Strategic procurement is a complex organization-wide process. It necessitates input from all departments and functional areas of an organization. According to sourcing experts, organizations must build a procurement team, which will work in alignment with their business objectives.
Following are the seven steps essential for a successful procurement process:
Step 1: To begin with, conduct an internal needs analysis, followed by an assessment of the current performance. The data gathered is essential to determine the needs and targets before formulating a procurement strategy. The information collected gives an insight into the resources used, costs involved in every department and present growth projections.
Step 2: Probe into the supplier’s market in order to identify potential countries that are reliable sources of the necessary raw materials, components, finished goods and services. In the case of specific requirements, the number of countries suitable may be limited. If a certain component is found in only one country, then you have fewer options to choose from. In the case of manufactured products, you can select from a long list of potential countries. Services, however, may be restricted in supply owing to technical requirements of an organization.
Step 3: Collecting essential supplier information for careful and prudent selection of the providing country. A supplier’s inability to meet the demands and criteria can cause significant losses for the organization. The business reputation and previous performance of the supplier must be evaluated, along with thorough scrutiny of their credit reports, financial statements and references. The procurement experts also advice on-site visits and inspections of the supplier’s facility.
Step 4: Develop a sourcing cum outsourcing strategy based on the data collected in the above-mentioned steps. The following are different ways of sourcing strategies:
Step 2: Probe into the supplier’s market in order to identify potential countries that are reliable sources of the necessary raw materials, components, finished goods and services. In the case of specific requirements, the number of countries suitable may be limited. If a certain component is found in only one country, then you have fewer options to choose from. In the case of manufactured products, you can select from a long list of potential countries. Services, however, may be restricted in supply owing to technical requirements of an organization.
Step 3: Collecting essential supplier information for careful and prudent selection of the providing country. A supplier’s inability to meet the demands and criteria can cause significant losses for the organization. The business reputation and previous performance of the supplier must be evaluated, along with thorough scrutiny of their credit reports, financial statements and references. The procurement experts also advice on-site visits and inspections of the supplier’s facility.
Step 4: Develop a sourcing cum outsourcing strategy based on the data collected in the above-mentioned steps. The following are different ways of sourcing strategies:
- Direct purchase: Forwarding a Request for Proposal (RFP) or a Request for Quote (RFQ) to the chosen suppliers
- Acquisition: Purchasing from the desirable supplier
- Strategic partnership: Entering into a contract with the selected supplier
Establishing a strategy further depends on marketplace competitiveness among suppliers, sourcing-outsourcing risk factor, business strategy and motivation for outsourcing.
Step 5: Implementing strategies that involve acquisitions or strategic partnerships are considerably major undertakings. For direct purchases, organizations may begin with an Expression of Interest (EOI), draw up an RFP or RFQ, and invite bids from potential suppliers to conduct a competitive bidding process.
Step 6: The strategic procurement team should evaluate responses from suppliers and negotiate with them accordingly. Bidders may request additional information in order to substantiate their proposal and make it more appropriate for the organization. After receiving the bids, sourcing experts shortlist the bidders and advance into negotiation with the first selected supplier.
Step 7: Developing a transition plan or contractual supply chain improvements is the final step of the procurement process. By devising measurable Key Performance Indicators (KPIs), the performance of the suppliers must be assessed regularly.
Transparency and preparation are the two pillars of the strategic procurement process.
These simple steps will help procurement experts and their team to develop and implement a viable strategic procurement plan. Hire an industry professional with extensive knowledge of markets to devise the best strategy for your organization.
Step 5: Implementing strategies that involve acquisitions or strategic partnerships are considerably major undertakings. For direct purchases, organizations may begin with an Expression of Interest (EOI), draw up an RFP or RFQ, and invite bids from potential suppliers to conduct a competitive bidding process.
Step 6: The strategic procurement team should evaluate responses from suppliers and negotiate with them accordingly. Bidders may request additional information in order to substantiate their proposal and make it more appropriate for the organization. After receiving the bids, sourcing experts shortlist the bidders and advance into negotiation with the first selected supplier.
Step 7: Developing a transition plan or contractual supply chain improvements is the final step of the procurement process. By devising measurable Key Performance Indicators (KPIs), the performance of the suppliers must be assessed regularly.
Transparency and preparation are the two pillars of the strategic procurement process.
These simple steps will help procurement experts and their team to develop and implement a viable strategic procurement plan. Hire an industry professional with extensive knowledge of markets to devise the best strategy for your organization.
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