Six Steps to Developing a Procurement Strategy that Works
Originally published on June 11, 2020
A procurement development plan is essential for outlining clear goals and achievements for any procurement team throughout the year. However, developing a procurement strategy requires a detailed analysis of past procurement plans and current procurement policies and processes, as well as defining your procurement priorities across the whole business.
Why is a procurement strategy required?
There are many reasons why companies try to refine their procurement strategy by creating a procurement transformation plan. Some of the most commons reasons include:
- The procurement team is struggling to stick to the budget outlined in the original procurement plan.
- There’s a lot of unaccounted expenses.
- Deadlines for procured items are not being met.
A clear procurement strategy will help to get the procurement team back on track, cut costs and provide clarity on processes and procedures. Follow our six-step guide below to developing an effective procurement transformation plan, covering all aspects of procurement planning that need to be considered, in order for your strategy to align with your company’s goals.
How to Create a Procurement Strategy Development Plan
1. Analyse your current procurement plan and processes
This is usually the most time-consuming part of developing a procurement transformation plan, as analysis is required across the board to find out the following information:
- What items are being purchased.
- Which team member is responsible for procuring each item.
- The full time-frame for acquiring each product.
- The cost of each item.
- The current supplier of each item.
It’s also essential to know if any items have had any issues with quality or delivery previously. Try not just focus on just the negatives when discussing these experiences, the positives and the relationship each member of the team has with suppliers is important too. Costs and data are essential to know, but you need to be aware of the people behind the data. Members of your team will work much more efficiently if they feel they are being heard and their experiences within the business are valued enough to contribute to change.
Also, while you are having conversations with members of the procurement and wider team, it’s a good opportunity to assess industry-relevant skills. There could be high-level sales skills or those with extensive market knowledge on particular items, that are not being utilised to their full capability.
From this first step alone, you should already be aware of opportunities for positive change in some of the current procurement processes you have.
2. Supplier sourcing and market research
Once you’ve done your internal analysis, it’s time to look out towards current and potential suppliers, as well as at the current climate of the market. Although researching and sourcing suppliers is a crucial part of the procurement planning process, a thorough analysis needs to be done for your strategy too. Why? Well, it’s so that effective purchasing steps and procedures can be outlined, so the whole team is aware of exactly how research and sourcing should be conducted at the initial procurement planning stage.
Once everyone is on the same page, you will be aware of where you can cut procurement costs and your method for supplier and market research will be defined and kept up to date and accurate.
3. Overall business goals
It’s highly likely that you already have clear business goals, but these need to be detailed and defined so that the procurement development plan can be as effective as possible for your business.
Here are some of the most common strategic business goals:
- Cost reduction
- Risk management improvement
- Environmental impact reduction
- Lead-time reduction
Developing a procurement strategy is the tool that explains how processes will be carried out to achieve your business goals. For example, if your company has a fleet and is hoping to reduce fuel costs, in your strategy you could include the use of fuel cards as an easy and quick solution to bringing those fuel costs down.
4. Re-define procurement essentials across all departments
Prioritising in procurement is important, and over the years priorities change across departments, which is why the whole company needs to be involved in the development of the strategy to keep it up to date and accurate. This will involve all key stakeholders and heads of department providing a list of essential items that are required in priority order. You may find that there are some completely different items than expected, and it will help define a process in future for how these requirements can be updated as priorities per department change.
5. Set out your procurement policies and processes
Once you’ve done your internal and external research, defined your business goals and confirmed priorities with your colleagues, it’s time to translate that into effective purchasing steps and procedures. Be sure to include the business goals when you outline policies and processes; this will help employees across the whole business understand why specific new changes and methods are being adopted.
Remember, you don’t have to start from scratch with this, using your old policies and processes as an initial template is extremely helpful and much less time-consuming.
6. Measuring and managing the plan
Once your procurement strategy has been outlined and then executed, it needs to be managed and monitored closely, particularly in the first stage. Also, set-up a system where feedback on the new processes and policies can be freely given so that anything can be altered and refined at the early stages if need be. Some teething problems may occur when the new strategy is first implemented, but with careful monitoring and clear communication, these can be quickly sorted and the strategy amended.
Then, progress needs to be monitored in appropriate intervals so that you can effectively measure changes and the direct effect the strategy has had on achieving business goals.
Developing an effective procurement strategy takes time and accurate research both externally and internally, however, once your new processes and policies are up and running, it’ll be worth all the time and hard work. If you wish to know more information based around procurement planning and sourcing, please read our step by step guide to successful fleet procurement, to find out more about effective procurement solutions