Most businesses need to carefully manage their procurement strategy, not only to save time and money, but also to improve efficiency and manage better long-term relationships. Businesses that invest heavily in mastering their procurement strategy tend to perform better than their counterparts on average, especially over long periods of time.
It’s best to approach this by breaking “procurement” down into its constituent parts, focusing on one stage of the “lifecycle” at a time.
The Typical Procurement Lifecycle
To better execute improvements to your procurement strategy, pay attention to these key stages of the procurement lifecycle:
- Identify and analyze your needs. The first phase is evaluating and analyzing your business needs. This is kind of an obvious stage, but there are many ways you can improve it. You’ll use a combination of external sources and internal sources to evaluate what types of items or raw materials you’ll need, and evaluate how those acquisitions will fit into the rest of your organization’s strategy.
- Outline a plan and objectives. Next, you’ll start setting goals and objectives for your procurement strategy. For example, how quickly do you need to acquire these items? Which is more important, the price per item of this product, or the quality? Outline a plan for how and when you’re going to make these purchases and set your priorities.
- Research your source options. During the next phase, you’ll research your potential source options. This is where most procurement departments spend the most time. There are likely dozens, if not hundreds of vendors selling what you need, each of whom offers different prices, terms, and conditions. How you approach research can make an enormous difference in your eventual cost and time efficiency.
- Select prospective suppliers. Eventually, you’ll narrow down the field of potential suppliers to a small handful. In some cases, you’ll simply be able to buy from them directly. In other cases, you may be required to take a more formal approach.
- Issue an RFQ or RFP. Some businesses will need to acquire new vendors or suppliers with the help of an RFQ or RFP. This is especially true of governmental organizations and big corporations. You’ll want to spend time polishing your approach with these documents, to make sure you state your objectives clearly and make it available to the widest range of potential suppliers.
- Negotiate and finalize terms. If you’re collecting quotes from prospective vendors, there may not be additional wiggle room to negotiate price. However, you may still be able to push back on certain terms and conditions. In any case, in this phase, you’ll work on securing a better deal, and finalizing the terms of the new deal with a standardized contract.
- Issue the purchase order. Long-term or ongoing arrangements may be able to skip this phase, but in most cases, you’ll need to process and submit a formal purchase order for each new order or shipment. Purchase orders are fairly straightforward, but they can still be optimized with automation and the right tracking software.
- Manage delivery. You’ll then need to think about how you’re managing delivery. In some cases, you’ll receive a direct shipment. In others, you’ll have raw materials shipped to a separate facility, like a factory or a warehouse. Effectively tracking and managing shipments can ensure you get your products more consistently—and ensure you can take action if something goes wrong.
- Approve the invoice and pay. Your vendor will likely submit an invoice after the purchase is completed. You’ll need an internal process in which you can check, validate, and approve the invoice for payment—and make sure it’s paid on time.
- Analyze and improve. It’s important to collect as much data as possible throughout these stages, then analyze those data to figure out what you can improve. Spend time in this phase to increase your efficiency in the other phases.
How to Improve Procurement
At each stage of the procurement lifecycle, you’ll want to try and adopt improvements in these key areas:
- Quality. Finding a better fit in your supply chain, or getting better services can make a marked positive improvement in your finished products.
- Speed and efficiency. Most procurement professionals want to get things done as quickly and efficiently as possible. Wasting time on needless elements, or getting slowed down by buggy software can compromise your results.
- Pricing. Obviously, pricing also matters; one of your goals should be to get the lowest prices possible for your raw materials or services.
Building the perfect procurement strategy is a time-intensive process, and not something you can complete in the span of an afternoon. You’ll need to hire the right people, invest in the right software, and analyze your results, fine-tuning your tactics until you’re satisfied with how things are running.