Thanks to advances in technology, many parts of the procurement process can now be automated. This has led many chief procurement officers (CPOs) to shift away from the technical aspects of their jobs and focus more on strategy. 

Their primary goal is to ensure that their procurement processes are properly aligned with their organization’s corporate strategy. CPOs strive to make smart decisions that ultimately reduce costs and increase profits. 

What is a Procurement Strategy?

Procurement strategy refers to a long-term plan that allows an organization to source or obtain the goods or services they need to operate. It is also known as strategic sourcing or purchasing strategy, and a procurement professional must designe it in a way that satisfies an organization’s unique needs and value propositions. 

Who Needs a Procurement Strategy?

While procurement may sound like a boring business function, it’s essential to just about any organization. In fact, LinkedIn Economic Graph Research ranked the Chief Procurement Officer (CPO) position as number 11 on its list of the fastest growing C-suite titles of 2020. Additionally, CPOs experienced 15% growth as a proportion of total C-suite hires in the last year. CPOs are charged with driving efficiencies, solving business problems, minimizing risk, and ensuring compliance. 

Procurement Strategy Framework

Most procurement strategies are based upon a few best practices, regardless of a business' size or industry. With these best-practices, a procurement professional can address an organization’s unique goals and objectives while steering it toward success. They include:

  • Procurement strategy statement: Your procurement strategy statement clearly outlines your main objectives, and is the rationale for your strategy.  
  • Deliverables for the desired results: Deliverables refer to what you need to deliver or improve to meet your objectives. They should be as specific as possible. 
  • Timeframe and deadlines: Without a deadline, there will always be another reason to delay implementation. For this reason, it’s important to set realistic timeframes and deadlines for your deliverables. 
  • A tactical plan: A tactical plan focuses on how your organization will implement the strategy. It needs to include details like what teams will be involved and what each team member will do. 
  • KPIs or metrics: KPIs are the concrete ways in which success is measured. Examples include: supplier lead time, vendor availability, compliance rate, rate of emergency purchases, and supplier defect rate.
  • The tools: Your team may employ a SWOT analysis, a SCOPE analysis, a category positioning matrix, or other tools/methods to build out your procurement strategy. These tools can help you ensure your procurement approach supports your corporate mission and vision.
  • Once you have a framework in place, it's time to begin building out your procurement strategy. To do so, you’ll need to gather the right personnel and resources. After all, it’s nearly impossible to achieve a solid strategy on your own. 

    The Anatomy of a Great Procurement Strategy

    With a comprehensive procurement strategy, you can reduce the risk of errors, save money, and remain compliant. The eight key steps of an effective procurement strategy include the following: 

     1. Analyze Expenditure

    Prior to creating a procurement strategy, you must analyze the way your organization spends money. This may require you to collect data from suppliers, stakeholders, and other important parties involved in procurement. Once you gain a solid understanding of your spend culture, you’ll find it easier to identify the overlooked expenses of various products and services. You’ll be able to use this information to increase efficiencies and meet your bottom line. 

     2. Determine Needs

    Next, you’ll need to focus on, and really understand, your organization’s particular needs. You may want to meet with the management team and get their perspective on how the company is currently doing and where it is headed in the future. Don’t be afraid to bring up “what if?” scenarios and question what they may consider obvious. By doing so, you can uncover new opportunities that support your strategy. 

    3. Evaluate Market Conditions

    Once you complete your internal analysis, focus on external factors such as market conditions. For details on market conditions, reach out to your current and prospective suppliers. Just remember to keep your data current at all times or it won’t help you. Methodologies like Porter’s five forces, which analyze your competition, can be a great way to do so. 

    4. Set Objectives

    Use the data you’ve collected and research you’ve performed to establish objectives that clearly convey what you hope to achieve with your procurement strategy. Your objectives should reveal which current procurement functions you’d like to improve. Once you’ve set them, make sure that procurement and business leaders are aware so that there’s no confusion and everyone is on the same page. 

    5. Establish Procurement Policy

    Jot down the best practices that will help you get rid of any inefficiencies that exist. Take a look at your SWOT analysis to get an idea of what these inefficiencies may be. Then, modify your current procurement policy to meet your organization’s needs. Don’t forget to make sure it is fair and considers all of the key players in the process. 

    6. Add Procurement Software

    While you can tackle your procurement process manually, doing so can lead to issues like human error, late payments, and delays that cost you time and money. With a procurement software, you can forgo manual data entry and significantly reduce the risk of these problems. Find a software that works to find gaps and automatically stops activities that may hinder rather than help your process. 

    7. Outline Your Procurement Strategy

    The data and information you’ve gathered will help you draft a detailed procurement strategy. Make sure it includes every tactic you plan to implement. It should also incorporate SMART goals: goals that are specific, measurable, achievable, relevant, and time-bound. In addition, automating parts of your strategy will allow your organization to focus more on supplier relationships and strategy rather than repetitive tasks. 

    8. Execute, Manage, and Refine

    Teams throughout your organization, such as human resources, sales, and marketing, will need to help you bring your strategy to life. Following execution, measure and track your strategy’s progress. Remember that it’s not set in stone and you’ll likely need to adjust it to improve your results over time. 

    With these steps, you can provide your organization with a strong procurement strategy that allows them to succeed today, tomorrow, and years down the road. 

    Use Pipefy to Get Control and Visibility Over Your Strategic Procurement Process

    Your finance team can use Pipefy to automate repetitive, time-consuming tasks  and optimize your procurement strategy and processes. You can think of it as a trusted partner that will help you take control of your finance department and strategic procurement process while keeping the big picture top of mind. 

    Try Pipefy for free today, or request a demo, to supercharge your finance and procurement operations.

    Procurement strategy refers to a long-term plan that allows an organization to source or obtain the goods or services they need to operate.