Strategic procurement, also known as strategic sourcing, is the process of planning to ensure that the goods and services needed to do business successfully are obtained on time as needed — and on budget. Strategic procurement involves carefully optimizing everything from vendor selection, payment terms, vetting, contract negotiation, and the purchase of goods and services.
A recent survey found that 78% of Chief Procurement Officers globally are most concerned with reducing costs in the procurement process. Prioritizing savings has led CPOs around the world to adopt strategic procurement processes, objectives, and technology. Strategic procurement can deliver both cost savings and lower risk. Here are the basics of strategic procurement and how to get started using strategic sourcing at your business.
Strategic procurement, also known as strategic sourcing, is the process of planning to ensure that the goods and services needed to do business successfully are obtained on time as needed — and on budget. Strategic procurement involves carefully optimizing everything from vendor selection, payment terms, vetting, contract negotiation, and the purchase of goods and services.
As compared with regular procurement, strategic procurement involves finding efficiencies across spend categories, minimizing supply risks, improving vendor selection, and bringing greater visibility to pricing and forecasting.
“Strategic sourcing views suppliers as crucial value partners and aims to build sustained, collaborative relations,” wrote the Zycus. “The customer-supplier loop is assessed at every stage of its lifecycle in order to ensure that the needs of the organizations are continuously and efficiently met. To accomplish this, strategic sourcing leverages spend analysis, supplier evaluation, supplier relationship management, and detailed market research.”
[Read more: Strategic Sourcing]
When done correctly, strategic procurement can help an organization optimize its profit margin, lower risk, and streamline the internal process of procuring goods and services necessary to achieve business outcomes.
Ultimately, strategic sourcing focuses on maximizing the ROI of the procurement process for an organization. How can the business receive the best overall value from its sourcing function?
To maximize ROI, many organizations start by setting smaller, measurable strategic procurement objectives. These objectives can be internally-focused (e.g., implement strategic sourcing software to streamline procurement workflows) or externally-focused (e.g., build long-term supplier relationships). As you develop your strategic procurement approach, keep in mind the entire lifecycle of a product一not just its initial purchase price.
Here are some examples of strategic procurement objectives from the UN Procurement Practitioner’s Handbook:
If you’re not sure how to set strategic procurement objectives, start by understanding the strategic sourcing processes and how they relate to your core business practices.
Strategic sourcing will look different for every organization. Nevertheless, here are four steps to strategic sourcing as defined by SAP Ariba. These steps are:
[Read more: RFQ vs. RFP vs. RFI: What's the difference?]
Fairmarkit has a range of tools that can help you improve strategic sourcing. For more advice on optimizing the procurement process, check out Fairmarkit’s blog, The Source.
If you are interested in learning more, please see additional resources below.