The market today, particularly since the onset of COVID-19, is constantly changing. Many businesses are searching not only to stay afloat, but to grow, evolve and thrive in new ways. Doing so requires companies to be highly adaptable. Becoming more automated, innovative and knowledgeable about the supply market helps keep organizations from falling behind. To keep up with market trends in today’s procurement landscape, making your procurement strategic should be a top priority.
A strategic procurement plan should be considered for companies that are looking to become more efficient, reduce their costs, enhance their risk management and speed up the purchasing process. But for a company to successfully transition to a more strategic procurement plan, procurement departments must be ready for a lot of hard work and consideration in the process.
What is Strategic Procurement?
Strategic procurement is a long-term sourcing process that integrates supplier and market information, spend analysis and negotiation tactics to support organizations’ profitability.
Effectively approaching procurement strategically requires purchasing teams to agree on clear and specific goals. Rather than the general procurement goals of purchasing what is necessary within a budget, strategic sourcing dives a little deeper:
- Focusing on specific savings goals
- Determining where to allocate more or less purchasing effort
- Mitigating risk
- Establishing strong supplier relations
- Increasing efficiency
Strategic sourcing and procurement should also focus on the RFP process as well as negotiating with and evaluating potential suppliers. Thoroughly assessing suppliers can provide a multitude of benefits including cost savings and a clearer understanding of the deliverables to be expected. When negotiating with suppliers, the company’s procurement goals should be at the forefront of the negotiator’s mind, tailoring questions to ensure the costs and benefits of each supplier’s relationship push the company toward achieving its goals. By evaluating the cost-benefit structure of each supplier, procurement teams better position themselves to reach and even exceed their company’s procurement goals.
How to Implement a Strategic Procurement Plan
Analyze spend
To see how an organization can improve, data collection on the current spending culture needs to be done. This spend analysis should include information from both the organization and suppliers, as well as any other parties involved in the procurement process. This analysis should highlight areas of spend that can be more efficiently distributed by looking at KPIs and other internal data.
Determine company goals and needs
Determining the primary purchasing needs of the company is imperative to fully transition to a more strategic plan. This conversation should also identify the main areas of improvement, which could encompass savings realizations and current areas of procurement that may not be reaching their full potential. Specifying the particular goals the company seeks in its sourcing should help procurement teams zero in on how they can make it happen.
Analyze the market
Effective strategic sourcing requires companies to not only understand their internal sourcing needs but also the supply market. To analyze the market, seek out up-to-date supplier information and market intelligence to assess shifting directions of the market as a whole. Learning how suppliers are faring and how the market is currently positioned can help target key areas of improvement.
Create a procurement plan
To make this information actionable, use the data collected in spend analysis, market analysis and internal goals to draw out a procurement plan. This should include tactics and strategies to work toward in a set timeframe that can help achieve the overall company objectives. This may include specific suppliers or areas of spend to target, and it may include adding a procurement software program.
Automation and Strategic Procurement
Taking on a more strategic procurement plan enhances efficiency and accountability. By automating some procurement processes, such as data entry and analysis as well as purchasing payments, companies free up their teams to find more strategic procurement solutions.
Sourcing manually leaves room for easily avoidable errors. Inputting data into spreadsheets manually provides the opportunity for human error and missing information. Payment deadlines are also subject to being missed, which may result in collecting late fees and damaging supplier relationships. When so much energy is devoted to the manual input of information, companies risk not being able to have enough time to actively communicate with suppliers and build positive relationships. In all, procurement patterns and potential savings go unrealized when teams don’t implement a sophisticated strategic procurement plan.
Today’s market is also increasingly focused on innovation. While not deviating from standard business practices may feel safer, it’s becoming obvious that companies that fail to transition to a more innovative sourcing practice risk falling behind. A strategic approach that embraces these changes will open the possibility of finding creative and sustainable ways to make their purchases more effective.
The Future of Strategic Procurement
Although many companies may feel at ease sticking with tried-and-true strategies, the world of procurement is rapidly changing. An emphasis on becoming more agile and capable of dealing with sudden changes in the market is essential to an organization that wants to capitalize on current trends and enhance their profitability. Rather than reacting to unexpected disruptions, strategic procurement professionals will find ways to anticipate challenges before they wreak havoc.
Some procurement departments are already using sophisticated predictive analytics to help future proof supply chains. These tools are able to quantify the risk of extreme weather, potential shortages and several economic factors that could shake up supply and demand. Predictive analytics will become increasingly important as the world of procurement faces more uncertainty in the future.
In addition to forward-looking data and insights, procurement technologies will evolve to offer more transparency. Cutting-edge solutions are already able to provide granular information regarding port stockpiles and other details on inventory. With additional transparency, strategic procurement departments will be able to get ahead of potential delays.
And technology won’t stop there. The negotiation process will also become more digital to improve speed to market. When procurement teams can onboard suppliers quickly, they get ahead of shifts in the market that might otherwise tip negotiating power in suppliers’ favor. Not to mention, speeding up negotiations frees up more time to strategize in other areas of the procurement process.
Transitioning to a more strategic procurement plan will ultimately help organizations remain better equipped to effectively handle any future crises. For information on forward-looking market insights and intelligence that support strategic procurement, book a demo with ProcurementIQ today.
