How to develop a procurement strategy
As procurement consultants, we see the value good procurement strategies give our clients. Here’s how to develop your own.
You’ve already got procurement processes. You may have procurement policies, perhaps even a procurement department. So why do you need a procurement strategy?
Why do I need a procurement strategy?
The most obvious signs you need a procurement strategy – or that you need to revisit your existing one – are if:
- Teams are struggling to stick to budgets
- There’s a lot of uncontrolled procurement (maverick spend)
- Quality and schedules are slipping due to purchase-related issues.
A procurement strategy is your means of getting back on track. It aligns your procurement process with your business goals, setting clear priorities for every purchase. A good procurement strategy makes you more efficient, more competitive and more agile, as well as improving quality and cutting costs.
So, how to develop it?
1. Assess your current procurement situation
The obvious place to start is with a spend analysis. You want to know:
- What you’re buying
- Who’s doing the buying
- When you’re buying
- How much you’re paying
- Who you’re buying from
- If there have been quality or delivery issues
This isn’t just a numbers game. Yes, you need to analyse transactions. But people are equally important in the assessment. Interview people from across the organisation, and from all levels to understand their purchasing requirements and experiences. Don’t just look for the negatives – take the time to understand what’s working and why. This is also a great opportunity to get buy-in from stakeholders on future changes to procurement.
As part of this, remember to assess your in-house procurement skills. What technical skills, market knowledge or high-level negotiating skills do you have? Do you need to budget for procurement consultants in some instances?
Talk to suppliers too. They’ll be able to give you valuable insights into where opportunities for cost savings are currently being missed.
You should by now be spotting opportunities to save on costs and tweak processes to work better for different types of purchases.
2. Assess the market
Once you’ve done your internal assessment, widen your view. What’s the state of play for your suppliers? Are there any limitations to your sourcing options? What are they? Are there initiatives such as the Digital Marketplace for public sector that are expanding your procurement options?
With this knowledge you now know what’s possible.
3. Define your goals
You most likely already have strategic business goals, but if not, you need to define these. Some of the more common ones are:
- Reduce costs
- Improve quality
- Improve agility
- Improve risk management
- Reduce environmental impact
- Increase positive social impact
These are too broad to be useful to your procurement strategy though. To make them relevant you need to make them more specific: Save X% on costs or Reduce our carbon footprint by X%. Once you’ve defined them you can prioritise them.
Next you need to define the procurement tactics you’re going to use to achieve them. For example, for cost savings, your tactics might include ways to improve supplier relationships. For positive social impact, you may set ethical criteria for suppliers. For improved quality, it might be adopting an agile approach to digital procurement.
Lastly, define the metrics you’re going to use to measure your success. In short, make sure your goals are defined using SMART principles (Specific, Measurable, Attainable, Realistic, Timely).
Now, you need to translate strategy into policy and process. But one last thing before you do.
4. Define procurement priorities
Make sure you all agree on what type of purchases in the business and in each department need priority. This will require discussions with stakeholders and understanding how their delivery deadlines are tied in with their purchases.
Ideally this is just the start of a better integration between your procurement team and the rest of the business.
5. Set your procurement policies and processes
Your procurement policies for each department should specify:
- How the purchase approval process works
- What categories of purchases need approval and what can be pre-approved
- What is required of suppliers
- How tenders are run and evaluated.
Keep your policies in plain English. When you have to use procurement-specific terms, define them so that everyone knows what you’re talking about. And remember to reference your strategic goals in your policy documents. People are more likely to be positive about requirements if they understand why they’re there.
If you need support developing a procurement strategy, or strengthening your procurement of technology and digital services, get in touch.