by martieLast Updated : Nov-02-2023
Are you new in the procurement role and wondering what strategic procurement might do for you?
If you are, you might be struggling to understand the following:
If this is the case, then you may need to learn that the secret to solving these is a simple solution called strategic procurement.
In this blog, we will explore the power of strategic procurement and how it can help build your company a road map to save money, build better relationships with suppliers, reduce risk, innovate, and even gain a competitive advantage in the market.
Let’s discover how strategic procurement can help transform your bottom line!
Strategic procurement, or strategic sourcing, is a long-term approach to acquiring goods and services that aligns with your organization’s overall business goals.
It goes beyond finding the lowest price to consider quality, delivery, sustainability, and supplier risk factors.
Strategic procurement professionals work closely with other departments within your organization. This is to make sure every department’s needs are supported.
Did you know you can implement strategic procurement in any organization, regardless of size or industry?
However, strategic procurement is more important, particularly for organizations with complex supply chains or relying on a few key suppliers.
To give you a better overview of strategic procurement, here are some examples of strategic procurement in action:
Strategic procurement plays a crucial role in driving the success of businesses. This is done by aligning procurement strategies with organizational objectives.
This approach focuses on creating robust supplier relationships, optimizing procurement processes, and maximizing cost savings.
Companies with top-quartile procurement capabilities have been shown to deliver higher total returns to shareholders. This highlights the significant impact that strategic procurement can have on overall business performance.
By strategically managing your supplier base, your organization can enhance relationships with your suppliers and ensure consistent performance, ultimately improving customer satisfaction.
The COVID-19 pandemic has further emphasized the importance of strategic procurement. Supply chain disruptions caused by the pandemic highlighted the vulnerability of organizations that lacked a robust procurement strategy.
Those with strategic procurement processes were better equipped to navigate the crisis, efficiently manage supply risks, and maintain business continuity.
Strategic procurement is vital in driving value and achieving long-term success for your business.
Strategic procurement goals are driven by the need to effectively manage costs, mitigate risks, and ensure efficient and timely execution of procurement activities.
Let’s dive into some of the important goals of strategic procurement.
One of the primary goals of strategic procurement is cost reduction.
By implementing robust procurement strategies, your business can optimize purchasing processes, negotiate favorable contracts, and identify cost-saving opportunities.
This improves your bottom line and enhances your competitiveness in the market.
Risk management is another crucial objective of strategic procurement.
Your business can minimize the impact of unforeseen events by assessing and managing potential risks, such as supply chain disruptions or supplier performance issues.
This helps you maintain business continuity and ensures the smooth flow of your operations.
Execution speed is also a key goal of strategic procurement.
Your business can accelerate the sourcing, negotiation, and purchasing cycle by streamlining your procurement processes and leveraging technology.
This enables faster response to customer demand and even reduces lead time.
Managing your supplier base is essential for strategic procurement.
This involves building strong relationships with key suppliers, evaluating supplier performance, and identifying potential risks.
With a well-managed supplier base, you achieve high-quality resources, support innovation, and even move toward long-term success!
Finally, strategic procurement aims to foster procurement innovation.
This involves leveraging new technologies, adopting best practices, and continuously improving procurement processes.
By embracing innovation, your business can enhance efficiency, gain competitive advantage, and adapt to evolving market dynamics.
Did you know that strategic procurement includes a variety of wide-ranging activities? Here’s a quick list of some of the most important activities strategic procurement includes:
Strategic procurement includes a wide range of activities, but some of the most important include:
A strategic procurement process is a long-term approach to acquiring goods and services that align with your organization’s overall business goals.
This process involves several steps. Let’s discuss it one by one.
The first step in the strategic procurement process is to identify the categories of goods and services that account for the largest portion of your organization’s spend.
This can be done by analyzing historical spending data.
Once the key spending categories have been identified, your organization can focus its procurement efforts on them.
Once the key spending categories have been identified, your organization needs to develop a sourcing strategy for each category.
This strategy should consider the following factors:
Once your organization has developed a sourcing strategy for each category, it must select and negotiate with suppliers.
This process involves identifying potential suppliers, evaluating their qualifications, and negotiating contracts to meet your organization’s needs.
Once your organization has selected suppliers, it must manage its relationships with them.
This involves working with suppliers to meet contractual obligations and develop improvement opportunities.
Your organization should also monitor the performance of suppliers over time and make changes to its supplier base as needed.
The final step in the strategic procurement process is to monitor and measure performance.
This involves tracking the performance of your suppliers and the procurement process to identify areas for improvement.
Your organization should regularly review and update its procurement strategies to align with your current needs and goals.
Category management is a strategic approach to managing a group of related products or services as a single business unit.
It is a cross-functional process that involves collaboration between your sales, marketing, procurement, and other departments.
Category management aims to optimize the category’s overall performance rather than focusing on individual products or services.
This is achieved by understanding the needs of your customers and suppliers and then developing and implementing strategies to meet those needs.
Category management is typically implemented in a four-step process:
A procurement strategy framework is a structured approach to developing and implementing a procurement strategy.
It provides a roadmap for your organization to achieve its procurement goals.
There are several different procurement strategy frameworks available, but they all typically include the following elements:
Your company’s procurement strategy framework should be developed and implemented with all relevant stakeholders, including your sales, marketing, finance, and operations departments.
A sourcing strategy is crucial for your business. This is critical for your organization to improve its bottom line, reduce risk, and achieve your overall business goals.
Here are some of the steps to help you implement and improve your sourcing strategy:
Begin by thoroughly analyzing your organization’s past spending patterns. Categorize and break down expenses by department, suppliers, and product types to find opportunities to save money and improve.
Work closely with your stakeholders to understand and rank your procurement needs. Establish precise criteria, quality standards, and desired results for each requirement.
Carry out a thorough examination of the current market situation, considering supply and demand changes, pricing trends, and suppliers’ performance.
Don’t forget to consider external factors like global events, economic shifts, and technological advancements that could impact your sourcing plan.
Set clear, measurable goals that match your sourcing plan. These goals might involve reducing costs, consolidating suppliers, managing risks, or achieving sustainability targets.
Create or update your organization’s procurement policy to match your sourcing goals. Make sure this policy follows all the necessary rules and ethical standards.
Consider using procurement software or a management system to make procurement more efficient. Ensure the software fits your sourcing plan and helps you track and measure performance.
Craft a complete sourcing strategy that explains how you’ll reach your goals.
It should cover supplier selection, contract negotiation tactics, risk management, and sustainability. Choose the right procurement methods for different product and service categories like competitive bidding, sole sourcing, or forming strategic partnerships.
Start implementing your sourcing plan by choosing suppliers, negotiating contracts, and making procurement choices.
Monitor supplier performance, quality, and whether they follow the contract.
Regularly review and improve your sourcing strategy based on market changes and supplier performance. Collect and study data to see how you’re doing with your goals.
Keep improving your sourcing plan by looking at performance metrics and getting feedback from those involved.
Adjust your strategy as the market changes. Encourage a culture of constant improvement in your procurement team.
Put strong risk management practices in place and plan for possible disruptions. Look at potential risks affecting your sourcing plan and create ways to handle them.
Integrate sustainability into your sourcing plan, considering how it affects the environment and society. Look for ways to source things sustainably, promote supplier diversity, and decrease your supply chain efficiency.
Strategic procurement and operational procurement are two important parts of the procurement process. Strategic procurement is focused on the organization’s long-term goals, while operational procurement is focused on the day-to-day tasks of acquiring goods and services.
Let’s briefly dive into the differences of each:
Strategic procurement is a proactive approach to procurement that focuses on aligning the procurement process with your organization’s overall business goals.
Strategic procurement professionals work closely with other departments (aside from your procurement department) within your organization to understand their needs and develop procurement strategies that meet those needs while supporting their overall goals.
Operational procurement is a reactive approach to procurement that focuses on meeting the organization’s immediate needs.
Operational procurement professionals are responsible for acquiring goods and services, such as sourcing suppliers, negotiating contracts, and placing orders.
Here is a table that summarizes the key differences between strategic procurement and operational procurement:
Strategic procurement technology is any technology that can help your organization achieve its strategic procurement goals. This can include a wide range of technologies, such as:
ProcureDesk is tailored purchasing software ideally suited for small to medium-sized companies, particularly beneficial for Biotechnology firms. It effectively manages costs and enhances cash flow transparency by automating procurement and invoice matching processes.
This comprehensive system offers end-to-end procure-to-pay automation, with features such as punchouts and robust integrations with accounting systems. It streamlines the purchasing workflow and meticulously tracks all transactions, empowering companies (for instance, those in the pharmaceutical sector) to maintain tight control over their expenditures.
Strategic procurement is vital in driving organizational success and achieving your key business core objectives.
By implementing a robust procurement strategy, your business can unlock several benefits directly contributing to its bottom line.
Let’s discuss some of the main benefits of strategic procurement:
One of the primary benefits of strategic procurement is cost savings.
Your organization can secure favorable pricing terms through rigorous supplier evaluation supplier negotiation, and reduce overall procurement costs.
Aside from that, your business can also optimize your procurement processes and achieve significant cost reductions by strategically managing your supplier base and leveraging long-term relationships.
Furthermore, strategic procurement enables enhanced supplier relationship management.
Proactive and collaborative relationships with suppliers foster stronger partnerships, improving supplier performance and reliability.
This, in turn, leads to better quality products and services, increased innovation, and higher customer satisfaction.
Additionally, strategic procurement helps mitigate risks by proactively identifying potential supply chain risk, disruptions and implementing contingency plans.
You can ensure business continuity and reduce vulnerabilities by diversifying the supplier base and strategically sourcing from different regions or markets.
Moreover, strategic procurement drives operational efficiency by streamlining procurement processes, eliminating maverick spending, and implementing process improvements.
By leveraging procurement software and key performance indicators, your business can enhance transparency, standardize procedures, and optimize resource allocation.
Implementing strategic procurement can present several challenges for your organization.
Here are some of the most common challenges when it comes to implementing strategic procurement:
One of the most common obstacles is resistance to change. Employees may be accustomed to established procurement practices and may oppose or hesitate to embrace new approaches.
The lack of executive support can impede the successful implementation of strategic procurement. Without leadership endorsement and commitment, gaining internal stakeholders buy-in and allocating necessary resources can be difficult.
Limited data and information can be another hindrance.
Strategic procurement relies on accurate and comprehensive data to inform decision-making.
Your organizations may face challenges in gathering, analyzing, and accessing the required data, which can hinder the development of effective procurement strategies.
Maintaining strong relationships with suppliers can be challenging, especially when multiple stakeholders are involved and have conflicting interests.
Additionally, changing market conditions can pose significant challenges.
Your organization must continuously monitor and adapt its procurement strategies to respond to evolving market dynamics and customer demand.
Talent and skills gaps can hamper the successful implementation of strategic procurement.
Your organization needs skilled professionals who understand procurement processes and have the necessary knowledge to drive strategic initiatives.
Lack of talent can delay or undermine the effectiveness of strategic procurement plan.
Lastly, integrating technology into procurement processes can be a challenge.
Implementing procurement software and other technology solutions requires proper planning, investment, and change management.
Without seamless technology integration, organizations may struggle to achieve procurement efficiency and maximize the benefits of strategic procurement.
Here’s one thing you should keep in mind:
Strategic procurement isn’t just a regular business task. It helps you connect your organization’s strategic goals with how you manage relationships with your customers and suppliers.
Consider these best practices when applying your strategic procurement plan:
The three strategic procurement strategies are:
The strategic procurement pillars are:
The four areas of procurement are:
At the strategic level, procurement aligns the procurement process with your organization’s overall business goals.
This involves developing procurement strategies that support your organization’s growth and profitability goals. Procurement also plays a role in risk management and innovation.
Traditional procurement is focused on the short-term goal of acquiring goods and services at the lowest possible price. It typically involves a transactional relationship between the organization and its suppliers.
Strategic procurement is a more long-term approach that aligns the procurement process with the organization’s overall business goals.
It involves developing supplier partnerships and procuring to drive innovation and risk mitigation.
Data and analytics are essential for strategic procurement. Procurement professionals use data to identify areas where costs can be reduced, risks can be mitigated, and innovation can be driven.
The key principles of strategic procurement are:
Digitalization is transforming strategic procurement. Procurement professionals are using digital technologies to automate tasks, improve visibility into the supply chain, and collaborate with suppliers more effectively.
Keep in mind that your company’s strategic procurement serves as your roadmap to help you:
The real strength of your strategic procurement lies in your organization’s ability to reshape your financial standing, improving efficiency and generating tangible results while working on your procurement functions.
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