Are you new in the procurement role and wondering what strategic procurement might do for you?

If you are, you might be struggling to understand the following:

• Reasons behind your company’s high spending
• Effective ways to work well with your suppliers

If this is the case, then you may need to learn that the secret to solving these is a simple solution called strategic procurement.

In this blog, we will explore the power of strategic procurement and how it can help build your company a road map to save money, build better relationships with suppliers, reduce risk, innovate, and even gain a competitive advantage in the market.

Let’s discover how strategic procurement can help transform your bottom line!

What Is Strategic Procurement?

Strategic procurement, or strategic sourcing, is a long-term approach to acquiring goods and services that aligns with your organization’s overall business goals.

It goes beyond finding the lowest price to consider quality, delivery, sustainability, and supplier risk factors.

Strategic procurement professionals work closely with other departments within your organization. This is to make sure every department’s needs are supported.

Did you know you can implement strategic procurement in any organization, regardless of size or industry?

However, strategic procurement is more important, particularly for organizations with complex supply chains or relying on a few key suppliers.

To give you a better overview of strategic procurement, here are some examples of strategic procurement in action:

• A manufacturing company might work with its suppliers to develop new products or improve the quality of existing products.
• Retail companies might negotiate volume discounts with suppliers to reduce costs.
• A healthcare organization might partner with suppliers to develop programs to improve patient care.
• A government agency might use strategic procurement to support small or minority-owned businesses.

What Is The Importance Of Strategic Procurement?

Strategic procurement plays a crucial role in driving the success of businesses. This is done by aligning procurement strategies with organizational objectives.

This approach focuses on creating robust supplier relationships, optimizing procurement processes, and maximizing cost savings.

Companies with top-quartile procurement capabilities have been shown to deliver higher total returns to shareholders. This highlights the significant impact that strategic procurement can have on overall business performance.

By strategically managing your supplier base, your organization can enhance relationships with your suppliers and ensure consistent performance, ultimately improving customer satisfaction.

The COVID-19 pandemic has further emphasized the importance of strategic procurement. Supply chain disruptions caused by the pandemic highlighted the vulnerability of organizations that lacked a robust procurement strategy.

Those with strategic procurement processes were better equipped to navigate the crisis, efficiently manage supply risks, and maintain business continuity.

What Are The Goals Of Strategic Procurement?

Strategic procurement is vital in driving value and achieving long-term success for your business.

Strategic procurement goals are driven by the need to effectively manage costs, mitigate risks, and ensure efficient and timely execution of procurement activities.

Let’s dive into some of the important goals of strategic procurement.

Cost Reduction

One of the primary goals of strategic procurement is cost reduction.

By implementing robust procurement strategies, your business can optimize purchasing processes, negotiate favorable contracts, and identify cost-saving opportunities.

This improves your bottom line and enhances your competitiveness in the market.

Risk Management

Risk management is another crucial objective of strategic procurement.

Your business can minimize the impact of unforeseen events by assessing and managing potential risks, such as supply chain disruptions or supplier performance issues.

This helps you maintain business continuity and ensures the smooth flow of your operations.

Execution Speed

Execution speed is also a key goal of strategic procurement.

Your business can accelerate the sourcing, negotiation, and purchasing cycle by streamlining your procurement processes and leveraging technology.

This enables faster response to customer demand and even reduces lead time.

Supplier Base Management

Managing your supplier base is essential for strategic procurement.

This involves building strong relationships with key suppliers, evaluating supplier performance, and identifying potential risks.

With a well-managed supplier base, you achieve high-quality resources, support innovation, and even move toward long-term success!

Foster Procurement Innovation

Finally, strategic procurement aims to foster procurement innovation.

This involves leveraging new technologies, adopting best practices, and continuously improving procurement processes.

By embracing innovation, your business can enhance efficiency, gain competitive advantage, and adapt to evolving market dynamics.

What Does Strategic Procurement Include?

Did you know that strategic procurement includes a variety of wide-ranging activities? Here’s a quick list of some of the most important activities strategic procurement includes:

Strategic procurement includes a wide range of activities, but some of the most important include:

• Procurement strategy involves developing a long-term plan for acquiring goods and services that align with the organization’s business goals.
• Category management involves grouping goods and services into categories and developing procurement strategies for each category.
• Strategic sourcing involves identifying and evaluating potential suppliers and negotiating contracts that meet the organization’s needs.
• Contract management involves managing supplier contracts to ensure suppliers meet their obligations and identify improvement opportunities.
• Supplier management involves building and maintaining relationships with suppliers to ensure they are reliable and meet the organization’s needs.
• Spend analysis involves collecting and analyzing spending data to identify savings opportunities and improve the procurement process.
• Risk management involves identifying and mitigating risks associated with the procurement process and with suppliers.
• Sustainability procurement involves sourcing goods and services from suppliers that meet the organization’s sustainability goals.
• Innovation procurement involves working with suppliers to develop new products or services or improve existing ones.
• Social procurement involves supporting social goals, such as sourcing from minority-owned businesses or businesses that employ people with disabilities.

 

What Is The Strategic Procurement Process?

A strategic procurement process is a long-term approach to acquiring goods and services that align with your organization’s overall business goals.

This process involves several steps. Let’s discuss it one by one.

Step 1: Identify Key Spend Categories

The first step in the strategic procurement process is to identify the categories of goods and services that account for the largest portion of your organization’s spend.

This can be done by analyzing historical spending data.

Once the key spending categories have been identified, your organization can focus its procurement efforts on them.

Step 2: Develop A Sourcing Strategy For Each Category

Once the key spending categories have been identified,  your organization needs to develop a sourcing strategy for each category.

This strategy should consider the following factors:

• Your organization’s needs: What are your organization’s specific requirements for the goods or services in this category?
• The supplier market: What is the current state of your supplier market for this category? Are there many suppliers to choose from, or is the market dominated by a few large suppliers?
• The category’s impact on the organization’s overall goals: How does the category impact your organization’s bottom line, customer satisfaction, or other key goals?

Step 3: Select And Negotiate With Your Suppliers

Once your organization has developed a sourcing strategy for each category, it must select and negotiate with suppliers.

This process involves identifying potential suppliers, evaluating their qualifications, and negotiating contracts to meet your organization’s needs.

Step 4: Manage Your Supplier Relationships

Once your organization has selected suppliers, it must manage its relationships with them.

This involves working with suppliers to meet contractual obligations and develop improvement opportunities.

Your organization should also monitor the performance of suppliers over time and make changes to its supplier base as needed.

Step 5: Monitor And Measure Performance

The final step in the strategic procurement process is to monitor and measure performance.

This involves tracking the performance of your suppliers and the procurement process to identify areas for improvement.

Your organization should regularly review and update its procurement strategies to align with your current needs and goals.

What Is Category Management?

Category management is a strategic approach to managing a group of related products or services as a single business unit.

It is a cross-functional process that involves collaboration between your sales, marketing, procurement, and other departments.

Category management aims to optimize the category’s overall performance rather than focusing on individual products or services.

This is achieved by understanding the needs of your customers and suppliers and then developing and implementing strategies to meet those needs.

Category management is typically implemented in a four-step process:

1. Define the category. This involves identifying the products or services managed as a single unit. The category should be defined in a way that makes sense for the organization and its customers.
2. Analyze the category. This involves gathering data on the category, such as customer demand, supplier performance, and market trends. This data is used to identify opportunities for improvement.
3. Develop a category strategy. This involves setting goals for the category and developing plans to achieve those goals. The strategy should consider the needs of customers and suppliers and your organization’s overall business goals.
4. Implement and manage the category strategy. This involves putting the strategy into action and monitoring its performance. Adjustments should be made to the strategy as needed.

Procurement Strategy Framework

A procurement strategy framework is a structured approach to developing and implementing a procurement strategy.

It provides a roadmap for your organization to achieve its procurement goals.

There are several different procurement strategy frameworks available, but they all typically include the following elements:

• Vision and mission: This section should define your organization’s overall vision and mission for procurement and its specific procurement goals.
• Current state analysis: This section should assess your organization’s procurement processes and performance. This will help to identify areas for improvement.
• Needs assessment: This section should identify your organization’s current and future procurement needs. This will help ensure your procurement strategy is aligned with your organization’s overall business goals.
• Strategic options: This section should identify and evaluate various options for achieving the organization’s procurement goals.
• Implementation plan: This section should outline how your organization implements its procurement strategy.
• Key performance indicators (KPIs): This section should identify the KPIs that will be used to measure the success of your procurement strategy.

Your company’s procurement strategy framework should be developed and implemented with all relevant stakeholders, including your sales, marketing, finance, and operations departments.

Steps To Implementing Your Improved Sourcing Strategy

A sourcing strategy is crucial for your business. This is critical for your organization to improve its bottom line, reduce risk, and achieve your overall business goals.

Here are some of the steps to help you implement and improve your sourcing strategy:

Evaluate Your Organizational Expenditure

Begin by thoroughly analyzing your organization’s past spending patterns. Categorize and break down expenses by department, suppliers, and product types to find opportunities to save money and improve.

Identify Procurement Requirements

Work closely with your stakeholders to understand and rank your procurement needs. Establish precise criteria, quality standards, and desired results for each requirement.

Assess Current Market Dynamics

Carry out a thorough examination of the current market situation, considering supply and demand changes, pricing trends, and suppliers’ performance.

Don’t forget to consider external factors like global events, economic shifts, and technological advancements that could impact your sourcing plan.

Establish Clear Objectives

Set clear, measurable goals that match your sourcing plan. These goals might involve reducing costs, consolidating suppliers, managing risks, or achieving sustainability targets.

Formulate Procurement Guidelines

Create or update your organization’s procurement policy to match your sourcing goals. Make sure this policy follows all the necessary rules and ethical standards.

Integrate Procurement Software Solutions

Consider using procurement software or a management system to make procurement more efficient. Ensure the software fits your sourcing plan and helps you track and measure performance.

Craft Your Sourcing Approach

Craft a complete sourcing strategy that explains how you’ll reach your goals.

It should cover supplier selection, contract negotiation tactics, risk management, and sustainability. Choose the right procurement methods for different product and service categories like competitive bidding, sole sourcing, or forming strategic partnerships.

Implement, Oversee, And Enhance

Start implementing your sourcing plan by choosing suppliers, negotiating contracts, and making procurement choices.

Monitor supplier performance, quality, and whether they follow the contract.

Regularly review and improve your sourcing strategy based on market changes and supplier performance. Collect and study data to see how you’re doing with your goals.

Continuous Enhancement

Keep improving your sourcing plan by looking at performance metrics and getting feedback from those involved.

Adjust your strategy as the market changes. Encourage a culture of constant improvement in your procurement team.

Risk Mitigation And Contingency Planning

Put strong risk management practices in place and plan for possible disruptions. Look at potential risks affecting your sourcing plan and create ways to handle them.

Sustainability Integration

Integrate sustainability into your sourcing plan, considering how it affects the environment and society. Look for ways to source things sustainably, promote supplier diversity, and decrease your supply chain efficiency.

Strategic Procurement Vs. Operational Procurement

Strategic procurement and operational procurement are two important parts of the procurement process. Strategic procurement is focused on the organization’s long-term goals, while operational procurement is focused on the day-to-day tasks of acquiring goods and services.

Let’s briefly dive into the differences of each:

Strategic Procurement

Strategic procurement is a proactive approach to procurement that focuses on aligning the procurement process with your organization’s overall business goals.

Strategic procurement professionals work closely with other departments (aside from your procurement department) within your organization to understand their needs and develop procurement strategies that meet those needs while supporting their overall goals.

Operational Procurement

Operational procurement is a reactive approach to procurement that focuses on meeting the organization’s immediate needs.

Operational procurement professionals are responsible for acquiring goods and services, such as sourcing suppliers, negotiating contracts, and placing orders.

Here is a table that summarizes the key differences between strategic procurement and operational procurement:

 

What Is Strategic Procurement Technology?

Strategic procurement technology is any technology that can help your organization achieve its strategic procurement goals. This can include a wide range of technologies, such as:

• Spend analysis tools: These tools help your organization analyze your spending data to identify areas where you can save money.
• Sourcing tools: These tools identify and evaluate potential suppliers.
• Contract management tools: These tools help manage supplier contracts.
• Supplier relationship management (SRM) tools: These tools build and maintain relationships with suppliers.
• eSourcing tools: These tools automate the procurement process, from sourcing to contract management.

How Can ProcureDesk Help With Strategic Procurement Technology?

ProcureDesk is tailored purchasing software ideally suited for small to medium-sized companies, particularly beneficial for Biotechnology firms. It effectively manages costs and enhances cash flow transparency by automating procurement and invoice matching processes.

This comprehensive system offers end-to-end procure-to-pay automation, with features such as punchouts and robust integrations with accounting systems. It streamlines the purchasing workflow and meticulously tracks all transactions, empowering companies (for instance, those in the pharmaceutical sector) to maintain tight control over their expenditures.

Top Features:

• Tailored Requisitions: Customize purchase requisitions to align with your specific needs effortlessly.
• Budget Control: Implement internal budget controls, enabling precise definitions at a granular level, such as by account, class, or procurement department.
• Configurable Approval Workflows: Simplify compliance by setting up approval workflows to ensure purchase requests are reviewed and approved at the appropriate level, requiring minimal ongoing management.
• Punchout Catalogs: Build your vendor marketplace with punchout catalogs, eliminating the need for manual price sheet updates or data copying from various vendor websites. ProcureDesk integrates with major vendors like ThermoFisher, Fisher Scientific, VWR, and more.
• Automated Purchase Orders: Save scientists’ valuable time by automating the creation and transmission of purchase orders to vendors.
• Purchase Order Tracking: Keep tabs on order acknowledgments and Advance Shipping Notices (ASNs), always knowing the status of your deliveries without vendor follow-ups.
• Receipts with Lot Tracking: Precisely track receipt data, including essential lot information, to monitor item expiration dates, particularly for items like reagents.
• Inventory Visibility: Gain real-time insight into your lab supplies’ quantity and location, ensuring efficient inventory management.
• Invoice Matching: Eliminate manual invoice matching by automating the process, saving time for your Accounts Payable and strategic procurement team.
• E-Invoicing: Automatically capture and match vendor invoices without importing them from emails. Invoices are seamlessly integrated with purchase orders and sent to your accounting system.
• Robust Reporting and Dashboards: Access cashflow insights at your fingertips with powerful reporting and dashboard features. Understand experiment-specific spending and forecast future costs accurately.
• Mobile App Support: Stay productive with mobile app support, allowing you to create, approve, and receive purchase orders and invoices from anywhere, reducing the need for computer access.

Benefits Of Strategic Procurement

Strategic procurement is vital in driving organizational success and achieving your key business core objectives.

By implementing a robust procurement strategy, your business can unlock several benefits directly contributing to its bottom line.

Let’s discuss some of the main benefits of strategic procurement:

Increased Savings

One of the primary benefits of strategic procurement is cost savings.

Your organization can secure favorable pricing terms through rigorous supplier evaluation supplier negotiation, and reduce overall procurement costs.

Aside from that, your business can also optimize your procurement processes and achieve significant cost reductions by strategically managing your supplier base and leveraging long-term relationships.

Enhanced Supplier Relationship Management

Furthermore, strategic procurement enables enhanced supplier relationship management.

Proactive and collaborative relationships with suppliers foster stronger partnerships, improving supplier performance and reliability.

This, in turn, leads to better quality products and services, increased innovation, and higher customer satisfaction.

Lower Risks

Additionally, strategic procurement helps mitigate risks by proactively identifying potential supply chain risk, disruptions and implementing contingency plans.

You can ensure business continuity and reduce vulnerabilities by diversifying the supplier base and strategically sourcing from different regions or markets.

Increased Efficiency

Moreover, strategic procurement drives operational efficiency by streamlining procurement processes, eliminating maverick spending, and implementing process improvements.

By leveraging procurement software and key performance indicators, your business can enhance transparency, standardize procedures, and optimize resource allocation.

What Are The Challenges When Implementing Strategic Procurement

Implementing strategic procurement can present several challenges for your organization.

Here are some of the most common challenges when it comes to implementing strategic procurement:

Resistance To Change

One of the most common obstacles is resistance to change. Employees may be accustomed to established procurement practices and may oppose or hesitate to embrace new approaches.

The lack of executive support can impede the successful implementation of strategic procurement. Without leadership endorsement and commitment, gaining internal stakeholders buy-in and allocating necessary resources can be difficult.

Limited Data And Information

Limited data and information can be another hindrance.

Strategic procurement relies on accurate and comprehensive data to inform decision-making.

Your organizations may face challenges in gathering, analyzing, and accessing the required data, which can hinder the development of effective procurement strategies.

Maintaining Strong Relationships With Suppliers

Maintaining strong relationships with suppliers can be challenging, especially when multiple stakeholders are involved and have conflicting interests.

Additionally, changing market conditions can pose significant challenges.

Your organization must continuously monitor and adapt its procurement strategies to respond to evolving market dynamics and customer demand.

Talend And Skill Gaps

Talent and skills gaps can hamper the successful implementation of strategic procurement.

Your organization needs skilled professionals who understand procurement processes and have the necessary knowledge to drive strategic initiatives.

Lack of talent can delay or undermine the effectiveness of strategic procurement plan.

Integrating Technology

Lastly, integrating technology into procurement processes can be a challenge.

Implementing procurement software and other technology solutions requires proper planning, investment, and change management.

Without seamless technology integration, organizations may struggle to achieve procurement efficiency and maximize the benefits of strategic procurement.

Best Practices Of Strategic Procurement

Here’s one thing you should keep in mind:

Strategic procurement isn’t just a regular business task. It helps you connect your organization’s strategic goals with how you manage relationships with your customers and suppliers.

Consider these best practices when applying your strategic procurement plan:

• Align procurement with business goals. Your procurement strategy should be aligned with your organization’s overall business goals. This will ensure that the procurement process is focused on achieving your organization’s desired outcomes.
• Develop a category management strategy. Category management categorizes goods and services and develops procurement strategies for each category. This allows your organization to focus its procurement efforts on the most important categories and develop strategies tailored to each category’s needs.
• Use data to drive decision-making. Your data can be used to inform all aspects of the procurement process, from identifying supplier needs to negotiating contracts. Your organization can make more informed and strategic decisions by using data to drive decision-making.
• Build strong relationships with suppliers. Strong supplier relationships are essential for a successful strategic procurement plan. Your organization should work with your suppliers to develop mutually beneficial relationships. This will help ensure suppliers align with your organization’s goals and provide you with the best possible value.
• Continuously monitor and improve the procurement process. Your procurement process should be continuously monitored and improved to identify areas where your efficiency and cost savings can be realized.

FAQs

What Are The Three Strategic Procurement Strategies?

The three strategic procurement strategies are:

1. Cost reduction: This strategy focuses on reducing the cost of goods and services without sacrificing quality or performance.
2. Risk mitigation: This strategy focuses on reducing the risk associated with the procurement process. This can be done by diversifying the supplier base, negotiating contracts with favorable terms, and developing contingency plans in case of disruptions.
3. Innovation: This strategy uses procurement to drive innovation within the organization. This can be done by working with suppliers to develop new products or services or by using procurement to gain access to new technologies.

What Are The Strategic Procurement Pillars?

The strategic procurement pillars are:

1. Visibility: This pillar involves clearly understanding the organization’s spending and supply chain.
2. Collaboration: This pillar involves working closely with suppliers to develop mutually beneficial relationships.
3. Innovation: This pillar involves using procurement to drive innovation within the organization.
4. Risk mitigation: This pillar involves identifying and managing the risks associated with the procurement process.

What Are The Four Areas Of Procurement?

The four areas of procurement are:

1. Strategic sourcing process involves identifying and evaluating potential suppliers and negotiating contracts that meet the organization’s needs.
2. Category management involves grouping goods and services into categories and developing procurement strategies for each category.
3. Contract management involves managing supplier contracts to ensure that suppliers meet their obligations and identify improvement opportunities.
4. Supplier management involves building and maintaining relationships with suppliers.

What Is The Role Of Procurement At The Strategic Level?

At the strategic level, procurement aligns the procurement process with your organization’s overall business goals.

This involves developing procurement strategies that support your organization’s growth and profitability goals. Procurement also plays a role in risk management and innovation.

What Is Traditional Procurement?

Traditional procurement is focused on the short-term goal of acquiring goods and services at the lowest possible price. It typically involves a transactional relationship between the organization and its suppliers.

What Is The Difference Between Strategic Procurement And Traditional Procurement?

Strategic procurement is a more long-term approach that aligns the procurement process with the organization’s overall business goals.

It involves developing supplier partnerships and procuring to drive innovation and risk mitigation.

Why Is Data Analytics Important In Strategic Procurement?

Data and analytics are essential for strategic procurement. Procurement professionals use data to identify areas where costs can be reduced, risks can be mitigated, and innovation can be driven.

What Are The Key Principles Of Strategic Procurement?

The key principles of strategic procurement are:

• Alignment with business goals: The procurement process should be aligned with your organization’s overall business goals.
• Supplier collaboration: Procurement professionals should work closely with suppliers to develop mutually beneficial relationships.
• Risk management: Procurement professionals should identify and manage the risks associated with the procurement process.
• Innovation: Procurement professionals should use procurement to drive innovation within the organization.

 

What Is The Role Of Digitalization In Strategic Procurement?

Digitalization is transforming strategic procurement. Procurement professionals are using digital technologies to automate tasks, improve visibility into the supply chain, and collaborate with suppliers more effectively.

The Bottomline

Keep in mind that your company’s strategic procurement serves as your roadmap to help you:

• Boost your financial and procurement landscape
• Reduce risk
• Foster Innovation within your business strategy
• Achieve a competitive edge in the market

The real strength of your strategic procurement lies in your organization’s ability to reshape your financial standing, improving efficiency and generating tangible results while working on your procurement functions.