According to a survey, 75% of Chief Procurement Officers (CPOs) anticipate implementing a digital procurement strategy within the next five years. Among the procurement community, ‘procurement strategy’ stands out as the most coveted concept. Nevertheless, crafting a resilient and pertinent procurement strategy proves to be a challenging endeavor.

 

What is a procurement strategy?

A procurement strategy outlines a comprehensive plan for efficiently acquiring necessary supplies from a selection of reliable vendors, ensuring timely delivery of quality goods while adhering to purchasing terms. Factors influencing procurement strategy include purchase timelines, budget availability, total cost of ownership (TCO), potential risks, and others.

Common objectives of procurement strategies include cost reduction, risk mitigation, and organic expansion. In a recent survey, 78% of Chief Procurement Officers (CPOs) globally cited cost reduction as their primary focus within procurement strategy. Organizations may opt to prioritize one or multiple objectives based on their specific business needs.

 

Types of procurement strategies

Irrespective of an organization’s size, there are a few common types of procurement strategies that can be adopted by everyone. They are:

  • Cost reduction
  • Risk management
  • Supplier management and optimization
  • Green purchasing
  • Global sourcing and Total quality management

 

Steps to create an effective procurement strategy

Creating an effective procurement strategy involves a series of essential steps aimed at minimizing errors, identifying savings opportunities, curbing maverick spending, and ensuring compliance with policies. Here are the nine key steps:

Implement procurement software

Deploy Procurement Software Organizations relying on manual procurement processes often face increased expenses due to human errors, delays, and late payments. Utilizing procurement software such as Zapro Procurement enhances employee productivity and reduces errors by automating data entry tasks and eliminating associated inefficiencies. This software streamlines the procure-to-pay process comprehensively. Equipped with top-tier features, Zapro Procurement identifies and addresses process gaps while enforcing policy compliance seamlessly, without the need for manual intervention.

Analyze organizational spend

The initial step in crafting a procurement strategy involves analyzing the prevailing spending culture within your organization. This entails gathering data from internal stakeholders, suppliers, and all other involved parties in the procurement process.

The data collected during this phase serves as a knowledge repository within the organization and the cornerstone for developing the procurement strategy. Utilizing tools such as total cost of ownership (TCO) aids in identifying and scrutinizing the frequently disregarded or undisclosed costs associated with an item or service, beyond its initial purchase price.

Determine business needs

To develop an effective procurement strategy yielding optimal results, it’s crucial to have a clear understanding of your organization’s requirements. Conducting a fact-based analysis enables alignment and prioritization of the procurement strategy with other functions and business objectives.

Engaging in ‘what if’ discussions that challenge the status quo and question assumptions unveils additional opportunities for savings. Tools such as a category positioning matrix assist organizations in identifying key business needs essential for shaping their procurement strategy.

Assess market conditions

After completing the internal analysis to determine business needs, the subsequent step involves examining the external aspects: the supply markets and their conditions. This entails gathering essential data from both existing suppliers and potential suppliers.

To maintain relevance, organizations must ensure that the collected data remains current over time. Various methodologies such as Porter’s Five Forces and SCOPE analysis prove valuable during this assessment.

By adhering to procurement best practices and gaining a deeper understanding of the market and suppliers, this step can be executed relatively smoothly.

Set clear objectives

Once the business needs are identified, it’s imperative to formulate a clear vision of the desired outcomes. The data gathered in preceding steps can pinpoint inefficiencies in your procurement process.

Subsequently, prioritize these issues based on their impact on your organization’s bottom line, sorting them in descending order accordingly. Tools such as a SWOT analysis aid in evaluating the current state of your procurement functions. For instance, if reducing maverick spending is a priority, implementing transparent procurement software becomes essential.

Define Procurement Policies

With identified areas for improvement, it’s crucial to compile a list of procurement best practices aimed at eliminating existing inefficiencies. This process can begin by adjusting your procurement policy to address risks highlighted during the SWOT analysis. When formulating a procurement policy for your business, it’s advisable to avoid starting from scratch. Instead, adapting existing procurement policy templates to align with your organization’s requirements is preferred. Ideally, procurement policies should provide guidance on fair practices for all involved parties and outline remedies for potential violations.

Outline a procurement strategy

Utilizing the data and insights acquired, draft a procurement strategy outlining specific goals and corresponding tactics for achievement.

Goals must be measurable, time-bound, and realistic. The tactical plan will detail the approaches utilized to reach the predetermined objectives. Additionally, a procurement strategy may integrate a ‘big idea’ intended to challenge conventional boundaries and drive innovation.

Develop a digital procurement strategy

Based on the data and information gathered in earlier stages, draft a digital procurement strategy. This involves overhauling procurement technology, strategy, processes, talent, skillsets, and supporting systems.

Prioritizing the implementation of a digital procurement strategy is crucial as it allows organizations to allocate more time to strategic supplier engagement rather than administrative tasks and transactions. Such a strategy enables businesses to deploy resources effectively, leading to significant gains and enhanced agility in the procurement process.

Execute, manage, and refine the strategy

After formulating a digital strategy, the subsequent step is its execution, which necessitates collaboration from various business functions such as HR, administration, sales, and finance. Following the execution of the digital procurement strategy, it’s crucial to monitor and evaluate the progress and success of its implementation.

Zapro’s procurement cloud offers tools and a streamlined approach to procurement, ensuring a seamless transition to digital processes. With its user-friendly interface, adopting digital procurement becomes effortless and painless.

Procurement strategy framework

An ideal procurement strategy framework will include the following:

  • Strategy statement: the basis and rationale
  • Desired results: deliverables
  • Timeframe: deadlines
  • Tactical plan: how a strategy will be implemented
  • Measures: metrics used to evaluate the process
  • Tools used: TCO, SWOT analysis, Porter’s Five Forces, Category Positioning Matrix, SCOPE Analysis, Fishbone Analysis, etc.

 

Unleash the Power of Automation in Procurement Strategy

A well-structured procurement strategy challenges conventional practices, introducing new approaches that drive cost savings and operational efficiencies. Leveraging process automation tools to implement and monitor this strategy yields substantial long-term benefits by automating complex procurement processes and proactively mitigating risks and errors.

With Zapro Procurement, organizations can seamlessly deploy their procurement strategy model, enhancing operational management from process automation to role-based user dashboards. Automation enables dynamic cost optimization through actionable insights and seamless integration with third-party data sources.

Seeking to automate your procurement strategy? Explore Zapro Procurement for innovative solutions on the go.