What is Procurement Strategy? – Definition
Organizations, both large and small, need to make efficient and effective decisions on purchases that will keep their costs low and yield the best return on investment. This is where procurement strategy comes into play. Procurement strategy is a method of planning, analyzing, and managing organizational resources to meet its purchasing needs while optimizing cost savings. In this article, we’ll explore the different elements of a procurement strategy, what it entails, and how it can help your business succeed financially.
What is procurement strategy?
The term ‘procurement strategy’ is used to describe the set of actions an organization undertakes to ensure it obtains the best valuvalue for money when procuring goods and services. A procurement strategy should be tailored to the specific needs of the organization, taking into account its size, structure, culture and business objectives.
There are a number of factors to consider when developing a procurement strategy, including:
– The type of goods and services required
– The quantity of goods and services required
– The desired quality of goods and services
– The timeframe for procuring goods and services
– The budget available for procuring goods and services
– The risks associated with procuring goods and services
When developing a procurement strategy, organizations should also consider their internal capabilities and capacities. This includes assessing the skills and knowledge of staff involved in the procurement process, as well as the systems and processes in place to support procurement activities.
The different types of procurement strategy
There are four main types of procurement strategy: make-or-buy, sole source, selective sourcing, and competitive bidding.
Make-or-buy: The make-or-buy decision is based on a cost analysis of the item being procured. The organization must decide whether it is cheaper to produce the item itself or to purchase it from an outside supplier.
A sole source: A sole source procurement is when an organization procures goods or services from a single supplier. This type of procurement is usually used when the good or service is unique and there is no other supplier that can provide it.
Selective sourcing: Selective sourcing is when an organization procures goods or services from multiple suppliers but only uses a select few. This type of procurement is usually used when there are many suppliers that can provide the good or service but the organization wants to only use the best ones.
Competitive bidding: Competitive bidding is when an organization solicits bids from multiple suppliers and then awards the contract to the lowest bidder. This type of procurement is used when there are many suppliers that can provide the good or service and price is the main deciding factor.
Pros and cons of procurement strategy
There are a few key considerations to take into account when thinking about what procurement strategy is right for your organization. Below are some of the pros and cons of the most common procurement strategies:
-Allows you to focus on your core competencies and outsource the rest
-Can be less expensive in the long run if you don’t have the internal resources to support the function
-Can be quicker to implement than other options
-Requires detailed analysis up front to ensure you are making the right decision for your specific needs
-Can be riskier than other options if not managed correctly
-May require more contract management oversight
How to develop a procurement strategy
A procurement strategy is a plan that outlines how an organization will acquire the goods and services it needs. The procurement strategy should be aligned with the organization’s business strategy and objectives.
There are several steps that can be taken to develop a procurement strategy:
1. Define the organization’s overall business objectives and strategies.
2. Identify the goods and services needed to support the business objectives and strategies.
3. Analyze the current procurement process and identify areas for improvement.
4. Develop sourcing strategies for the goods and services needed, taking into consideration factors such as cost, quality, delivery, etc.
5. Select the appropriate contracting vehicle (e.g., RFP, contract manufacturer, etc.) for each good or service to be procured.
6. Negotiate contracts with suppliers that are favorable to the organization in terms of pricing, quality, delivery, etc.
7. Implement controls to monitor supplier performance and compliance with contract terms
In conclusion, understanding and crafting an effective procurement strategy is essential for any business seeking to optimize their success. The right procurement strategy sets the stage for better cost savings, improved supplier relationships, and higher quality of goods or services. A well-crafted procurement strategy can allow a company to save money while ensuring they are getting top-notch materials that will help them reach their goals faster than ever before. With this knowledge in hand, you’ll be ready to start creating your own winning procurement strategies today!