Today, many aspects of the procurement process can be automated or streamlined thanks to developments in technology. This has led many chief procurement officers (CPOs) to shift away from the tactical 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 overall corporate strategy. Chief Procurement Officers strive to make smart decisions that ultimately reduce costs and increase profits.
In this article, we explore the critical elements of a procurement (or purchasing) strategy, and provide a framework for CPOs (or anyone else!) who wants to improve the efficiency, visibility, and accountability of their own procurement efforts.
What is a Procurement Strategy?
Procurement strategy includes market analysis, supplier selection, cost negotiation, and other functions. (More on those below).
Who needs a Procurement Strategy?
Jobs growth data also illustrates the importance of a procurement strategy. According to LinkedIn Economic Graph Research, the Chief Procurement Officer (CPO) position ranks number 11 on its list of the fastest growing C-suite titles of 2020. CPOs experienced 15% growth as a proportion of total C-suite hires in the last year.
Procurement Strategy Framework
Regardless of an organization’s size or industry, every procurement strategy is based on a common framework. Through the use of this framework--as well as best practices -- a procurement professional can address an organization’s goals and objectives while steering it toward success. Here are the elements of that framework:
Once a framework is in place, it's time to begin building out your procurement strategy by drawing upon the insights and experiences of your procurement team. Below is an 8-point guide to developing your own purchasing strategy based on that framework.
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Anatomy of a Great Procurement Strategy
1. Analyze expenditure
2. Identify needs
Next, you’ll need to focus on, and really understand, your organization’s particular needs. Meet with the management team to learn how the company is 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. This way, you can uncover new opportunities that support your strategy.
3. Evaluate the market
Once you complete your internal analysis, focus on external factors such as market conditions, by reaching 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. Create objectives
Use your data and research to establish objectives that clearly convey what you hope to achieve with your procurement strategy. 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. Develop a 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 such as human error, late payments, and delays that cost you time and money. With workflow automation, you can forgo manual data entry. 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
Following execution, measure and track your strategy’s progress. Remember that 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.
Procurement strategy (also known as strategic sourcing or purchasing strategy) refers to a long-term plan that allows an organization to source or obtain the goods or services it needs to operate.