What Is Procurement Strategy? Definition, Types, and Steps

For leaders in technology and finance—whether you’re a CTO, CIO, venture capitalist, or private equity professional—procurement strategy is a puzzle piece in your broader objectives. 

Unlike traditional operational tasks, procurement strategy is dynamic. It fosters innovation, controls risk, and boosts financial performance. To those of you who step into the procurement world without a dedicated team, this guide to procurement strategy will demystify your journey and enable you to forge a robust procurement strategy tailored to your unique business needs.

Key takeaways

• Technology and finance leaders are at the forefront of procurement operations in a financial institution, and they face a slew of procurement challenges ranging from resource constraints to complex supply chains.
• Procurement strategy is a value driver, not a cost function. It helps stakeholders align with their overall business objectives whether they aspire to eliminate maverick spend or optimize their inventory management.
• While understanding the different types of procurement and choosing the right one is the key, tailoring the procurement strategy to meet their unique business requirements can make a ton of difference. 
• Developing supplier partnerships, implementing governance strategies, and ensuring compliance and transparency in procurement processes are some of the important stages in a procurement strategy.

What is a procurement strategy? And why does it matter?

Procurement strategy can be defined as the systematic plan that you put together to meet existing and future business needs, optimize inventory levels, manage vendor relationships, and mitigate all kinds of risks (financial, technological, and social) while driving procurement innovation and gaining a competitive advantage.

A robust procurement strategy delves into several key dimensions. It’s about strategically optimizing your inventory management to ensure you have the right resources at the right time, minimizing holding costs while preventing production bottlenecks or service disruptions. It’s about building and nurturing strategic vendor relationships, transforming transactional interactions into collaborative partnerships that drive innovation, ensure supply chain resilience, and provide access to valuable expertise.

Different types of procurement strategies

Procurement strategies largely vary based on the overarching goal and strategic direction. Listed below are five procurement strategies that are well-established and widely used by technological leaders and financial innovators.

1. Cost leadership strategy

Focuses primarily on minimizing procurement costs and plays an aggressive angle when it comes to price negotiation, especially during bulk purchases. It also helps standardize the purchase acquisition workflows with strategies like competitive bidding and more. It is best suited for small startups and scale-ups that operate on a tight budget. It is especially good for early growth phases and acquiring commodity-like technology components.

2. Value-based procurement strategy

This strategy focuses on total value and not merely the initial cost. Its heavy focus on strategic vendor selection and innovation capabilities makes it a good approach to building long-term vendor relationships. It is perfect for forward-thinking companies and innovative technology companies that seek specialized vendors.

3. Risk mitigation strategy

These approaches are often preferred by enterprises that have complex procurement needs and a diversified vendor portfolio. It encompasses robust compliance tracking, comprehensive vendor performance monitoring, and adequate contingency planning measures. It is the best fit for highly regulated industries like banking and healthcare where the supply chain is complex and on-time need fulfillment is critical.

4. Sustainable procurement strategy

Built specifically for organizations with specific environmental, social, and governance (ESG) goals. From ensuring that the suppliers are environmentally responsible to tracking the carbon footprint of acquired products, every procurement decision is made keeping the social impact in mind. This strategy is your go-to if you’re operating in an environmentally conscious market.

5. Hybrid/adaptive procurement strategy

Sometimes, one strategy may not fit the bill of your requirements, and that’s when an adaptive or hybrid approach hits the bull’s eye. This approach helps businesses quickly adapt to evolving market conditions with continuous refinement as the core principle. It is the best fit for diverse procurement needs and dynamic organizations with multi-site portfolios. 

7 Must-have steps in the procurement strategy

Now that you’ve got a hold of the different types of procurement strategies, let’s dive into the concept of devising one from scratch, especially if you don’t have the luxury of a procurement team by your side.

Step 1: Identifying your unique challenges

One of the core challenges facing leaders is the constant pressure to do more with less. Resource constraints, both human and financial, often impede full-scale procurement efforts. This scarcity requires smart solutions—ones that maximize efficiency with minimal resources. Efficiency isn’t just a luxury; it is a necessity, especially when the bandwidth for a full-time procurement team is nonexistent. 

Navigating an increasingly complex technological landscape is another challenge. With diverse needs spanning from software to emerging technologies, staying ahead of innovation waves becomes essential. This rapid evolution demands agility and a keen understanding of the technology supply chain. Not only do technological components need to be procured, but they also need to be aligned with the organization’s technological roadmap. 

Let’s not overlook the global compliance landscape. Managing cross-border technological supply chains isn’t just about logistics; it involves a deep understanding of international regulations. Navigating such a multifaceted environment without compromising operational flexibility remains a critical challenge that requires strategic finesse. 

Step 2: Crafting your procurement vision

Your procurement vision should resonate with your organization’s strategic aspirations. This means translating broad business objectives into specific, measurable procurement targets. A robust procurement strategy is flexible, accommodating shifts in technological innovation and organizational direction. Always ensure your procurement objectives gel seamlessly with overall business strategies. Establish key performance indicators to monitor progress, and stay adaptable to realize long-term goals. 

Additionally, nurturing a culture supportive of innovation can amplify the effectiveness of your procurement strategy. By constructing a framework allowing for dynamic adjustment, technology leaders can drive value not only through cost savings but also through value-added services. Such an approach ensures that procurement is not a static function but an enabler of growth. 

Step 3: Leveraging technology-enabled intelligence

To transform procurement into a strategic powerhouse, leverage cutting-edge technologies to gain deeper insights. Integrating cloud-based platforms across the procurement lifecycle can streamline processes and enhance information accessibility. AI-powered procurement tools like Zapro AI can transform every step of your procurement process by making data-driven decisions in real-time. These tools not only optimize procurement but eliminate inefficiencies that often plague traditional systems. 

Such technological enhancements are particularly beneficial in creating data-driven decision-making frameworks. Automation of routine procurement tasks can free up resources, allowing teams to focus on strategic activities. Develop real-time reporting mechanisms to maintain a competitive edge and stay ahead of market fluctuations. 

As an added opportunity, technology delivers efficient virtual collaboration tools. These platforms not only bring together cross-functional teams but also ensure that procurement strategies are adaptable, refined, and aligned with the dynamic needs of the organization. 

Step 4: Forging strategic supplier partnerships

The move from vendor selection to establishing strategic supplier partnerships is a transformative journey. First, construct a sophisticated vendor intelligence database, allowing you to make informed choices about your potential partners. Prioritize relationships that align with your strategic goals to unlock greater value. 

Proactively engage in supplier performance assessments, developing criteria that extend beyond traditional metrics. Look for mutual growth opportunities and invest time in understanding suppliers’ capabilities thoroughly. Building this level of understanding can turn vendors into long-term partners who are as invested in your success as you are in theirs. 

Step 5: Implementing a robust governance framework

Governance is about establishing a structure that governs procurement operations without hindering innovation. Ensure that procurement policies are transparent and adaptable, allowing room for organizational evolution. Clear approval workflows should be established, providing a seamless path from requisition to purchase. 

Risk mitigation strategies are crucial in this framework. From vendor compliance to financial risks, proactive management with a well-defined protocol ensures organizational security. This also encompasses regular audits to stay compliant with regulatory landscapes while maintaining the flexibility to adapt to new challenges as they arise. 

Step 6: Driving continuous improvement

Continuous improvement is the lifeblood of any successful procurement strategy. Conduct regular procurement reviews to identify areas for improvement and keep abreast of the latest technological advancements. Establish ongoing feedback loops to facilitate learning and adaptation, fostering an environment where change is viewed as an opportunity for growth rather than a threat. 

Encourage cross-functional collaboration, breaking down silos that often hinder innovation. A unified approach across departments can steer not just procurement strategy but overall organizational growth, ensuring all parties are aligned toward common objectives. 

Critical pitfalls to avoid while creating your procurement strategy

Having a well-defined procurement strategy is crucial, but falling into common pitfalls can hinder its effectiveness. Identifying these potential hurdles early on will save you from costly mistakes. Let’s delve into the critical traps you must sidestep to ensure your procurement strategy fuels innovation and supports your organizational goals.

1. Avoid viewing procurement solely as a cost-cutting exercise. 

Consider the case of a major retailer that refused to invest in quality supplier relationships in the name of saving costs. When faced with a supply chain disruption, their lack of strong, collaborative partnerships resulted in massive product shortages, which a competitor successfully avoided through strategic alignment and investment in their supplier relations.

2. Don’t neglect the importance of strategic supplier relationships. 

A leading tech firm once learned this the hard way when a promising innovation stalled because they undervalued their suppliers. In contrast, another company in the same sector cultivated close partnerships with their suppliers, leading to groundbreaking joint innovations that propelled them into market leadership.

3. Underestimating the power of tech-enabled procurement tools can be detrimental. 

One company disregarded the potential of digital procurement technology, which eventually left them lagging as competitors adopted efficient e-procurement solutions. On the flip side, a logistics giant embraced digital tools, streamlining its procure-to-pay process, significantly lowering costs, and gaining superior control over its procurement cycle.

4. Ensure alignment of procurement strategies with broader organizational goals. 

A multinational organization’s failure to integrate procurement strategies into its core objectives led to disjointed priorities and wasted resources. Conversely, a finance firm streamlined its procurement framework with its strategic vision, driving synchronized growth and impressive performance improvements across all departments.

5. Neglecting the need for regular updates to procurement processes can lead to obsolescence. 

A manufacturing company’s outdated procurement protocols meant missed opportunities and revenue losses when they couldn’t respond swiftly to market changes. Another enterprise, however, prioritized the constant evolution of its procurement processes, enabling it to pivot and outperform competitors in new market conditions.

Exploit your strategic edge with a solid procurement strategy

Your strategic procurement roadmap should be an ongoing journey, evolving with your organization and the market landscape. By focusing on your specific challenges and leveraging technology, you can transform procurement into a differentiator that propels your organization forward. Recognize the value of adaptability and speed; these are not just assets but essential competencies in maintaining your competitive advantage. 

If you’re ready to get into the nitty-gritty of procurement strategy, refer to our guide on Procurement KPIs to see how you can set up an efficient procurement function from scratch.