Rising competition and globalization have compelled companies in the world market to develop international procurement strategies, improve quality and delivery enhancements, and increase responsiveness to customers. This is not possible without developing an effective procurement strategy, backed by the organization’s need to uniquely customize their strategies to tackle the varied requirements of today’s customers.
Executing a well-defined procurement strategy depends on factors such as current market conditions, types of initiatives of the organization, and the current state of the procurement organization. However, businesses need to be ready to adapt to changing business needs. This might require them to build a new strategy for their purchases. There are certain steps that companies can take to build an effective procurement strategy.
At SpendEdge, we understand the impact that a well-defined procurement strategy can have on external spend and the procurement operations of a business. Therefore, in this blog, our team of experts has highlighted five easy steps to build a potent procurement strategy.
Have you ever thought how an effective procurement strategy can improve your procurement operations? Get in touch with our experts and know why having an effective procurement strategy is a must for your organization.
Steps to build an effective procurement strategy
Step 1: Analyze the current situation
Before developing any procurement strategy, companies need to take the time to figure out what aligns with the objectives of their company. They should know their future requirements and identify key areas of improvement. To achieve this, companies need to know the risks and market position associated with their business. Identifying risks involves the consideration of various factors such as market maturity, market capability and political opportunities, and risks and stakeholder management.
Step 2: Prioritize what’s important
Once the situation has been critically evaluated, it’s important to document drivers and link between the procurement strategy and corporate goals. Strategic drivers differ greatly from industry to industry. Therefore, firms should first gather details on corporate goals and then map procurement objectives to each.
Step 3: Build trust among suppliers
Suppliers not just only form an integral part of businesses, but also play an important role in increasing the operational and cost efficiencies. Building credibility and trust among the team will help companies to deal with high volume or last-minute demands and the successful implementation of a procurement strategy. As a company, you have to be fair while dealing with suppliers and ensure that they are paid on time.
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Step 4: Develop measurable targets
Although boosting sales remains one of the prime objectives for businesses, but companies need to be more specific while building a procurement strategy. They should precisely know if the targets set by them are specific and measurable or not. Providing a consistent tool to track key metrics linked to the procurement strategy can be an effective way for organizations to track their progress in a given time frame.
Step 5: Plan approach to market
Before you put your plan into action, plan an approach to the market. This involves determining the appropriate tender process, identifying appropriate pricing mechanism, and deciding the type of contract required for a particular project. Companies can consider the delivery model, nature of the work, risk profile and anticipated timeframe for delivery while deciding the type of contract to ensure high quality and cost-effective outcomes.
The process of procurement strategy
Identify the goods, services, or resources your organization needs to achieve its goals and define the specific requirements, specifications, and quantities needed for each item.
Supplier research and selection:
Research the market to understand the available suppliers, their capabilities, and the current market conditions. Shortlist potential suppliers based on the information gathered during market research.
Evaluate suppliers’ proposals, quotes, and capabilities against your organization’s requirements.
Consider factors such as cost, quality, delivery time, technical expertise, and the supplier’s ability to meet long-term needs.
Negotiating and contracting:
Engage in negotiations with the selected suppliers to finalize terms, pricing, payment terms, delivery schedules, and any other relevant conditions. Create legally binding contracts that outline the expectations and responsibilities of both parties.
Identify potential risks associated with procurement, such as supply chain disruptions, quality issues, or changes in regulations. Develop strategies to mitigate these risks, which might include diversifying suppliers, setting up contingency plans, or implementing quality control measures.
Implementation and monitoring:
Put the procurement plan into action by issuing purchase orders, contracts, or other relevant documents.
Monitor the execution of procurement activities to ensure that orders are fulfilled as planned. Continuously track supplier performance against agreed-upon metrics and key performance indicators (KPIs), address any issues or deviations promptly to ensure the procurement process stays on track.
Regularly review and assess the effectiveness of the procurement strategy, Identify areas for improvement, cost-saving opportunities, and ways to enhance overall efficiency
Supplier relationship management:
Nurture relationships with key suppliers to foster collaboration and open communication.
Explore opportunities for long-term partnerships that can lead to mutual benefits. Foster strong relationships with key suppliers to enhance collaboration and align with long-term business goals.