Strategic Procurement and Creating a Competitive Advantage
By Hugo Britt | March 3, 2022
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, defined
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.
Gain a competitive advantage with strategic procurement
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.
How to practice strategic sourcing
Strategic sourcing is different for every company. Generally, there are four steps to strategic sourcing as defined by SAP Ariba.
These steps are:
- Start by collecting data and analyzing spend by bringing all supplier data into one place. Identify areas of indirect spend to understand how much is being spent where. This step will reveal areas in which you can streamline vendors, cut down on redundancies, or negotiate a better deal.
- Then, begin your strategic sourcing with an RFx process. Encourage suppliers to compete for your business to get the best possible bids for your business needs.
- Bring on a supplier that has been fully vetted and start building a long-term relationship. Build transparency and innovation into the relationship from the start. The goal with your suppliers is to create sustained, collaborative relations.
- Finally, measure your strategic procurement objectives regularly to make sure your supplier relationships are meeting your needs. Build feedback loops to constantly optimize; evaluate suppliers regularly to make sure that you’re getting the best possible deal on your goods and services.
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.
Form a strategic partnership with a Group Purchasing Organization
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.