The modern business environment has grown increasingly competitive and much hype has been placed on developing a procurement management plan to achieve that competitive edge, says an industry expert at spendedge.
The procurement management plan can be a complicated one. Inputs from all the departments and functional areas of an organization are required for the perfect procurement management plan. There should be a procurement management team in every organization, which sets the procurement direction that is in line with the business strategy. The team will then use the data to develop and implement a perfect procurement management plan.
Building the perfect procurement management plan
The very first step requires benchmarking current performance and then identifying needs and targets before developing a procurement plan. This requires several types of data collection methodologies. This collected data helps benchmark current performance, used resources, costs for all the functions in the organization, and projection of growth.
#2: Supplier’s market assessment
In this second step, the procurement management team goes ahead and identifies potential countries that are suitable sources of the required raw materials, finished goods, or services. There will be a wider range of such countries when it comes to manufactured products. This step of the procurement management plan involves an assessment which is very crucial for the business of any organization to grow.
#3: Collecting information of the supplier
This third step acts as oxygen for any procurement management plan. It is very important for an organization to select its suppliers carefully. If a supplier is unable to meet the selection criteria, it can lead to significant losses for the company. So, it becomes very essential to evaluate the reputation of the business and the performance of the supplier. Financial statements, credit reports, and references are also important components that should be checked.
#4: Developing a strategy for sourcing and outsourcing
This step of the procurement management plan requires the information to be collected in the first three steps. Examples of strategy for sourcing/outsourcing involves
- Purchasing directly: By sending a Request for Proposal (RFP) or a Request for Quotation (RFQ) to select suppliers
- Acquisition: Go ahead and purchase from a supplier who meets your requirement
- Entering into strategic partnership: Entering into an agreement with a supplier who you have selected
Whether the procurement management plan is right or not for your organization will depend on the competition of the supplier marketplace. It also depends on sourcing/outsourcing firm’s tolerance capacity and motivation factor.
#5: Sourcing strategy implementation
Implementation of sourcing strategies is the next step in the procurement management plan. It involves the acquisition or strategic partnerships. In this case, it is necessary for the suppliers to have characteristics like involvement in activities that are core to the buyer and access to highly confidential proprietary knowledge. For purchasing directly, firms may start with an Expression of Interest (EOI), prepare a Request for Proposal or Request for Quotation, and seek bids from the potential suppliers as part of a competitive bidding process.
#6: Negotiation with suppliers
The procurement management team must examine suppliers’ responses. There might be a request from the suppliers for additional information to make a most realistic bid. Firms should provide such information to all the bidders so that they can respond to the updated information before making a final call. After the completion of the evaluation process, the team devising the procurement management plan enters into contract negotiations with the bidder selected in the first place.
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