An Insight into Strategic Procurement: What it is and How to Implement it

Sourcing of products and services is the strategy of most organizations to reduce their production costs. But, that sourcing process has to be implemented strategically to ensure benefits in the long-run. From this point, the concept of strategic procurement arises. Strategic sourcing refers to the long-range plan of business firms to ensure a timely supply of goods and services. This is indeed helpful for companies as it helps the marketers in attaining their basic objectives. Modern-day organizations are adopting all the necessary measures to build a positive relationship with their suppliers. Furthermore, these organizations are also hiring quality control experts for maintaining the quality of their products and services. Strategic procurement includes actions focused on reducing the overall supplier base, negotiations, and communications. Besides these, strategic sourcing also deals with the advancement of cost-saving communications, IT, improved business operations, high consumer demands, and increasing environmental awareness.

Contemporary Procurement Landscape

Nowadays, organizations are channelizing their sourcing operations as per the suggestions of sourcing agents. Their strategic approach to procurement is aligned with the overall organizational strategy. However, there are chances of mistakes like purchasing without defined tasks, failing to achieve efficiency despite the right purchasing tools, and failing to strike the right chord between local and central purchasing.

Every global organization seeks to maximize its value contribution. Organizations need to come with an effective sourcing strategy to attain this objective. It will serve as a guide for companies and must be updated annually to ensure the procurement framework is aligned with their overall business strategy. With the assistance of quality control subcontractors, organizations are further bringing transparency in their procurement processes.

Procurement Strategy Framework

Some common types of sourcing strategies are applicable to organizations of all sizes. Reduction in manufacturing costs, supplier management, risk management, total quality management, international sourcing, and green purchasing are the most common ones. The sourcing strategy framework of organizations must incorporate strategy statements, deliverables for the desired outcomes, timeframe, deadlines, and metrics to be used in the assessment phase.

Read: 6 Supply Chain Management Strategies for Better Business Outcomes

Steps in Implementing a Procurement Strategy

New-age organizations always look for a robust sourcing strategy that is at the same time flexible. It minimizes the chances of errors while making it easier for marketers to identify savings opportunities. Apart from these, it also eliminates maverick spending and insurance policy compliance. The following steps are involved in implementing a sourcing strategy:

  • Analyze organizational spend: Organizations need to scrutinize their existing spend culture before making changes to their current procurement strategy. However, there are lots of hassles involved in this process. Companies need to collect data from internal stakeholders, suppliers, and other parties that are directly involved with the procurement process. The information marketers gain here is very likely to have far-reaching implications. It not only serves as a knowledge base for organizations but also the base of their procurement strategy. A large number of new-age business firms are implementing e-procurement tools to detect and analyze the overlooked unknown costs associated with a product or service.
  • Determine needs: Before coming up with a flexible sourcing policy, an organization must understand its needs. The best approach is to conduct a fact-based analysis as it will help marketers in aligning their sourcing strategies with business goals. A category positioning matrix can be of great help to companies in detecting critical business requirements. Organizations should address these requirements while formulating their sourcing strategies. The suggestions of quality control experts also help companies in understanding their key requirements.
  • Analyze the contemporary market conditions: When organizations finish the internal analysis to determine their business needs, marketers need to focus on the external side of supply markets and the prevailing conditions in these markets. Collecting data from suppliers and potential suppliers is an effective way of doing so.
  • Set objectives: After organizations have determined their business needs, marketers must come up with an effective vision of what they need to achieve. With the collected data in hand, marketers will find it easier to identify the areas where the sourcing process can be improved. Conducting a SWOT analysis can help marketers in detecting the prevailing state of their sourcing functions.
  • Implement procurement software: This is another thing modern-day organizations are doing. With the emergence of advanced procurement software, bringing transparency in business operations is not a far-fetched dream of organizations. The best procurement software improves employee productivity to a great extent while addressing all sorts of process gaps and enforced purchasing policies.
  • Execute, manage, and refine: After a procurement plan is chalked out, it’s time for execution. Most business firms fail in this phase. This phase demands involvement from all business departments for keeping a track of the progress and the success of the implementation.

If organizations carry out the above-mentioned steps, it will not be difficult for them to come up with an effective sourcing strategy. The quality control subcontractors help marketers to connect with the right suppliers relating to their goods. Develop an effective procurement strategy for your firm and reap increasing benefits.

Read: A Step-by-Step Guide to Strategic Sourcing

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