Developing Your Strategic Procurement Plan
To ensure your procurement plan is as effective as possible, you must involve all departments in your organization. Each department requires different procured goods and services, and you should include their requirements while defining your strategic procurement framework. With a representative from each department to identify materials needed, you can fill gaps and inaccuracies in the procurement process and reduce time and resource waste.
Your procurement practices should include cost-saving strategies, risk mitigations, and compliance criteria. The following action items provide a guide to developing a procurement strategy:
- Analyze supply chain cost and other expenses involved in procurement
- Set procurement objectives with maximum value for money
- Assess the supply market condition and risk management
- Create a list of procurement activities
- Determine the service provider, potential suppliers, and digital tools to use
- Prepare the procurement planning strategy, supplier management, and resource allocation layout
- Implement the plan and follow-up deliverables
The three main steps in developing a strategic procurement plan are defined below to help build your procurement strategy template:
Document & Analyze Your Business’s Current State
Your procurement strategy framework should include a mission and vision statement for executing a strategic procurement plan. You can evaluate procurement activities using different metrics and tools, such as SWOT analyses, category positioning matrices, and scope analyses. Performing one or more of these analyses will help determine your business's current spending habits and trends and define the company's most significant current and future opportunities.
Identify Your Tail Spend
Tail spend can be tricky to identify and track because it varies for each organization. Tail spend includes the high-volume, low-value purchases that aren't always made with your procurement software and often don't require approval. Some examples of tail spend purchases might include office supplies, business travel, marketing, and temporary staffing. While these purchases are critical to your day-to-day business operations, they're difficult to manage and optimize and can result in over-spending.
Suppose you were to try to list out your tail spend purchases manually. You'd spend time asking managers throughout your organization to detail every purchase on their expense reports. Luckily, procurement strategies keep innovating, making it easier for managers to execute a solid tail spend analysis. Whether you lean on technology or go the old-fashioned route, identifying the types of purchases and the money spent on them will be essential in your strategy.
Define Objectives & Policy
Define the desired results of your procurement plan (i.e., the goals) and a specific time frame for achieving them.
- Review current market analysis and expense- the total ownership and spend management cost
- Determine the methodology to collect data
- Identify the KPIs to track and the benchmarks or goals for each
- Develop project management and contract management processes
- Build a procurement policy that considers market conditions, purchase order size and frequency, department objectives, predefined supplier relationships, and company goals
- Collect compliance policies, if required, from service providers
Create Your Procurement Strategy
With metrics and objectives in hand, it's time to define your procurement strategy, including ways to source your materials, preferred suppliers and transporters, and goals for bringing your plan together. Plan a 'perfect world' for your procurement process and tail spend habits, and make it your goal. Identify the necessary steps to make your goal a reality, include timelines, and establish quarterly goals to keep you and your team accountable.
Once your strategic procurement strategy is all together, it's ready to be put to work.