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Developing a strategic procurement plan



The procurement process can be complicated one. Strategic procurement is an organization-wide process. It requires input from all departments and functional areas for an organization. Organizations should set up a strategic procurement team. This team sets the overall direction for procurement, aligned with the business strategy. The team will then use the data from the strategic procurement process to develop and implement a strategic procurement plan. Here are the 7 steps that lead to a successful procurement process.


Conduct an internal needs analysis

To begin, you’ll need to benchmark current performance and then identify needs and targets before developing a procurement strategy. This involves the collection of several different types of data. The purpose for collecting initial data is to benchmark current performance, resources used, costs for all the departments/functions in the organization, and current growth projections. Before you start developing your procurement strategy, take the time to figure out what you have to work with. Look at your current system to see where it aligns with company objectives, budget and production timelines. Consider whether your current strategy is capable of taking on outside challenges and opportunities and if it’s not, identify areas that need improvement.


Create measurable objectives

Now you know exactly what you need to improve, it’s time to create some well-defined and measurable objectives. By clearly defining your exact goals and objectives, you can then implement performance measures that will allow you to understand if your process is working. Remember, you should never reach a point where you believe that you can’t improve your goals or that there are no ways that you can change your procurement strategy. By regularly reviewing your process and the results you get, your organization will be able to consistently find room for improvement. New tools, technology, and procedures can help make your process more efficient and cost-effective, while new trends could force your organization to re-evaluate your existing procurement strategy. By ensuring that your organization is constantly looking to improve its procurement process, your business will always be ready for growth.


Collect supplier information

It is important for a company to select suppliers carefully. A supplier’s inability to meet selection criteria can result in significant losses for the organization. The business reputation and performance of the supplier must be evaluated, and financial statements, credit reports, and references must be checked carefully. If possible, the organization should arrange to inspect the supplier’s site and talk to other customers about their experiences with the supplier. The use of agents, who are familiar with the markets and stakeholders, can also be beneficial to this process. Organizations may select more than one supplier to avoid potential supply disruptions as well as create a competitive environment. This strategy is also effective for large multinational organizations and allows for centralized control, but more regional delivery.


Develop a sourcing/outsourcing strategy

Based on the information gathered in the first three steps, an organization can develop a sourcing/outsourcing strategy. The following are examples of sourcing strategies: Direct purchase: Sending a Request for Proposal (RFP) or a Request for Quote (RFQ) to select suppliers. Acquisition: Purchasing from a desirable supplier. Strategic partnership: Entering into an agreement with a selected supplier.


Implement the sourcing strategy

Sourcing strategies that involve acquisition or strategic partnerships are major undertakings. In these cases, suppliers are likely to have the following characteristics: Involvement in activities core to the buyer, e.g. supply limited raw material for core product, access to highly confidential proprietary knowledge One of a limited number of available suppliers with specific equipment/ technology and skilled labour pool Part of the broader business strategy For a direct purchase, organizations may begin with an Expression of Interest (EOI), prepare an RFP or RFQ, and solicit bids from identified potential suppliers as part of a competitive bidding process.


Negotiate with suppliers and select the winning bid

The strategic procurement team must evaluate responses from suppliers and apply its evaluation criteria. Bidding suppliers might request additional information in order to make the most realistic bid, and the organization should supply this information to all bidders and enable them to respond to the new information before making a final decision. The strategic procurement team will then evaluate the received proposals, quotes, or bids, and use the selection criteria and a process to either shortlist bidders to provide more detailed proposals (if reviewing EOIs) or select a first and second successful bidder (if reviewing RFPs or RFQs).


Main elements of the implementation phase involve:

  • A detailed operation plan which clearly indicates initiatives, assigned responsibilities, completion dates, and expected outcomes.

  • A project management team scheduling regular meetings to review progress across initiatives, to manage roadblocks, and to support participants.

  • A change-management plan and resources dedicated to communicating new changes.

  • A good leadership that visibly demonstrates support and accountability.

  • Attractive incentives for initiative leaders to champion the success of their programs.

  • Noticeable tracking and communication of progress to the rest of the organization — ideally integrated with the procurement dashboard.


Conclusion:

A procurement strategy will help your organization ensure its success and maximize its value contribution. Hence, procurement leaders have the responsibility to take the necessary actions to implement the strategy and make it successful. This will act as a compass leading the procurement function, at the same time allowing employees to perform better and meet objectives.