline functions such as invoicing and KPI tracking, but it can also help you track each order and gain better visibility of acquisition processes.
Our Freshmarkets software can provide a total procurement solution from purchase to payment. From the education sector to hospitality, businesses in all industries can benefit from this simplistic system that controls all the major areas covered under a procurement strategy. The software can take the strain away from your acquisitions team while also ensuring all the procurement processes are properly taken care of.
8. Refine the strategy based on new objectives/needs
Finally, it’s important to continue to review the strategy and refine it based on whether targets are being met. For example, if your procurement team manages to reduce TCO and surpass the target set out in the strategy, then a new goal should be set. This could be to cut costs further or redirect attention toward another goal depending on the needs of the business.
This will ensure your procurement develops consistently and help keep everybody on the right track as processes and operations improve.
From the various types of procurement strategies your business can use to the steps you should take when it comes to developing a well-oiled strategy, we hope you’ve learned a thing or two about strategic procurement.
For more useful insights from us, be sure to check out our blog.
