Building mutually beneficial supplier relations and having an effective procurement strategy in place is very important for businesses, especially the small and medium sized ones to survive stiff competition and ride out difficult economic situations. Long-term plans that ensure timely supply of goods and services are very essential for your business’s ability to fulfill its core objectives. You have to make sure that you have the right procurement strategy before you start your endeavors; and in order to do so you should gain some knowledge on the different procurement strategies.
The right procurement strategy could lead to the success of your business but you need proper planning and execution for it. After all, you cannot jump on to the bandwagon of starting a business with just your instincts; you need to have a proper business model, enough funding and good relations with your supply chain partners to achieve success. This course gives you a good insight on how to plan ahead and create a winning business strategy.
What is Procurement Strategy?
Procurement strategy can be defined as the contribution that is made by the procurement team to fulfill the aims and objectives of the organization. A procurement strategy defines how to procure a service, product or components at the highest level. It needs your involvement and determination whether to proceed competitively or non-competitively and includes all the details that support regional benefits. Procurement strategy is the heart of business excellence and should be coordinated with proper strategies and objectives. This means having a well defined process that is involved with the functional side of procurement such as managing suppliers, contract, payment of invoices etc. You can learn more about managing the entire supply chain with this course.
Corporation procurement strategies help your company to achieve your goals by guiding the procurement staff on how to do their tasks efficiently. The selection of procurement strategy gives the best value for your money and can be detrimental to a long-term market. You need to consider various factors when developing a procurement strategy to make sure that you understand the long-term consequences in a consistent manner. The strategy should also form the groundwork for sharing the procurement program information with other companies. Plan ahead to avoid and manage risks in the future.
Components of Procurement Strategy
Procurement strategy is the process by which procurement policy of an organization can be achieved. It is about developing different processes and skills to optimize the contribution of procurement to your business goals. Without a comprehensive procurement strategy, it is impossible to know whether your organization made any progress or not.
There are three main components of a successful procurement strategy – inputs, strategy and outputs. The inputs include the business unit data, economic data and corporate financial data. The data is gathered from various sources and put into the procurement strategy that include category and operational strategies. The output is derived and is classified into spend forecast data, operations and budget impact.
In order to create an effective procurement strategy, you should understand where your procurement operations are and adopt the latest procurement technologies in your organization. One of the other things, which you need to focus on with your clients, is to make sure that they too have perfect procurement strategies that help their employees to do their jobs easily without being obstructed by any process. Finally, you must effectively use consumer technologies to better equip your employees with the latest systems so that your procurement policies match the changing business scenario. If you want to refine your skills on purchasing, procurement and supply chain to make a positive impact, skip ahead to this course on advanced supply side analysis.
Steps to Create a Good Procurement Strategy
A procurement strategy will evoke a set of procurement practices in an organization with its stakeholders. It is very crucial for any business that all the procurement strategies are operational; however, at the same time you should be able to watch the different strategies of your business. For this, you need to prepare an overall procurement strategy. You should establish a set of initiatives that helps in implementing and realizing the most important procurement categories. Below is the list of steps that will help you create a good procurement strategy:
- Start by mapping different procurement categories and review the procurement practice to ensure maximum returns.
- Develop an overall procurement strategy by using the data collected in step 1
- Establish a proper framework for subsequent procurement category strategies from the overall procurement strategy. During this stage, individual procurement categories will be defined
- Ensure that the overall procurement strategy and individual procurement category strategies are fixed firmly through your organization
- Initiate the priorities of the strategy and prepare specific action plans. Connect them with your current procurement strategy process
By following the above steps, a clear link is developed between the overall business strategy and activities of the procurement function. This will also ensure that there is an optimized use of your company’s procurement resources. Creating your procurement strategy can be simplified by modelling your supply chain properly. This course teaches you how to effectively model your supply chain using Excel.
Role of Negotiation
Procurement plays a very crucial role in the entire supply chain process of your business. The transaction method for conducting procurement decisions depends on pricing, auctions, bargaining and negotiation. Learn more on the art of striking a good business deal with this course on negotiation. Procurement cost consists of a large portion of the firm’s operating cost. Hence, selecting a supplier with attractive prices is an important decision that your firm faces in managing the supply chain. The buyer audits the cost of the seller during the process of bargaining and negotiates with him to decide on the final price.
The level of importance of negotiation and bargaining has changed over the years. In procurement, negotiation is often viewed as the least preferred alternative and enables better price. Sometimes, it is difficult to document the specific contributions of the procurement that result from negotiations to the objectives of your organization. At the same time, there is no evidence of quality for the buyer, which highlights the need for a meaningful relation that can be fulfilled by negotiations. Many procurement professionals believe that their experiences can help them in negotiations but the sellers have figured out how to spoil the negotiation tactics. Take this course on advanced negotiation techniques to learn more about how to negotiate with your suppliers.
Your business procurement strategy should be able to address different questions related to purchasing of products, raw materials and individual components required for manufacturing. The strategy could be basic or more detailed as per the requirement of your business. To meet the rising expectations in the board room, you need to innovate and reinvent yourself. Take a fresh look at the current procurement setup of your business and ensure that it is aligned perfectly with the objectives of your business.
If you are an entrepreneur, a businessman or a procurement specialist, you should always keep an open mind along with being alert towards the market changes. Remember, the right procurement strategy will not only help you make each and every project successful but also help you build better relations with your suppliers. Make sure to pursue a procurement strategy that not only addresses the immediate challenges, but also other initiatives that enable the procurement department to deliver optimum value to your business. Whether you are in the software services industry, manufacturing or in the goods trading business, you need to decide where the procurement performance of your business stands, and where it needs to go.