A solid procurement strategy is vital to business success. If you get procurement right, you put yourself in a much stronger position to achieve and maintain profitability, helping to secure the future of the business.
With such a large proportion of revenue going towards procurement - more than two-thirds for some organizations - even minor improvements in efficiency or reductions in cost can unlock major benefits. Conversely, inefficiency in this department can have serious financial ramifications.
It's therefore hugely important to find a procurement strategy that works for you. Here are six steps that could help you achieve that goal:
1. Align your strategy with company objectives
Like any other business department, procurement cannot exist and function independently from the organization as a whole. It needs to be aligned with the company's overarching plans and objectives.
One of the most important functions of procurement is to understand the needs of the organization and implement a strategy that delivers the raw materials, goods or services needed to meet those requirements.
If your strategy has been carefully devised and defined within the context of the company's most important goals, it will be much easier to gain the support of leadership and get key stakeholders on your side. Consequently, you’ll be more likely to secure the budget you need to succeed.
2. Use dedicated software
Specialist procurement software can deliver a range of valuable benefits, such as:
- Lower risk of human error compared to manual processes
- Fewer delays throughout the procurement process, from sourcing to payment
- Greater speed and efficiency
Dedicated software systems also make it much easier for the department to conduct tasks such as:
- Due diligence checks on vendors
- Monitoring spending
- Staying in compliance with key policy, regulatory and legal obligations
Furthermore, the level of automation enabled by procurement software means your team members will have more time to dedicate to tasks that make better use of their skills, such as maintaining positive relationships with vendors.
3. Embrace digitization
The rapid growth and evolution of digital technologies in the 21st century has had a massive impact on all areas of business, including procurement. The impact of digital transformation means the everyday tasks, processes and functions that define the department today are very different to those seen just a few years ago.
However, research has shown that some procurement leaders could be moving quicker when it comes to adopting new digital tools and solutions, such as artificial intelligence, robotics and blockchain.
Deloitte's 2018 Chief Procurement Officer Survey, which was based on the views of more than 500 CPOs from 39 countries, found that digital supply networks are constantly evolving, and insight-driven companies are seeking to enhance performance through advanced analytical capabilities.
"Digital transformation is inevitable and high-performing organizations are leading the way on adoption." - Deloitte.
4. Seek supply chain improvements
Achieving maximum supply chain efficiency should be a fundamental goal of the procurement department, seeing as it can make a big difference to the overall financial performance and security of a business.
Deloitte's research highlighted one particular area where many firms could be doing better: supply chain transparency. Around two-thirds (65%) of procurement leaders said they have limited or no visibility beyond their tier-one suppliers, which could prove a problem if you’re keen to monitor environmental standards or ethical practices throughout your supply chain.
There are a number of actions that could help you improve transparency, such as investing more time in your supplier relationships, and leveraging technologies like cloud computing and the Internet of Things to access and analyze more data.
5. Set clear metrics
Clear, relevant metrics provide the structure you need to judge whether your procurement strategy is delivering satisfactory results, and if it isn't, where changes need to be made.
With the right metrics in place, you can keep a close eye on success factors such as:
- Rate of reduction in costs through fewer errors
- Reliability of deliveries
- Procurement cycle times
- Supplier engagement and loyalty
Regularly evaluating your performance against these and other relevant benchmarks will provide the data you need to show success and demonstrate the value your department is delivering for the business.
6. Analyze and improve
A consistent focus on analysis, evolution and improvement should be a priority for every business department, since there’s little to be gained from staying still.
In the procurement space, regular examinations of your structures and practices will help ensure they’re in step with the rest of the organization and aligned to its wider goals and ambitions.
Analyzing your performance in this way is one of the most effective methods of identifying how you can improve, where things need to change and how you can maximize your contribution to the success of the business.