
A recent survey found that 78% of Chief Procurement Officers around the world are most concerned with reducing costs in the procurement process. This concern is causing CPOs to adopt strategic procurement processes, objectives, and technology.
Acting strategically in procurement can lead to cost savings, lower risk, and create a competitive advantage for those companies that do it well. Here are the basics of strategic procurement and how to get started using strategic sourcing at your business.
Strategic procurement, also called strategic sourcing, is the process of planning ahead to ensure that the goods and services needed for a business to operate are obtained on time, on budget, and as needed. This process involves carefully optimizing everything from vendor selection, payment terms, vetting, contract negotiation, and the purchase of goods and services.
Strategic procurement, compared with regular procurement, requires finding efficiencies across spend categories, minimizing supply risks, improving vendor selection, and bringing greater visibility to pricing and forecasting.
Ultimately, strategic sourcing focuses on maximizing the ROI of the procurement process for an organization. Here’s how this can create a competitive advantage.
Strategic procurement can do many things to help your business run efficiently. And, it can also create a competitive advantage in the marketplace.
Strategic procurement is all about managing and controlling costs. To do this, procurement leaders need to zoom out and look at the big picture. Cutting costs in one area could actually lead to increased costs in another. This strategy resolves this tension by considering every business activity, risks, and supplier innovation for business operations across the board.
Likewise, being strategic in procurement prioritizes value for money. This is an important distinction: many procurement teams find ways to reduce costs at the expense of their product quality or compliance.
Poor product quality can end up being more expensive than the initial cost savings. Customers will leave for a competitor, market share will drop, and margins will suffer.
Strategic procurement solves this issue by building long-term, mutually beneficial relationships with vendors that help both parties thrive.
Finally, strategic sourcing relies on supplier innovation. The bottom line: procurement is only as good as the suppliers. By investing in the long-term success of its suppliers, procurement teams can benefit from the innovation, capacity building, and creativity that keep both companies competitive.
Strategic sourcing is different for every company. Generally, there are four steps to strategic sourcing as defined by SAP Ariba.
These steps are:
This way of thinking can build a competitive advantage for companies across many fronts. When done correctly, it can help an organization optimize its profit margin, lower risk, and streamline the internal process of procuring goods and services necessary to achieve business outcomes.
Getting strategic in procurement involves taking a step back and considering if there’s a better way of doing things. Partnering with a group purchasing organization is a sure-fire way to slash costs through the power of volume purchasing while reducing the time and effort involved in RFx and supplier negotiations.
Get in touch with the team at Una to learn how to move your procurement function from tactical to strategic today.