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• Strategic procurement refers to a long-term plan to enhance the supply of specific goods and services essential to meeting an organization’s core objectives.
• Strategic procurement captures a range of activities aimed at reducing costs, minimizing the supplier base, improving communications, and handling negotiations with various stakeholders – especially vendors.
Strategic procurement is a critical aspect of globalization. On the purchase side, it aims at improving an organization’s potential to purchase new products. And on the sales side, strategic procurement increases pressure on a company’s prices.
Strategic procurement further encompasses using new technology and IT, higher consumer demands, improved logistics, and increased environmental responsibility. Strategic procurement has grown to include compliance with emerging regulations on human rights and environmental sustainability.
The Need for Strategic Procurement
There’s no denying that strategic procurement has grown extensively from emerging challenges and complexities associated with 21st-century globalization. The major challenges of procurement worldwide call for more robust, thought-out solutions to procurement and supply chain.
Today, more than ever, the procurement landscape, alongside the challenges it faces, called for a more pragmatic, responsive approach toward strategic procurement.
The main challenges facing procurement include:
- Failure to achieve procurement efficiency following lack of suitable and appropriate purchasing tools
- Failing to find a balance between central and local purchasing
- Purchasing without clear-cut tasks or duties
- Failure to track expenditure across the supply chain lifecycle
And it’s worth noting that the most strategic sourcing decision may not necessarily make the best buy. So, organizations must align their long-term strategy with short-term sourcing goals.
Framework for Procurement Strategy
As organizations source lasting solutions in strategic procurement and supply chain management, various policies or frameworks guide these strategies.
There are various procurement strategies organizations can adopt including risk management, supplier management, green sourcing, green purchasing, and global sourcing.
Ideally, the procurement strategy must encompass the following components:
- Strategy statement outlining the steps
- Deadlines and time frame
- Evaluation metrics
- Project deliverables
- Tools used like SWOT, PESTLE, TCO, or SCOP analysis
Designing a strategic procurement process is the key to realizing the long-term value and closing in on the most valuable suppliers.
That brings us to the question: how can organizations create long-term value through strategic procurement and supply chain management?
Below we take a closer look at how organizations can implement and oversee the implementation of successful strategic sourcing processes.
Let’s take a closer look.
How to Implement Strategic Procurement
A robust and strategic sourcing process minimizes errors and helps to identify cost-saving opportunities.
A strategic procurement process minimizes maverick spending and provides insurance policy compliance.
So, here’s how to achieve strategic procurement and supply chain management.
1. Analyze organizational spending
Before making any changes to your current procurement, collect information from relevant internal stakeholders, including suppliers and procurement heads.
Obtaining procurement information and insights helps you build a knowledge base of your procurement processes. This information anchors your procurement strategy, providing lasting value through cost-saving opportunities.
2. Determine needs
It’s best to identify your needs before building an efficient procurement strategy that best responds to your organization’s needs. Conduct an analysis to prioritize and align your strategies across functional business areas.
3. Assess the market
After completing your internal analysis, look around your market. Identify what your suppliers face on a regular basis to understand how to fit your strategy based on shifting supplier needs.
Next, collect the right data from suppliers. Keep the data current to ensure it remains relevant. In addition, make use of Porter’s five analyses and other strategies to improve this strategy.
4. Set objectives
After establishing what your business needs are, come up with a clear vision of what you need to achieve. That means you must first work on knowing what your business needs before deciding how to get there.
Use the data obtained from procurement processes to make informed sourcing objectives.
For instance, if data shows that your organization has been spending considerably more on suppliers without a corresponding increase in quality, you may seek to correct this scenario using the clear objectives of your new strategic procurement.
So, take this opportunity to build clear-cut objectives that resonate with your previously collected procurement and supply chain data.
5. Define your procurement policy
It’s critical to define your procurement framework and the policies enshrined therein. In the policy framework, establish best practices that will help eliminate inefficiencies.
Modify this list to address the weaknesses and threats you’ve identified using the SWOT analysis. Adopt existing procurement frameworks and tweak to address your needs instead of formulating your policy from scratch.
6. Adopt procurement software
Due to human error, delayed payments, and non-compliance with changing procurement regulations – companies that handle procurement manually spend more.
Procurement software eliminates errors and improves human productivity. Procurement software automates recurring practices or processes like requisitions, payments, and invoicing. The software also helps with contract management and compliance processes.
The final step of achieving strategic procurement and supply chain management is executing your procurement strategy. To successfully execute your procurement strategic process, you’ll need active contributions from different departments – sales, human resources, finance, and administration.
You need to continuously evaluate your strategy to ensure it conforms to your changing priorities every time after implementing it. Conduct regular maintenance by observing what’s happening and issuing corrective remediation steps.
There’s no denying that the best procurement strategy maximizes value-adding opportunities. So, tracking developments across the supply chain lifecycle stages is the best approach to creating an agile and strategic procurement process.
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