What is A Procurement Strategy? 9 Steps To Develop One

July 21, 2022
Vinay Agrawwal
Procurement Management
As many as 79% of purchasing departments surveyed have experienced a great efficiency boost after moving to digital procurement solutions.

For a business to produce outputs, it needs to procure the raw materials to build things. Branching out from this aspect of business operations is the need to know the quantities, qualities, and types of items to be procured, in addition to the vendors to get them from and according to what schedule.

This goes to say that procurement already is a complex department that works with a gazillion dependencies on impending deadlines.

With that said, the recent pandemic has left the global supply chains in tatters, impacting every business that relies on procurement for a profitable throughput; the stagnation marked the end for many businesses.

It is this fact that births the concept of procurement strategy – an intangible means for a business to streamline its purchasing operations in a way that keeps the downstream workflows sorted while accounting for all the apocalypses and nuclear warfare happening in between.

Let’s delve a little deeper into this concept and learn what a procurement strategy is before jumping into the nuances of how to build one that slays the dragon.

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What is a Procurement Strategy?

A procurement strategy is your long-term plan that chalks out the following aspects of your purchasing department:

  • Evaluating how and where to acquire the necessary raw material cost-effectively
  • Listing out the vendors that are capable of delivering expected quality material on the timeline and terms and conditions agreed upon (like discounts, warranties, guarantees, shipping terms, etc.)
  • Ensuring everything fits in the budget that is allocated to it
  • Assessing the cost of ownership of the material that includes warehousing and storage charges, inventory charges, etc.
  • Listing out the potential risks that could be encountered, a plan of action for mitigation, and emergency protocol
  • Reducing the overall cost of operation of the department

What your procurement strategy looks like depends on what your business prioritizes.

For example, for an eCommerce business, procurement may focus on maintaining a stable inventory of its best-selling products. Their strategy may, thus, revolve around ensuring they always have enough items to meet the demand at all times.

What are the Benefits of a Robust Procurement Strategy?

Procurement strategies are long-term manifestos for the purchasing department. When they are well-thought-out and planned with complex data and market insights, they can be transformative for your business. Here are the major advantages of procurement strategy.

Cost Reduction

A procurement strategy lists down all the best sources and prices of each raw material that your company is required to purchase.

The discounts and exemptions, price drops, warranties, and guarantees – all the terms are delineated in the strategy in great detail, allowing you to economize the operations at every opportunity presented.

It also helps your company gain better visibility into your spending and budget, helping you cut costs wherever possible.

Improvement in Efficiencies

Procurement strategy majorly puts its focus on acquiring the right goods at the right time. Since all the downstream processes depend on the procurement timeline, a timely purchase and issuance help optimize the downstream workflows.

For example, for a pencil-production plant, the procurement strategy would list the timelines for acquiring wood, paint, and lead so that pencils can be manufactured on schedule. It will also highlight how frequently this stock would need to be replenished for production to continue without hindrances.

Facilitates Innovation

Procurement needs to constantly evolve for the benefit of the organization.

A well-defined strategy helps explore opportunities for inventiveness in the cycle to speed up the operations further.

9 Steps to Create a Good Procurement Strategy

Get ready to put your organization in a competitive landscape with the following steps to create a great procurement strategy:

1. Get a Procurement Strategy Software

The boon of digitalization has helped organizations move away from the errors and inefficiencies of human tasking.

Technological advancements have given birth to solutions like Hubler, which need no code to be written for building your own procurement strategy software. Leverage these bestowments of modernization.

2. Assess Your Expenditures

The first step towards reducing costs is identifying where you spend most and how you spend it. It will help reveal the unhealthy spending patterns of your company.

This information helps you craft your procurement strategy around cost optimization.

3. Needs-Analysis

The objective of procurement is to fulfill business needs. A procurement strategy, thus, needs to take into account every raw material that your business requires to achieve its goals.

Try to initiate an open discussion on the potential saving opportunities by creating discussion platforms on the software using a no-code platform like Hubler.

4. Market Study

Inwards reflections are good, but a market study is needed to understand where your next batch of supplies is coming from or where it is stuck and why.

You may want to add a vendor onboarding section on your custom software so they can update the shipment status periodically. This helps inform the timelines of your procurement strategy.

5. Defining Objectives

The needs of a business are aligned with the objectives it needs to achieve. Listing them down helps to keep the workflows pointed in the right direction.

A good procurement strategy ensures that everything in the purchasing ecosystem is synchronized with the timeline and requirements of the business objectives.

6. Forming Policies

A procurement strategy is put in place to eliminate the roadblocks the purchasing department experiences. This involves creating a policy that addresses the risks, problems, deviations, and every possible derailment or loophole that a SWOT analysis reveals.

Start by looking at your existing procurement problems and addressing those in the policy.

7. Strategy Outline

It is now time to type out the first draft of your procurement strategy from the information you have gathered so far – internal and external. Ensure that you include:

  • Business needs
  • Goals
  • Tactics
  • A troubleshooting guide

Also, ensure that the strategy is realistic and implementable in a real-world scenario.

8. Digital Procurement Strategy

It is important to have a digital procurement strategy in place to stay in step with the New Normal. According to research by the Hackett Group, digital solutions in procurement help organizations reduce costs by 25% and improve procurement ROI by 2.5 times.

More business is being conducted over digital platforms because it is undeniably faster and more efficient that way. Adapt your procurement strategy for the same.

9. Implement, Glean, Revise, Repeat

The last step constitutes implementing your procurement strategy and observing how it performs. This way, you get a chance to fix the loopholes and improve processes where there is an opportunity to do so.

Repeat the implementation until you finetune the strategy to suit your business needs.

Also read: How This Farm-To-Fork Company Streamlined It's Procurement Using Hubler

Wrapping Up

Procurement strategies have become pivotal in the business world today because of the potential they hold to streamline the base operations of a business. Without timely material delivery, the business cannot earn.

A good procurement strategy begins with a good no-code platform that helps you create the right software for building and implementing your strategy.

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