The most important steps of creating the optimal procurement strategy

It is said that good planning is half the work done and numerous examples from the business world can verify that. As one of the most important business activities, planning includes thinking ahead and setting goals – where do want to go and what do we want to accomplish. To realize all those goals, you need a good strategy. In the case of acquisition in an enterprise, it is called the procurement strategy.

What signifies an procurement strategy?

Procurement can be defined as a business function that takes care of the supply chain, i.e., supplying the enterprise with materials, services, information, and other resources needed for the business to operate. Procurement strategy is a defined plan on how to organize the acquisition process optimally, i.e., how to realize set goals of the enterprise quickly and with as less cost as possible. Considering it affects the results of the enterprise and the eventual success, creating the acquisition strategy should be taken seriously and thoughtfully.

2) Set clear and measurable goals

In defining any kind of strategy, it is important to know what the main goals are. Goals must be clearly set and measurable. If you have measurable goals and clear results, you can control the process and analyze its success.

Regular tracking of the acquisition process is necessary for realizing optimal results. If at any moment there is a situation where you assess that there is no room for improving and bettering the process, do the initial analysis again, starting from the very beginning. Acquisition strategy will be successful as much as the process of evaluating goals and results is successful.

3) Define supplier communication patterns

Good relations with suppliers are key for the acquisition process, as is for getting results. Creating a relationship based on trust is one of the main tasks for all those involved in acquisition management. Acquisition strategy must have defined patterns of communication with the suppliers, which means that inside the enterprise, you must have a person responsible for it. The ones responsible should be aware of what is expected of them and what tactics will be used.

Relationships and communication should be regularly maintained, goals should be precisely expressed, and results should be tracked and shared with suppliers. Collective analysis can lead to new ideas and even better relationships, aimed at mutual satisfaction.

4) Choose the appropriate technology

When the procurement strategy is well designed and followed by all the employees in procurement, the whole process of acquisition should be easier. However, if you don’t have the right technology, all the effort put into planning won’t be enough for great results. Acquisition employees must have a good tool that will enable them to manage the whole process of acquisition from one place, from goods requirements, proceedings, and services to contract applications. Procurement management solution enables employees to order the necessary products and services, having control over who orders what. The whole process is then easier and quicker, it lowers the possibility for error and optimizes resource management.

5) Focus on the end user

As we’ve stated before, the acquisition planning and the strategy-creating processes are based on realizing goals. Logically, before you direct your attention to supplies, the supply chain, interpersonal communication, and the acquisition process, think about the end-user of your products or services. And finally, client satisfaction and customer experience have never been more important.

Acquisition exists for the sake of fulfilling users’ wishes and needs, so its advisable to devote enough time to analysing behaviors, demographic features and clients’ buying habits.

Plans are nothing, planning is everything. – Dwight D. Eisenhower

Planning is a process, and procurement strategy is just a part of it. Although it is important to have defined steps and tactics, by no means should you limit yourself. Flexibility and adaptability to new situations is very important for staying competitive in the market. Always follow what is happening, always be informed and always surround yourself with partners you can trust and who can help you in the business process if there is a hiccup along the way. Good luck!

Which company function will be the most important in 2022?

As one of the main functions of many businesses, procurement has become an important factor of the success and achieving goals. In the global market where the competition is getting fiercer, where buyers are questioning every price and want to know the price/quality ratio, where it’s possible to get information at the moment, and where a product can be found in hundreds of places, acquisition needs to be carefully monitored and every step of the process planning.

Procurement from A to Z

Procurement was mentioned for the first time in Charles Babbage’s book „On the Economy of Machinery and Manufactures” from 1832. Even back then, the computer pioneer, as being referred to, suggested that every business needs “a man for materials” in each sector separately or somebody who will “choose, buy and deliver all the necessary articles”.

Procurement today is considered a business function and a special activity that takes care of supplying the materials, equipment, services, energy, and information necessary for proper functioning and realizing the company’s goals. In effect, services of procurement include observing and researching the market which involves planning – what must be acquired, in what amounts, and at what cost. Sending inquiries, assessing the suppliers’ bids, and negotiating the price is what follows. Relationships with suppliers are very important and they affect the development in the long run, so both sides always put effort into being affirmative and remaining positive.

Following the negotiations, comes choosing the best offer, ordering, and tracking the deadlines. After that- coordinating – which is the hardest part in affect because it depends on many outside factors. Coordinating is usually done via mail, messages, and calls, so many employees in acquisition get lost in a sea of information. After an agreement is achieved, comes the packages admission, control of invoices and the stock, and eventual claims. Obviously, the whole process, the stock, and finances must be monitored and recorded.

Procurement is not included in your goals for this year? You should reconsider.

At the beginning of each year, sometimes quarterly, in many companies plans are being made and goals are written down – conditions we want to achieve, maintain or prevent. The goals of procurement can be summarized as supplying the companies with the right materials, in the right amounts, in the right place at the right time, from the most affordable source, with minimum risk and the lowest cost. This is crucial for optimal functioning. Especially in today’s world when everyone is in a hurry with transportation and supply.

The purpose of the procurement is the realization of set goals. How to achieve it? The most important pillars of acquisition are efficacy, i.e., effectiveness and frugality. Successfully running procurement means that the company has optimal condition of supply at any moment. And all the necessary means with as less as a possible investment, i.e., cost.

Lower or higher in the hierarchy?

To optimize the process, it is important that the procurement is treated as a significant part of the company’s organizational structure. As being hierarchically equal, procurement cooperates with other functional units such as production, sales, marketing, finances, etc. Procurement employees should be qualified and motivated, be familiar with the technology they are working with but also with their own internal processes inside the company. Furthermore, procurement must be integrated into the decision-making process and plans inside the company for it to be effective. Think of a situation where the company’s management plans to open new subsidiaries, and the procurement hasn’t been informed until the very end? The results would be devastating.

Instant speed: from waiting for five days to getting instant information

Many things have become much quicker with the presence of the Internet and so has procurement. Procurement used to last for five days minimum. Because of the time, it took for the documents to travel from the buyer to the supplier. Today, there is no shipping cost and sending documents via e-mail is almost instantaneous, and the process is automated. Still, mistakes occur.

Electronic procurement has more levels. The first one is looking for and exchanging information with supply. The advantage here is for those that have fast, responsive internet sites with clear information. Seeing as time is money and people don’t want to wait for answers for too long, sometimes having good customer support is an important factor.

The second step is implementing procurement activities via an e-catalog, direct ordering, e-acquisition, or an online auction through e-mails. This step is where most mistakes are made. Information, calculations, tables, and plans often change which sometimes leads to bigger problems and unplanned costs, especially when a lot of people are included in the process. Verbal answers or deals made through e-mails are not a good solution for companies that have a well-developed acquisition process.

Luckily, there are systems that provide easier procurement management and enable you to have internal control at any moment over who, what and when is something being ordered. Tracking the approval status can decrease human error and with that, wrong supplies with unplanned costs.

The third step of e-acquisition is cooperation between the company’s units to optimize the process, decrease cost, and for the sake of the success of the company, which is the end goal.

Better market and business position

Procurement greatly affects a company’s business position in the market, its reputation, and the complete branding by maintaining competitiveness, linking companies with outside partners, choosing a good quality product, and leveling prices. That ultimately leads to higher income and better success for the company through the satisfaction of the end-user. That is exactly why it is important that procurement management be perceived as an important and significant task. Also, that planning, strategies, and procurement policies are something that every company should be working on.