October 21, 2020
By Nathan

Why is Strategic Procurement Important

The indispensability of procurement 

Ask any leading business to name a recurring challenge they face and the reply will be cost-efficiency. Procurement as a mere associate function has long changed (Refer our earlier blog item here). Somewhere between directing their entire focus on the selling side of the business, organizations have come to realize one simple but overlooked trick to stay ahead of the competition — prioritizing cost efficiency. 

Cost efficiency has always been the go-to emergency management tool for businesses. When in a financial crisis, industries start not by selling more but by cutting costs. (Remember, during the Sub-Prime Crisis in 2008-09 and during the shutdowns triggered by COVID-19 in 2020, the first action from the employers was to let go employees or furlough to reduce cost, followed by renegotiations on the existing contracts). This brought a major perspective shift in organizations over time to view potential cost-savings as a top business objective rather than an extension. 

Even highly experienced and successful procurement leaders struggle to make rapid changes in the middle of the crises

  • The solution is a Strategic Approach to Procurement so Cost-Efficiency is right in front of the organization both in the times of Growth and Crisis
  • A robust procurement strategy helps you tighten cost gaps, identify room for upgrades, assess risks, and scale beyond tactical activities.

What is a procurement strategy? 

A procurement strategy is a long-term plan to ensure a cost-effective supply of goods and services critical for various departments in your organization to function. Creating a procurement strategy is anything but an overnight process, as a foolproof strategy results from a rigorous analysis of internal needs, clarity of all dynamics & uncertainties, identification of efficient vendors with adherence to purchasing terms and the available budget. A procurement strategy not only solves basic issues like cutting costs and eliminating risks but also helps you gain visibility to the overall procurement cycle, thus providing action items impacting the wider horizon. 

  • On a broader note, a procurement strategy offers instant visibility to the entire procurement pipeline, helping you proactively tackle issues that once took a substantial amount of time and effort. 

Why having a procurement strategy helps 

Procurement is not just about cutting costs on total spends. An average company can boost the bottom line substantially by streamlining the expenditure unaccounted for. 

But without a solid procurement strategy that puts the overarching cash flow in perspective, the idea of seamless procurement will only be a distant reality. 

Procurement managers in every organization, irrespective of size, are haunted by a number of tactical barriers hiding in plain sight. A procurement pipeline is far from simple. A day in the procurement space is swarmed with recurring activities like purchase requisitions, payment processing, risk assessment, and vendor management. 

Every touchpoint of the procurement cycle is equally pivotal, leaving the procurement managers with little time to reflect on the broader perspective. 

With a comprehensive procurement strategy, you can proactively identify errors, curb unnecessary spending, devise actionable financial objectives, and ensure alignment with company terms. 

This is only the start of what strategic procurement can help you leverage. The process of arriving at a relevant procurement strategy involves exhaustive assessment of your organization’s current needs and spend. This is a huge game changer which could directly impact your current bottom line. Apart from internal needs assessment, the rulebook of an effective procurement strategy consists of the following aspects. 

Aspects of a game-changing procurement strategy

Take a look at the few aspects every organization follows to devise a relevant procurement strategy in line with its key objectives: 

  1. Assess the current spend of the organization 
  2. Analyze internal business needs 
  3. Study the supplier market 
  4. Determine the financial goals 
  5. Define risk management policies 
  6. Leverage the data points to create a procurement strategy 
  7. Find ways to minimize manual implementation 
  8. Execute the strategy 
  9. Improvise and scale 

– Thus, a solid procurement plan does more than curbing any unnecessary cash flow. It helps you realign your organization’s key initiatives with core business objectives. 

In a business place increasingly invaded by technology and automation, the need for your organization to have a procurement strategy is more imminent than ever. An evolving digital scenario, unclear spending afflicting the bottom line, and combining it with a competitive supply and demand market, you have got the perfect recipe for a potential disaster. And there is no better solution than a strong procurement strategy and employing the right tool to implement the strategy.

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