Which purchasing strategies have the greatest impact? Should the focus be on innovation, cost reduction, processing productivity, or rather on data exploitation? When it comes to defining a successful procurement strategy, it is easy for a company to feel a little lost. In this article for procurement teams and management, discover 5 simple and concrete approaches to help with the development of an effective roadmap.
Back to basics: what is a procurement strategy?
A business’s procurement strategy corresponds to the various steps in the procurement or Procure-to-Pay process. It allows the company to define and prioritise key actions and expenses to ensure that the procurement process is as effective, strategic and economical as possible. It is one of the key tools that help make a business more competitive in its market.
What is involved in developing a procurement policy?
A procurement strategy is a sustainable source of added value for the company. It guarantees company’s overall performance by setting objectives for purchasing and spending for the supply of the company's goods and services.
In addition to setting the company's priorities, it also aims to develop and maintain positive relationships with suppliers while making responsible and sustainable purchases. To design a procurement policy, you must follow strategies and master the stakes involved, as the company’s internal organisation must adapt based on its activity.
How do you define a business purchase?
A business purchase can be broken down into several phases:
- Recognising and defining the need;
- Research to identify solutions and suppliers;
- Comparison of several opportunities and solutions by the buyers (initiation of the invitation to tender);
- Decision phase (negotiation and signature of the contract);
- Post-purchase evaluation of the services.
How can procurement be managed?
Procurement and spending are primarily managed through the company’s strategies and the organisation of its resources. This requires mastery of your supply chain, based on real data that is collected and processed.
You must know your purchasing portfolio, but that’s not all. Setting up a specific system allows you to manage and keep an overall view of all of your procurement at all times in order to consolidate orders.
Inventory control and product traceability are also key points that must be taken into account.
The keys to successfully managing and optimising procurement
An analysis of the most effective procurement strategies reveals five essential underlying principles. Each one of them provides part of the key to procurement performance:
- Procurement chain flow;
- Supplier risk management;
- A centralised supplier database;
- Building a capacity for predictive analytics;
- Inclusion in the company's collective innovation system.
Winning procurement strategy no. 1: unify the procurement chain
There are many approaches that can fulfil the objective of improving procurement performance. Some companies choose to focus on reducing costs and spending. Others, on the contrary, decide to focus on optimising the invoicing process.
The procurement strategy must always aim to optimise the flow of the entire procurement chain, from searching for new suppliers to paying invoices.
Winning procurement strategy no. 2: supplier risk management
A procurement strategy that is aggressive in terms of prices almost always involves taking risks. This type of daring is only acceptable to a business if the consequences of a possible supplier failure are limited to the context of the supply. Any systemic risk to the company must be absolutely avoided.
For example, trying out a new supplier for a product that is very easy to get within 24 hours is a good strategy. On the other hand, doing this for a strategic supply during a peak production period is an unmitigated risk.
Winning procurement strategy no. 3: centralising supplier data
An international group’s procurement strategy uses data from a variety of sources to document, for example, suppliers' innovation strategies, a map of their locations, or descriptions of their products.
Grouping these data into a single database is a powerful lever for improving your procurement strategy. A supplier intelligence process only works if the data are centralised and available to be analysed in a comprehensive way.
What is the purpose of the procurement mapping?
To control and consolidate the procurement chain, mapping is an essential tool to be implemented within companies. It is used to:
- Optimise spending;
- Identify the spend items and the people involved in the purchasing process;
- Identify potential savings;
- Improve the procurement process and take appropriate action;
- Monitor procurement strategies independently;
- Sort and create a taxonomy, or report, to view spending by purchase category in real time and identify potential levers.
How do you make a procurement map?
There are five steps to creating a company's procurement map.
1. Gather the data
You must first define the data, extract the spending, and know where to find them in the company.
2. Define a taxonomy
The aim here is to create the most precise segmentation of the company's purchase categories.
3. Carry out supplier segmentation
This approach uses the purchase categories defined in the previous step.
4. Automate and digitise
Automation and digitisation play a major role, because they allow data to be updated in real time. These tools provide crucial information needed to manage procurement.
5. Visually illustrate purchases
Here, spending can be broken down and presented visually to be shared with the whole company, with transparent targets and results.
Winning procurement strategy no. 4: Develop predictive analytics
Predictive analytics leverages big data and artificial intelligence and is seen as a key tool for the most successful companies.
An ambitious procurement strategy cannot afford to ignore this technology. It is being adopted by companies at a rate of more than 20% per year, according to a study by Aberdeen Group.
Winning procurement strategy no. 5: become part of the overall innovation system
In companies that are market leaders, half of all procurement—according to the same Aberdeen Group study—place innovation on the same level as gaining a competitive advantage or opening up new markets to create value. As a result, an effective procurement strategy will incorporate the procurement department and its processes within a company-wide collective intelligence process.
Cross-departmental collaboration puts the procurement department in the best position to detect and capture potential supplier-led innovation.
In conclusion, each of the five winning purchasing strategies discussed here can have its potential contribution to company performance multiplied through digital transformation. The flow of the process, supplier relations, data collection and leveraging, and innovation are subjects where digital technology has a particularly high impact.
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