For modern businesses, knowing how to develop a procurement strategy is crucial for efficiency, cost-effectiveness and innovation. But what is a procurement strategy? Simply put, a procurement strategy is a financial plan that allows companies to manage budgets, workflows, production timeframes and ensures vital business objectives are prioritised.
To find the best contractors and consultants, you need a bulletproof procurement strategy: a way to hear from and evaluate prospective partners and suppliers effectively so you can meet your goals.
In this post, we’ll discuss how to develop a procurement strategy and the vital steps required to achieve your industry goals.
What is a Procurement Strategy?
The best way to define a procurement strategy is a long-term plan that helps your business acquire the resources and supplies needed to operate. Of course, every business and sector is different, so the specifics of a procurement strategy will differ somewhat.
The aim of a procurement strategy tends to focus on cost-effectiveness, efficiency and creating growth opportunities. This means that common elements found within a procurement strategy include scope of work, budget, purchase timeline, potential risks, quality of goods, and services.
So, how does one develop a bulletproof procurement strategy?
How to Develop a Procurement Strategy?
Analyse Your Current Expenditure
When it comes to procurement strategy, one of the first aspects to consider should be your current expenditure. Spend analysis is the practice of taking a close look at your business’s current and historic procurement expenditure. Doing so offers crucial insight into your current spending habits and allows you to identify elements that may be overlooked and areas in which you can reduce costs. Additionally, procurement expenditure analysis offers a range of other benefits, such as managing risks and optimising your business’s buying strength.
Expenditure analysis is not only crucial for successful procurement, but it also serves as a foundation for controlling costs, defending budgets and offers a clearer idea of what to look for in future suppliers.
Identify Your Business’s Needs
Next, it's important to identify your business's specific needs now and in the future. These needs must be analysed closely and approached in a way that satisfies the requirements of your procurement process. For example, some businesses have a key goal of cutting costs, whereas others may be more focused on expansion. And compliance and control needs to be a key priority for any business. Yes, every company aims to make money, but your procurement strategy needs to align with the business’s long term objectives.
When choosing suppliers, it's vital to consider your needs and ensure potential suppliers can provide what you need to achieve your goals — at a cost that suits your budget. However, to do this, you (or your procurement team) must first take the time to analyse your business and gain as much internal insight as possible to establish your needs and goals. A great example of this in practice is the use of SFG20’s maintenance software, which specifies facility maintenance needs and is able to provide indicative costings for your maintenance plan. Using SFG20 makes the tendering process efficient, as you are able to specify your custom maintenance requirements, model and compare investment scenarios and provide the data needed for procurement processes. Working with business partners, having a common understanding of requirements and a consistent approach is crucial for transparency and long-term working relationships.
Study the Market
Once you have identified your business's needs, it's time to gain more insight into current market conditions and legal obligations. This process consists of analysing suppliers, vendors, market trends and, if possible, predicting future trends using data. The latter can be achieved using procurement software, which provides data-capturing and analysis capabilities. By learning more about suppliers and the market in general, you can identify high-quality opportunities and quickly establish their suitability.
One method that many businesses adopt for this task is a 'SWOT' analysis, which combines internal and external research to identify your business's Strengths, Weaknesses, Opportunities and Threats. However, it's worth keeping in mind that market conditions can change, and it's important to ensure you consistently update your market information to ensure maximum impact with tendering, contract management and similar activities.
Define Your Priorities
Once you have established your business's specific needs, obligations and have carried out external market analysis, your next step is to define your procurement objectives.
The data and information you collect during the previous steps will help you to identify these objectives and play a vital role in how to develop a procurement strategy. It's also beneficial to rank objectives in order of importance.
It's a good idea to seek the input of as many people involved in the procurement process as possible, as their insight will prove critical for prioritising purchases. Of course, how you prioritise your needs will depend on your business and the nature of your industry. Thankfully, a paradigm shift is now occurring within many sectors, meaning that businesses’ asset and building maintenance is seen as an investment, not a cost. Planned maintenance work is safer than emergency or breakdown stops and restarts, prevents environmental damage and regulatory violations, avoids downtime, lost production and reduces repair time.
Your next step is to create a list of policies/practices to implement to improve your procurement processes. It's a smart move to review your current guidelines and approach to procurement. Doing so allows you to use the information gained from the previous steps to adapt your procedures to suit your business's current needs. Ideally, these guidelines should be a go-to for everyone involved in your procurement activities, as they should offer both solutions and highlight challenges.
Examples of procurement practices include categories of goods and services that can be automatically approved (within budget), preferred suppliers, which purchases require approval, and which member(s) of your team can provide approval when necessary.
Another key thing to consider when it comes to policies is ethical and environmental factors. Your choice of suppliers reflects on you as a business and a brand. Be sure to specify in your guidelines if your company favours working with businesses who consider ESG (Environmental, Social and (corporate) governance).
Define Success Using Metrics
Once you have completed the previous steps and utilised specialist tools such as eProcurement software, it's critical to evaluate your strategy based on metrics that define 'success'. Again, this will depend on your business's specific needs and objectives. So, what does a successful procurement strategy look like to you, and how will you measure it? Typical metrics include reduced costs and errors, increased delivery efficiency, more advantageous contract terms with suppliers and more.
Most companies these days use eSourcing and eProcurement software, as it offers the tools and resources to track data in real-time and gain more insight than ever before. Allowing for business growth and identifying higher-quality opportunities.
This stage of the process is crucial as it allows you to scrutinise your strategy while adjusting it to enhance efficiency. Therefore, the last thing you want to do is create a procurement strategy and just run with it without further input or adjustments. Do you intend for your business to grow? Absolutely. So why would your procurement strategy not evolve to support bigger and better objectives?