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How to develop a procurement strategy

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Last editedFeb 20213 min read

Regardless of your overall goals, any business will benefit from having a solid procurement strategy – it’s an essential way to ensure that your spending, across all departments, aligns with the objectives of your organisation. 

What does procurement mean?

The term procurement in business refers to the acquisition or purchase of goods or services at a large scale. A procurement strategy is how a business approaches this process, from deciding on suppliers to analysing the purchases made.  

How to develop a procurement strategy

Having a dedicated team to manage procurement is a smart approach, but communication across all departments and stakeholders is key. It’s also wise to make use of specialised procurement tools, which can help streamline the process, offer detailed insight, and eradicate human error.

Regardless, the following steps are crucial towards developing an effective procurement strategy:

Understand your goals and needs

First, you should assess your current spending habits and identify ways to cut costs on your existing expenditure. Before you can strategize future acquisitions, you need to first understand what’s working, what isn’t working, and how you can improve upon your current process.

Talk to members of every department to find out how your current spending impacts different areas of the organisation and to identify limitations or challenges that need to be addressed.

You’ll need to monitor your performance and identify future targets in order to assess your potential for growth, and determine if your current costs facilitate or mitigate this growth.

Think about the wider goals of your business and what’s most important. Is your main focus reducing costs? Is it improving quality? Better risk management? Lower carbon footprint? Knowing your specific goals will help define your criteria for potential suppliers.

From here you’ll have formed a good idea of your business’s internal needs and you’ll be ready to explore your options.

Understand the market

Once you know what you’re looking for, it’s essential to consider every option and analyse the market to find the most suitable, effective options for your business. That means going beyond window shopping and actually conducting dedicated, structured research to determine the most viable suppliers. You need to understand the market to know what’s possible for your goals.

Define your priorities

Now, your procurement process team will need to go back and have discussions within your organisation and with your stakeholders to determine which purchases are most important. You’ll need to consider deadlines, expectations and goals to prioritise each potential cost.

Define your policies 

You’ll want to outline clear policies and processes for procurement, and these may differ across different departments in your business. These policies should define the purchase approval process, which kinds of purchase should require pre-approval, and who needs to grant that approval. You’ll also want to outline what you require and expect from a potential supplier, aligning them with specific goals.

Analyse potential suppliers

Once you’ve narrowed it down, you can take an even closer look at your potential suppliers. You’ll want to carefully evaluate credit reports, financial statements, and other references to ensure that the supplier can meet your requirements.

Get as much information as you can about the supplier’s performance and reputation, and contact other customers of the supplier to learn about their experience.

Define your strategy 

With a good idea of what you need and the suppliers you may approach, you can then define your procurement strategy. Will you be sending a Request for Proposal or Request for Quote to multiple suppliers, or are you ready to make a direct acquisition? Will you form a more substantial strategic partnership with a supplier, or will it be a standalone purchase?

Negotiate with bidders

Once you’ve approached suppliers and received positive responses, negotiate with bidding suppliers to find the most realistic option that’s specific to your objectives. Ensure that your potential suppliers align with your procurement criteria and policies, and then choose the best candidate to enter contract negotiations with.

Ensure a smooth transition

If you’re onboarding a new supplier, ensure that everyone in your organisation is prepared and understands the reasoning behind the transition. Make sure you’re transparent about your decision and everyone has all the information they need for the transition to go smoothly.

Assess your new purchases

The procurement process doesn’t end once a purchase is made. Procurement in business is ongoing, and it’s important that once you’ve chosen a new supplier and made a purchase to analyse the impact of the acquisition. Monitor and report the performance of your new supplier against measurable KPIs to ensure that your procurement strategy has led you to the most effective solution. 

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