A Comprehensive Guide for Companies to Develop an Effective Procurement Strategy
Take a step towards success nowProcurement has evolved into one of a company's most important activities in terms of CSR, production, and innovation, far from being a measure to reduce costs. Indeed, according to a Deloitte survey, "reducing costs" wasn't the top priority for CPOs in 2021 for the first time in ten years.
Instead, 78 percent of respondents stated that "driving operational efficiency" was their primary concern.” 76.4 percent mentioned cost reduction as a close second priority. With efficiency and company goals in mind, procurement is changing the rules of the game.
So, what is it and why is it important?
According to Israr Raja, a university professor of Management, Marketing, and Supply Chain Management, procurement is the action of obtaining something with care and effort to meet a need. It's defined as a long-term strategy for acquiring large quantities of goods or services, to fulfil the requirements of a business.
A company's success in an increasingly competitive global marketplace is dependent on a variety of factors. A growing number of CPOs around the world see supply chain procurement as a critical deciding element in a company's success. To survive, businesses must adapt to the changing and globalised environment in which they operate. As a result, they will inevitably need to develop and implement a provisioning plan.
Driving operational efficiency
was the highest priority for CPOs in 2021
In this sense, the ingredients for an adequate procurement strategy need to consider:
- The company's current state
- Market conditions
- Specific corporate objectives
- Data analysis
- Market evaluation
- Set (realistic) goals
- Adapting the strategy to your needs
- Let data be your best allies
- Digital procurement strategy
This is the logical first step in any strategy. What are your company's issues? What objectives are most compatible with your company? In this first analysis, we must identify the key business requirements as well as the risks (market risks, currency risk, equity, policies, and so on) to take them into account when implementing our strategy.
Experts advise asking the "what if"
question to determine the future of your company
In these cases, experts advise asking the "what if" question to determine where the company should go. Examine your company's weaknesses and areas for improvement... This will almost certainly lead you to where the money is spent.
By doing this exercise, it'll be easier for you to reorganise your resources in a more efficient way, strength your relationships, and eliminate wasteful spending.
2. Market evaluation
After we've finished our internal analysis, it's time to look at what's around us. What is the current state of the market? What are the supply markets like, and how are they performing?
One of the following standardised market analysis techniques is recommended for conducting a relevant study:
- Porter's Five Forces Analysis identifies the industry's weaknesses and strengths. It's commonly used to assess the intensity of competition, the attractiveness of a product, and the profitability of a business.
- PESTEL analysis allows you to investigate the external factors (political, economic, sociological, technological, legal, and environmental) that have an impact on an organisation.
- SWOT analysis is a force for assessing your strengths, weaknesses, opportunities, and threats. It incorporates both an internal, and external analysis.
3. Set (realistic) goals
If you are unsure where to begin when developing your company's objectives, it’s recommended that you follow the principles of the SMART technique:
- Specific: Define your goals very well. Questions like "What steps do I need to take to reach this goal?" They will help you clarify your doubts.
- Measurable: Quantification will help you in determining whether you're meeting your objectives. You'll be able to track your progress and see if you're getting closer to your goals this way.
- Assignable: Gain complete control over who is working on what. Assign tasks, divide the work, and make sure that each member of your team is accountable for a specific goal.
- Realistic: Remember that your objectives must be attainable. Determine your needs first, and then develop the strategy that is best suited to your company. Simply ask yourself, "Is this a goal that my team can fairly achieve?"
- Time-related: Set deadlines. Remember to include the end date as well as the start date. It's recommended that checkpoints be established to carry out proper control sessions.
4. Data-driven strategy
Here is the data. Making decisions based on data analysis will help you save money and cut costs by 60%. According to a previous Deloitte survey conducted in 2018, CPOs around the world are proactively leveraging intelligent and advanced analytics for cost optimization (50%) and process efficiency improvement (48%) (although both these percentages are lower than 2017.)
With the ability to use big data and machine learning, you can make informed decisions. Using data is like finding out how the roads are: if traffic is heavy, we'll take public transportation. Once you start using data analytics, making smart decisions will be second nature to you.
5. Adapt the strategy to your needs
A strategy is successful when it's tailored to the company. It's critical to identify where it fails, how it can be improved, and what works. The key to developing a procurement strategy is to get it up and running as soon as possible and to start measuring how well it works for your business.
Keep your teams and stakeholders in constant communication to determine what needs to be improved and what is working.
6. Develop procurement guidelines
A standard operating procedure gives the company more cohesion and a more structured way of doing tasks. It's a guideline in which you will spell out the fair practises for all those involved in the process, as well as how to act in the event of any errors. It also serves as an "instruction manual" for your team, outlining which suppliers have priority and whether certain types of purchases would require prior approval. When making a purchase, for example, ensure that your company's values are not jeopardised. Suppliers must share your business' culture and principles.
7. Refine your strategy
Procurement experts recommend that the strategy be reviewed on a regular basis to ensure that everything is functioning properly. Track the activities using key performance indicators (KPIs) and make the necessary adjustments to ensure that everything is functioning properly.
Remember that monitoring these types of indicators is a piece of cake using the data analysis described in the previous step.