With profit margins increasingly affected by rising costs and growing competition, a procurement strategy can help to generate sizeable cost savings. But how do you create one? And what should you include?
In order to develop a robust and viable procurement strategy, you first need to identify your expenditure, requirements, and the current state of play within your market. Then, you’ll be well-placed to define the parameters of your strategy and the types of methodologies that can support it.
While there’s no one-size-fits-all approach to developing a procurement strategy, there are some key assets you should include that will ensure your plan provides a usable procurement roadmap going forward. Our guide can help you to develop a formal strategy outlining all the key steps your business should take as part of its ongoing procurement activity.
Use the links below to navigate or read on for the complete guide.
- What Should You Include in a Procurement Strategy?
- How to Develop a Procurement Strategy
- How Can ERP Software Support Better Procurement?
The purpose of a procurement strategy is to help identify the suppliers, products, services, and buying methods that provide the best cost efficiencies. To make sure all these areas are covered in your formal procurement strategy document, you need to include key assets that help define your requirements, KPIs, and the objectives you want to achieve.
Below, we list the typical assets that contribute to an effective procurement strategy document. Not only do these factors ensure all bases are covered, but they also offer a neat way to segment your strategy into functional chapters.
- Strategy Statement – Your procurement strategy statement should outline the key objectives of the strategy, highlighting your cost reduction expectations.
- Desired Outcomes – Here, you should outline the deliverables you expect from the improved procurement process, with quantified examples to provide feasible targets for procurement personnel.
- Timescales – This is the place to include expected timelines and deadlines for procurement activity, giving purchasing teams a tangible framework in which to plan and execute their approach.
- Implementation Strategy – Here, you’ll outline your tactical procurement plan, outlining how you expect your procurement strategy to be implemented and achieved.
- KPIs – what KPIs will you use to evaluate the success and efficacy of procurement activity? Choose the metrics that best adhere to your business requirements and objectives.
- Tools and Resources – The final section of your procurement strategy document should be used to highlight the tools and resources that purchasing teams can use to support procurement activity, including a brief outline of how different resources can support cost-effective purchasing.
With the above assets serving as a framework on which to build your plan, it’s time to develop the ‘how’ and the ‘what’ of your procurement strategy. The steps below outline how to define your key procurement goals, objectives, and requirements, with careful market research and honest self-assessment needed to start building a successful strategy.
Review Existing Costs and Overheads
Carefully reviewing your current procurement and purchasing activity will help you to identify gaps, habits, and trends which you should look to improve through your procurement strategy. Delve into historic sales, order, and purchasing data to discover insights that can help you to outline the key requirements of your procurement activity.
Review Your Supply Chain and Inventory Management Processes
The strength of your supply chain and inventory management infrastructure plays a critical role in implementing an effective procurement strategy. Review the relationships you have with existing suppliers and be honest about where improvements could be made. There’s little point investing in advanced procurement if you don’t have the infrastructure and relationships to support it.
Analyse Market Trends, Demands and Threats
Analysing your market is a matter of assessing risks, spotting opportunities, and ensuring your procurement strategy aligns with industry demands. You need to understand how market conditions could impact your procurement plan, and the things you need to be aware of going forward.
In order to study your marketplace and assess external factors, it’s worth using a structured analysis methodology. SWOT, for example, provides an effective way to get a whole-picture view of your market, requiring you to frame your Strengths, Weaknesses, Opportunities and Threats in relation to competitors in your field.
Define Your Objectives
When you’ve analysed the strengths and weaknesses of your existing procurement and assessed market threats, you’ll be well-placed to define your key procurement objectives. Set realistic goals that align with your short- and long-term needs, and prioritise points that will have a direct impact on operational efficiency and cost-effectiveness.
To give you an idea of what your procurement objectives may look like, here are a few examples:
- By ‘X’ date, we aim to improve the sustainability and traceability of procurement, elevating our corporate social responsibility (CSR) score as a result.
- Build relationships with new suppliers to maximise reliability, efficiency, and cost-effectiveness, while minimising disruption.
- Automate procurement processes to maximise cost savings, free up resources, and reduce errors.
When defining the goals for your own procurement strategy, try to frame them around the SMART methodology: Specific, Measurable, Attainable, Relevant, Time-based. This will make tracking the progress and effectiveness of your procurement activity easier later down the line.
Spell Out Your Procurement Guidelines
Drawing up a list of procurement guidelines is an effective way to ensure a unified and efficient approach to purchasing across your business. Here, you’ll need to outline the steps individuals should take to procure goods and services for a particular project, and the expectations you have regarding costings, value for money, supplier traceability, and quality assurance.
Seek Buy-in and Feedback from the Wider Business
Before finalising your procurement strategy, share it with the wider business to hear feedback from key stakeholders who will be directly affected by changes to the business’ procurement policy. From buying teams to HR, finance to warehousing crews; getting input from different areas of your business can help to firm up your strategy and make sure it meets the demands of all key operational functions.
If you’re unsure which tools and resources to use to support your procurement activity, ERP software is the first choice for many businesses that rely on efficient, cost-saving procurement. Let’s take a look now at how an ERP system can be used to facilitate better business purchasing.
- Improved purchase management – ERP systems are capable of automating day-to-day purchasing, streamlining the procurement process, and freeing teams from complex manual tasks. Whether that’s creating purchase orders, checking inventory or setting up stock replenishment rules, ERP software is a do-all procurement aid.
- Better relationships with suppliers – maintaining close relationships with suppliers and partners is a prerequisite of effective procurement. ERP systems aid supplier relations by enhancing communications and allowing you to create a centralised supplier database, where all teams can quickly access information and communicate with relevant suppliers and partners.
- Full supply chain and inventory management automation – remember earlier when we spoke about the importance of strengthening your supply and inventory operations before investing resources into improved procurement? With an ERP system, you can automate a whole range of inventory management tasks, meaning increased productivity and efficiency and a streamlined supply chain that’s ready to support improved purchasing.
Are you looking to streamline your procurement and purchasing processes? Investing in a bespoke business management solution from Intact can help make the procurement process smoother, easing the burden on you and your buying teams. To learn more about our services and solutions, visit the homepage or contact us today.