Key Elements of an Effective Procurement Strategy

What is a Procurement Strategy?

The procurement strategy is a method that is defined to leverage the procurement process in an organization. It also lays a foundation on how businesses handle procurement activities.

Procurement strategies help business to choose:

  • The best of suppliers
  • The most appropriate products/services
  • Procedures to follow while transacting with suppliers

Key elements to develop an effective procurement strategy:

  • Analyzing the current spend: Analyzing your current cost helps you to understand the gaps in procurement practice. Moreover, spend insights help define contracts as per your need with current/future suppliers and enhance negotiation capabilities.
  • Finding the Need: Identifying a need will be a crucial key element in defining a procurement strategy. For example, dividing a set of items into item categories based on different types like usage, item description, and business application will make you easily choose the right supplier and save costs.
  • Study the market: The market conditions change frequently depending on the type of industry, therefore, it is important to stay updated on market trends and needs over time.
    • Porter’s five methods can help to find competitiveness in your business and strategies for potential profitability.
    • PESTEL analysis will help you to find opportunities and threats for your business in market.
    • SWOT analysis can give you a combination of Strengths, Weaknesses, Opportunities and Threats in both internal and external markets.
  • Implement procurement guidelines: A list of objectives to be achieved from your procurement strategy defines the need for improvising the procurement process. Alongside enforcing everyone to follow these procedures will help overcome challenges in the future and reduces related risks.
  • Adopt technology: A purchasing strategy involves defining multiple processes to place orders and requires skilled resources to manage those orders with high precision, which leads to higher costs and longer lead time. An ERP tool can increase overall productivity and minimize errors by eliminating manual data entry and optimize process management. A user-friendly interface of an ERP system provides easier operations and will reduce manual errors in turn saving costs by transmitting purchases to approved vendors and outline contracts.
  • Track and Measure: Tracking the progress of the implemented procurement strategy will help identify opportunities for improvement and, this can only be possible by the participation of all stakeholders responsible for procurement optimization.

Are you looking to improve your procurement strategy, talk to one of your Procurement Specialists today!

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