What is an Effective Procurement Strategy?
Recently, industries have become increasingly aware of the undeniable role of understanding procurement, and implementing efficient procurement strategies. As complex supply chains evolve, and companies struggle to attain operational efficiency, streamlined supply chains, sustainable partnerships, and high-quality, low-cost production, implementing procurement strategies can transform the way companies approach their functional efficiency. Procurement has become among the most crucial departments across industries, and chief procurement officers often fail to identify opportunities to substantially improve operational efficiency, increase productivity and profitability, and enable sustainable growth. There are various significant benefits to incorporating procurement strategies within the supply chain, and multiple significant strategies that propel growth and help companies lead their industry. These strategies include developing risk management strategies, improving supplier relationships, training employees, quality management, and more, and incorporating the same can help companies significantly reduce unnecessary costs, improve efficiency substantially, and ensure better product or service quality as well lead and delivery time. Understanding and implementing the benefits of procurement strategies in a supply chain can promote unencumbered growth and success, and help companies identify and capitalize on their procedural and systemic strengths.
What are the Best Procurement Strategies?
Supplier Optimization and Relationships: Procurement departments are responsible for supplier identification, negotiation, contract management, and relationship management. Every company requires a combination of various suppliers to meet consumer demand, supply chain timelines, maintain efficient lead times, and ensure high quality products in every category. This necessity makes it essential for companies to foster positive and strong relationships from the start with all suppliers and vendors, including creating equally beneficial and collaborative spaces, encouraging communication through departments, contract compliance from both parties, and fair targets. Therefore, supplier optimization and relationships is a necessary procurement strategy that helps reduce delays, costs, and unnecessary expenses, improve lead time and productivity, and maintain high quality products or services across categories.
Risk Management: Major global risks have served as an undeniable teaching lesson for all industries. Increasing dependence on the emerging and low-cost country sourcing markets of China, India, and other APAC countries has led to various shockwaves over the years, including the recent COVID-19 pandemic. Companies must prepare their supply chains, procurement and sourcing departments, and suppliers for the impact, approach, and outcome in the case of a major natural disaster. Simultaneously, supply chains are riddled with other smaller risks that can have a lasting impact on business, such as rising raw material costs, changing regulations, transportation and logistical damage, and other similar challenges. Creating a risk management team, and continuously conducting risk assessments across the supply chain and organization is imperative to mitigate potential risks, prepare for major unpredictable risks, enable employee and contract safety, and maintain market share or business continuity in the face of challenges.
Global Sourcing: While companies have expanded the geographic location of their suppliers, many often still struggle to efficiently source from across continents. There are many reasons for these challenges, including fluctuating costs, unclear contracts, varied regulations, import and export challenges, and difference in business ethics. Therefore, making efficient global sourcing among the imperative and best procurement strategies to control spend, minimize risks, and foster better supplier relationships. Efficient global sourcing includes understanding the nuances of markets and geographical regions in terms of costs, regulations, labor, import and export, and business ethics. Additionally, it includes ensuring that quality, value, and delivery time promised in the negotiation and contract signing stage are assured and delivered. Conducting effective due diligence, including site visits, constant communication, comprehensive interviews, and precise contract terms is crucial to successfully sourcing globally.
Vendor Development: Due to the interdependent and collaborative nature of the procurement processes, vendors or suppliers and companies must work closely to help improve operations, efficiency, quality, and lead time for both parties. When entering into a contract with a supplier, companies are inclined to choose vendors that provide the required services or products at the ideal speed and quality. However, in the long-term perspective, companies and vendors will experience significant change, growth, evolved demands and needs, various challenges, and other uncontrollable factors. Therefore, to maintain a mutually beneficial relationship, and encourage growth, companies must help vendors develop improved operations, procure the required resources, overcome challenges, maintain low costs, and increase productivity. Helping vendors develop directly correlates to improved quality, prices, and lead time for the company, and enables stronger strategic partnerships in the future.
Building Procurement Skills: Procurement is a complex and highly crucial process, and efficiency, morale, cooperation, and expertise are imperative contributors to the functionality of the department. Chief procurement officers often face various challenges when hiring or interacting with employees, and many companies report the availability of specific, essential skillsets. Experts encourage companies to implement sustainable procurement strategies, including comprehensive training programs that promote and encourage upskilling employees, improve the companies understanding of procurement, enable sustainable growth, and help make data-driven decisions. With a wide range of essential procurement skills available to them, CPOs can implement the aforementioned procurement strategies, help their company grow, reduce costs, improve quality and efficiency, and propel their business with the help of a strong, capable, and driven team.
Total Quality Management (TQM): In a competitive market place, quality and ability to meet consumer demand surpass all other factors, and provide companies with the opportunity to maintain a significant advantage regardless of price, delivery time, or competition. Consumers will willingly pay higher prices, and wait longer periods for higher quality products that meet their needs and demands in various markets, and that makes total quality management one of the most effective procurement strategies. For this strategy, companies assess their products, supply chain, services, processes, systems, and partnerships, and continually implement changes to improve the overall quality of product, service, and performance. This includes evaluating design, maintenance, improvement, development, and assurance of quality across platforms.
It is essential to have a successful procurement strategy in place to gain competitive traction and align your business objectives with sourcing goals. Request a FREE proposal from our sourcing experts today and get poised for a stellar growth amidst these turbulent market period.
When leading a growing and highly competitive market, companies often focus effort on improving lead time, quality, sales, marketing, and overall performance, while ignoring the significant role and impact of the procurement department. Chief procurement officers often fail to optimize of major procurement strategies that enable significant improvement within the supply chain and across the company, leading to unnecessary spend and investment across ineffective areas. Recently, an oil and gas industry client struggled to maintain low costs and deliver high-quality products, leading to high customer attrition and loss of market share. The company mistakenly identified the challenge as marketing and sales related, and implemented unnecessary changes across their departments leading to no change. The oil and gas industry client then chose to partner with SpendEdge and address more relevant and impactful challenges within their supply chain, and procurement department. With actionable insights from our experts, the company identified a plethora of shortcomings and implemented significantly effective procurement strategies, and overcoming their significant losses. Their employees were appropriately trained, supplier relationship management facilities were improved, quality of product, processes, and systems was evaluated and changed, and major risks within the industry were identified and mitigated. With these solutions, the company restored their position as a leading oil and gas industry player in their region, and regained their market share, with improved customer satisfaction, lower costs, and better partnerships.