5 steps to a successful strategic procurement process
- 29 March 2018
- Written by: Yves Bemelmans
- Category: Procurement
The procurement process is not an easy one to handle. Strategic procurement needs the involvement of an entire organization. It necessitates effort from all departments of a company. A strategic procurement team is essential to set the overall direction for procurement, aligned with the business strategy. In fact, a procurement strategy is one of the most significant tools which helps to maximize the value contribution of any company. Basically, it serves as a guide for the organization and should be updated every year to ensure its alignment with the overall business strategy.
As cost reduction, new products/market development, and managing risks continue to be the biggest priorities for procurement (Deloitte’s global chief procurement officer (CPO) 2018 report), leaders are working to better align procurement and business priorities. In this way, they ensure that they are delivering value by concentrating on strategies such as consolidating spend, reducing total life cycle/ownership costs and increasing competition.
An efficient procurement strategy can be created in a relatively simple process if you follow these five key steps:
- Analyze the current situation of your organization
It is important to figure out what you have to work with before you start developing your procurement strategy. Analyze your current structure to find out where it aligns with company objectives, budget and production timelines. For a start, you will be required to benchmark existing performance and then detect needs and objectives before developing the procurement strategy. This usually comprises the gathering of numerous different types of data.
If seen from a procurement perspective, the starting point falls generally into two categories: 1. you need to figure out how your procurement organization is presently adding or creating value; and 2. understand your organization’s current operational efficiency and effectiveness.
- Find out which areas need improvement
It is essential to evaluate your function’s effectiveness as far as key capabilities are concerned. After this evaluation, ask business partners for their outlook for a complete view of your strengths and weaknesses. It is also important to benchmark procurement employees’ performance at certain competencies. This step is mainly taken to identify skill gaps. Based on the Deloitte’s global chief procurement officer (CPO) 2018 report, 51 % of procurement leaders believe their current teams do not have required levels of skills and capabilities to deliver on their procurement strategy. Furthermore, the report highlights that high performing procurement leaders out-performed others in executive advocacy, leadership, strategic decision making, talent capability, digital procurement, supply chain transparency, and balanced scorecard capabilities.
On way to deal with this issue is by providing an effective training and development program to employees. With the advent of modern technologies, e-learning solutions such as simulations, scenario-based training, webinars & gamification are taking the lead. More and more global organizations are opting for such innovative training programs due to its accessibility, low cost and flexibility. Moreover, it allows employees to be more engaged in their training and apply what they are learning in their daily jobs.
- Develop an action plan to achieve procurement objectives
Based on your understanding of the procurement function’s improvement areas, you will need to translate business goals into procurement objectives. Then, the next step is to develop strategic initiatives to meet these objectives. Don’t forget to identify metrics to measure your progress. You also need to decide what resources are needed to put your plan into action. In addition to that, it is vital to consider the risks that could shake your plan. From there, you will be able to document drivers and links between the procurement strategy and corporate goals.
Normally, strategic drivers and objectives differ greatly across industries and firms. For instance, a start-up business may value speed over cost savings, while an established company in the middle of restructuring might consider value cost and customer service to be more important drivers. Hence, first, you need to gather background on corporate goals and understand corresponding time frames. The next step is to list the company’s corporate goals and map procurement objectives to each.
- Time to communicate your plan to stakeholders
One of the most important steps is to customize your message to each stakeholder group. Therefore, once your plan is all set, share it with procurement leaders, business leaders, and finally procurement staff. Communicate to everyone who has a stake in a new procurement system to get their thoughts. For instance, agents on the front lines who can provide you with a real-world perspective on what your new strategy needs. Managers and owners will have their own ideas about what needs to be implemented and how the procurement strategy fits with your company’s big picture.
- Implement and Measure Your Strategy
A procurement strategy cannot be considered effective unless it brings about change that improves the organization’s overall performance. Executing a new strategy is usually a balance between building a plan and putting it into practice. Developing a strategic plan that articulates clearly the various initiatives, responsibilities, due dates, and expected results will help ensure success.
Main elements of the implementation phase involve:
- A detailed operation plan which clearly indicates initiatives, assigned responsibilities, completion dates, and expected outcomes.
- A project management team scheduling regular meetings to review progress across initiatives, to manage roadblocks, and to support participants.
- A change-management plan and resources dedicated to communicating new changes.
- A good leadership that visibly demonstrates support and accountability.
- Attractive incentives for initiative leaders to champion the success of their programs.
- Noticeable tracking and communication of progress to the rest of the organization — ideally integrated with the procurement dashboard.
A procurement strategy will help your organization ensure its success and maximize its value contribution. Hence, procurement leaders have the responsibility to take the necessary actions to implement the strategy and make it successful. This will act as a compass leading the procurement function, at the same time allowing employees to perform better and meet objectives.