“We cannot solve our problems with the same thinking we used when we created them” -by Albert Einstein.
A procurement strategy is one of the essential documents that your business should have. The procurement strategy has an important role in defining how an organization runs its procurement function.
A Successful procurement strategy is a financial plan to manage your budget, production timelines, workflow, and keep everything aligned with company goals. Effective procurement strategy serves as a compass to guide the organization & should be updated at least annually to make sure ongoing alignment with the complete corporate strategy.
Without a documented procurement strategy, it is nearly impossible to keep cash flowing smoothly & even. This document helps in ensuring the efficiency of using resources & obtaining new items that can benefit the business in the best way possible.
A procurement strategy in supply chain management takes into account: purchase timeline, possible risks, available budget, current market conditions, company objectives, initiatives, and goals, the total cost of ownership & more. Each organization’s #procurementstrategy should be uniquely customized according to the needs of the business. There is no one-size-fits-all approach to creating a strategy.
A procurement strategy documentation will:
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Often, organizations make a strategy without understanding where they are today. But it’s necessary to know before moving forward. From a procurement perspective, this baseline falls into 2 categories:
To do this, you need to achieve data from internal stakeholders, suppliers & all other parties who are engaged in the procurement process. Some metrics like Procurement spend per employee, Turnover percentage, Total savings, and savings as a percentage of spend are used in the process of supply chain transformation.
Those businesses which handle the procurement processes manually & don’t combine procurement software are probably to lose money due to errors, delays & overpayments. Procurement software amplifies productivity & decreases errors by minimizing data entry and redundancy.
Procurement strategies in supply chain management keeps track of purchases from purchase order to payment, removes approval bottlenecks, and makes sure that purchasing meets approval standards before ordering.
It’s important to understand your organization’s needs clearly. This fact-based analysis will help you align & prioritize your procurement strategy across other functions and business goals. You can conduct a simple ‘what if’ discussion which challenges the status quo & questions the obvious, so in return, it will exploit a lot more savings opportunities.
After the internal analysis is done, the next step is to evaluate the supply markets & their conditions. To make sure relevance, organizations need to ensure that the gathered data stays up to date over time. Methodologies like Porter’s 5 forces & SCOPE analysis will help during this analysis.
After acknowledging the business needs, it’s time to come up with a clear vision of what needs to be achieved. Although the end objective of every business is “make more money,” but strategic goals should be far more comprehensive. A well-defined goal includes a particular target to shoot for & a plan to achieve it. Goals might include increasing sales or revenue by some percentage, increased production, higher sales, lower costs, etc.
Once goals are identified, sort them in descending order of the impact each has on your company’s bottom line.
Create a list of effective procurement strategies practice that will remove the existing inefficiencies. Set specific procurement practices for each department, which suppliers are preferred, what kind of purchases require approval, and who will approve when necessary.
With the help of the data & information you’ve gathered, draft a procurement strategy. The criteria generally contain delivery times, supply quality, price, service, compliance with regulations or company objectives, etc.
Based on success metrics, the new procurement process should be evaluated. What will successful implementation look like & how will you measure it? Refine strategy as necessary to enhance efficiency as the business expands.
Procurement strategy should be a detailed roadmap for company spend and a tool to amplify budget and decrease errors, late payments, individualist spend, and poorly-timed deliveries. Using an efficient strategy makes sure consistent cash flow and a healthier bottom line.
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