In this post, we’re going to talk about developing a procurement strategy as well as discuss six steps that’ll help your procurement team work more efficiently.
More specifically, some of the main topics we’re going to cover are:
- Types of procurement strategies, e.g. cost reduction, strategic sourcing, etc.
- Conducting an internal stakeholders review
- Identifying a task force in key business units
- Setting up processes and establishing evaluation criteria
- Choosing software to facilitate the procurement process
- Creating procurement strategy briefs
We’re also going to share a simple Request for Proposal (RFP) template that you can use.
Let’s get right into it.
6-Step Procurement Strategy Framework
What’s a Procurement Strategy?
A procurement strategy is a long-term strategy that refers to the process of acquiring and/or buying supplies, such as goods and services.
An effective procurement strategy is basically a cost-effective plan that not only maps out the needs of a business for supplies and services, but also lists business goals and inefficiencies.
Additionally, it builds an internal analysis of the sourcing strategy of the business alongside keeping track of supplier management, purchase orders, purchase prices, and the overall procurement activity.
The following graph successfully outlines some of the main elements of a procurement strategy.
More specifically, the graph shows us that, in order to develop a procurement strategy, we analyze the market; review the corporate and stakeholder targets and plans; and assess the results of the procurement function.
The development of a procurement plan leads to mapping out the need for resources, in addition to what should be the opportunity prioritization and the development of the business vision, as well as business and financial goals.
A little further down in this blog, we’re discussing in detail the main steps of developing a procurement strategy.
Let’s now have a look at six types of procurement strategies.
6 Types of Procurement Strategies
Before we go any further, keep in mind that the type of procurement method you choose for your business is firmly linked to the type of products, as well as services, such as software, that you are targeting to acquire through this strategic procurement.
Type #1: Cost reduction
One of the most common types of procurement strategy is cost reduction.
Cost reduction is an essential process companies use to increase their profits through reducing their costs.
A CPO survey by Deloitte showed that reduction of costs is the main priority of businesses and procurement professionals.
More specifically, 78% of respondents set reducing cost as their top priority.
According to the same survey, reducing costs goes along with reducing the total cost of ownership (TCO).
The process is complex and multi-layered because costs can be affected by any decision made by the company in terms of its product and service development process.
Cost reduction can be achieved by implementing procurement strategies.
That requires the company to really get into their operations and get some decisions in order to achieve cost savings and mitigate losses.
What’s essential to do in terms of cost reduction is to track any data in relation to cost reduction because this will allow you to increase it over the years.
The following graph helps us illustrate this point:
As you can see, monitoring cost reduction helps companies define patterns and trends and repeat successful and efficient moves.
This can give a clear image of a long-term cost reduction plan.
A tip that applies to most of the types mentioned in this blog post would be to have a sort of a centralized procurement plan.
In terms of cost reduction, a centralized acquisition plan in place helps organizations investigate their spending and define successful acquisition cost reduction techniques.
Type #2: Supplier development management and optimization
The second procurement type is supplier development management and optimization.
Supplier development management and optimization relates to the supplier relationships that a company builds.
It basically means that the company chooses to work with the best possible suppliers that won’t only be beneficial to the company in terms of pricing, but will also provide the business with the most appropriate goods and services.
This type of procurement strategy also implies that any pain points in the supply chain that have to do with suppliers being less able than others and might not offer good terms to the company, must be taken out.
Author’s Note: On that note, vendor base segmentation in terms of risk and profitability is something companies should be looking at.
Regarding managing and optimizing the supply chain, a company might find that they need to slightly alter their mix of vendors in order to achieve the most effective procurement strategy.
This might mean that the company would have to have a combination of bigger and smaller suppliers that will bring fresh and creative ideas to the table.
Type #3: Risk management
The third type of procurement strategy is risk management.
Risk management is the process of defining and evaluating any risks or unfortunate events that the company will have to deal with while identifying available resources that could help minimize risks and monitor the impact of such events.
Put another way, risk management allows a company to develop appropriate responses in order to decrease the impact of potential risks.
The following graph successfully summarizes the main elements of the risk management process.
The elements of risk management include risk identification and risk assessment, a methodology that will allow a business to control risks and review the controls.
Type #4: Global sourcing
Global sourcing is another type of procurement.
It refers to the process of sourcing products, goods, and services from suppliers across the globe, thus eliminating geopolitical boundaries.
This procurement strategy is specifically used by companies that wish to use the most appropriate and cost-efficient market conditions that can usually be found in international markets.
Some benefits of global sourcing are the following:
- Lower cost production
- Increased volume of goods production
- Locate and use international sources and expertise that might not be available in the company’s home country
- Locate and use advanced technology that might not be available in the company’s home country
However, when it comes to global sourcing, one should be aware of the challenges that can seriously affect their business.
Some of the challenges might be:
- Low quality controls
- Difficulty in monitoring production costs
- Issues of security that can be in relation to the legislation of the sourcing country, the political situation, hiring the right of employees, etc.
- Too long and complex a supply chain
Global sourcing is getting more and more important as the ever-changing nature of the international economy leads companies to find alternative sources of products so they can maximize profits.
Type #5: Green purchasing
A procurement strategy commonly found in business is green purchasing.
Green purchasing refers to realizing purchases that have a reduced negative effect on both the environment and human health.
Similarly, it might refer to purchases that have increased positive impacts on the environment and human health.
Green purchasing includes management of sources and services in relation to all aspects of the procurement process that are: production, operation, maintenance, distribution, recycle, and disposal, to mention a few.
Establishing green procurement could mean two things:
- A company only chooses to source from environmentally ethical companies that follow sustainable processes and provide reliable, green products of a high quality.
- Management and optimization of the already existing sources in terms of working towards making them comply with a green approach.
In a few words, green purchases lead to companies making sustainable and environmentally conscious decisions.
Type #6: Total quality management
The final type of procurement strategy we’re discussing is total quality management.
Let’s have look at a concise definition of total quality management:
In other words, total quality management (TQM) refers to an ongoing process of optimization through identifying and reducing risks and errors.
Additionally, TQM includes customer journey optimization, automations, employee engagement and training, as well as the overall engagement of all production parties in order to achieve an enhanced and efficient procurement policy.
Bottom line is, total quality management includes:
- Strategic approaches
- Efficient decision-making based on facts
- Continuous improvement
- Training of all parties involved
- Satisfied customer experience
- Team work
And so on and so forth.
Let’s now discuss the six main steps of a procurement strategy.
Step #1: Conduct an Internal Stakeholder Review to Align with the Why & Key Needs Behind the Procurement
The first step in the process of developing a procurement strategy is to conduct an internal stakeholder review to align with the why as well as the main needs behind the procurement.
Stakeholders are the people involved in the different processes and operations of an organization.
They might be individuals that have an interest in the company, as well as investors, employees, suppliers, and customers.
The first step in developing a procurement strategy is a stakeholder review and analysis that’ll outline the categories of stakeholders that are involved.
Additionally, this step allows a company to get into detail about the roles and responsibilities of each stakeholder and review whether these align with the business goals and needs, for example, in terms of timeframes and volumes.
Let’s discuss an example that’ll make this more clear.
For the sake of example, let’s say that a company — as part of developing its procurement strategy — realizes a review of business objectives that dictates more creative approaches in terms of the marketing efforts of the company.
In that case, it would make sense that the company conducts an internal stakeholder analysis to see if they have the available sources, in terms of suppliers, resources, and employees to achieve such creative approaches.
Hypothetically speaking, the company might find out that, although they have the expertise and financial resources to do that, they lack suppliers.
What they could do in such a case would be to combine their bigger vendors that cover the company needs in relation to volume with a smaller, boutique vendor that would bring a fresh perspective.
In a few words, an internal stakeholders analysis helps identify such issues and solve them in the best and most cost efficient way possible.
Moving on to the second step.
Step #2: Identify an Internal Task Force Comprised of Players From Key Business Units
The second step in developing the procurement strategy is to identify an internal task force comprised of team members from key business units.
Similar to what we discussed earlier about reviewing all parties involved in the procurement process, another step would be to identify different business units involved in the process and engage them.
In other words, bring together business units, such as marketing, operations, procurement, etc.
Identifying key players from key business units facilitates the process of creating a centralized and efficient procurement process.
Additionally, it makes it easier to assign tasks in a quicker and cost-efficient manner.
Let’s move on to the next step.
Step #3: Identify Business Needs and Set Objectives for a Successful Outcome
The third step in the process of developing a procurement strategy is to identify business needs and set objectives for a successful outcome.
This is pretty self explanatory.
After having set the main elements of strategy, in terms of people and social groups involved, alongside the identified internal task force composed of all business units, you go on to identifying the business needs and objectives.
To actually do that effectively, a company should:
- Articulate business goals and objectives
- Review whether goals and objectives are achieved and how
- Identify challenges and opportunities by doing a SWOT analysis
- Identify possible solutions
Making sure to cover the points mentioned above, a company is more likely to get a successful outcome out of its procurement strategy.
Here’s an example of identifying problems and opportunities:
As you can see, problems and opportunities can be paired together.
However, there might be opportunities that a business analyst finds that fit a company’s objectives but don’t necessarily serve as an antidote to a previously identified business problem.
Again, we’re using the hypothetical example of a company that is considering using a mix of vendors in terms of supplier development.
The problem here would be that they need original welcome back employee kits for their employees who return the company’s offices after COVID-19 related restrictions are lifted in 2021, but their current suppliers can’t cover this need.
The opportunity is to bring in a smaller, branded merchandise supplier that can cover the need for thoughtful promotional products creatively.
Moving on to the fourth step.
Step #4: Set Up Processes and Establish Evaluation Criteria
Another step in the procurement process is to set up processes and establish evaluation criteria.
To set up processes means that a company identifies and builds the processes included in the procurement strategy.
An essential process is benchmarking.
Benchmarking is a process companies use to review and compare their practice alongside their performance metrics.
This needs to be set while developing your procurement strategy.
In general, the processes are related to the type of procurement strategy you are hoping to develop and it goes along with the establishment of the evaluation criteria.
What does that mean?
It means that if you’re to create a green purchasing procurement strategy you need to define what your evaluation criteria, in terms of the bidders, are.
In other words, companies need to make sure which procurement goals are covered by which procurement organization.
If there are five big suppliers that fit your brief, you need to narrow them down by checking which one seems to be able to fulfill the sum of most of the criteria.
You might find that the evaluation criteria will be in relation to the cost of production, the volume of production, or having the least negative environmental impact.
Following from the example we used previously -the one about a company bringing in a new vendor – we might say that some of the evaluation criteria could be the following:
- Delivery time
- Level of creativity
The criteria will change depending on the procurement needs of the company, the project, etc.
Keep reading to find the fifth step.
Step #5: Choose Procurement Software for Ease of Response
The second to last step of a procurement strategy is to choose procurement software for ease of response.
Because of the overarching theme of procurement and the different types and steps it includes, the process might be time consuming and too complex.
Its complexity might lead to several issues cropping up, such as miscommunications.
Having set up a procurement software that’ll allow you to get an easy response can help facilitate the process and take the most difficult areas out of the procurement process.
Procurement software is basically business software that helps companies achieve purchase automation, thus minimizing the time and effort needed for purchase management.
Here’s some essential features procurement softwares should have in order to facilitate the procurement process.
As we can see, some of the most important and useful features of procurement software are purchase orders and reports, vendors and suppliers relationship management, creation and assessment of inventory management, etc.
Moving on to the last step.
Step #6: Build Briefs Based on a Standard Template and Execute
The final step in developing a procurement strategy is to build briefs based on a standard template and execute them.
Assuming that a company has successfully completed all steps mentioned above, the final step would be to build briefs for all stakeholders and team members involved in the process.
In doing so, companies undoubtedly will be able to save time and maintain consistency across all different tasks and business units.
Standard templates that can be edited according to specific needs and criteria are key.
These will allow a company to execute the procurement process efficiently, thus having more chance of benefiting from the overall process and thus achieve its goals and objectives.
We’ve prepared a RFP template you can use for an easier procurement process.
A Simple RFP Template for an Effective Procurement Process
A Request for Proposal, or RFP, is an essential part of procurement that’s to do with outsourcing and finding the most appropriate vendors.
Our simple template takes you through the process by outlining the main elements that need to be filled out according to the needs and main points of your specific procurement project.
Before getting started with the main elements of the RFP, we need to mention that all requests for proposals need to include the following:
- Company name
- Project name
- Company address
- Procurement communication information such asv telephone number, email address, fax number etc.
Let’s now get into the body of the RFP:
1) Project Description
First comes an overview, or introductory text, that introduces the vendor to essential information about your company.
The introduction might include information about the company’s products and services as well as details about the founder(s) and the vision of the business.
2) Project Objectives
Define and elaborate the project objectives.
Make sure to mention not only what the company hopes to achieve but also what the assessment process for each goal would be.
3) Project Timeline
It’s crucial that the RFP includes a detailed description of the project schedule in order to avoid misunderstandings regarding the timeframe when the deliverables must be completed.
4) Project Requirements
Make sure to include a checklist that’ll allow vendors to know what are the main elements of the proposal and what they should be submitting in order to be considered for the role.
5) Assessment Standards
Within a RFP, it’s important to provide a detailed analysis of what your evaluation standards will be when assessing the offers of different vendors.
6) Potential Challenges
Identify any element that might be challenging for vendors.
If your project requires technical or other expertise, make sure you mention it so you have more chances to get bids from vendors that truly fit the brief.
7) Delivery of proposals
Include information that’ll allow the vendors to know how – and where – they should submit their proposals and be considered for the bid.
8) Project Budget
The project budget is a vital part of the process.
Potential vendors need to know the amount of money you’re willing to spend on services and goods.
Here’s the RFP template you can download and use:
Let’s wrap this up.
In this post, we’ve discussed the multilayered topic of procurement.
We’ve gone through some of the different types of procurement strategy and dived deep into the steps of developing one.
Additionally, we’ve also taken you through the main elements of our RFP template that you can edit and use for your projects.
We understand that procurement can be challenging and time consuming.
We’re offering our services as providers for branded merchandise and swag for growing companies and we’re proud to say that we can cover any need, from corporate gifts to employee onboarding kits, and swag packs.
As a creative boutique vendor, we’re confident we can bring fresh ideas to the table and spice up the services you’re already getting from your bigger providers.