The Key Steps to a Successful Procurement Strategy
Last Updated Aug 31, 2023
Most industries have experienced major challenges in supply chain procurement as a lasting result from a variety of factors from the events of the previous 2-3 years. While many are now finding new ways to rebound as the economy begins to correct itself, bottlenecks clear up and more supply chain jobs are created... it has not been a simple task. In order for your business to continue growing smoothly in a potentially unstable world, you may want to reevaluate your procurement strategy.
When looking at your procurement strategy, you will need to evaluate your own processes. And then you want to compare those to that of your suppliers. We will focus on a few steps that can be taken to make your supply chain procurement strategy robust and streamlined. Remember, communication and an eye toward greater efficiency will be key throughout all of these steps.
Your Procurement Strategy Can Help Your Other Cost Reduction Efforts
One of the main benefits of improving your procurement strategy is cost reduction efforts. To do this, it is recommended that you begin by evaluating your suppliers; look for miscommunication, slow response times, quality control, regulatory, or packing issues.
Take a look at the market as well. This can tell you if there are alternative suppliers or products available that may save you money or labor. This doesn’t necessarily mean switching suppliers, however. In fact, it could mean doing something as simple as changing your order quantities or even finding alternative products from your existing suppliers.
Fortunately, there are now plenty of procurement software solutions that can help you compare suppliers in the market.
Reduce Your Own Bottlenecks
Costs can often build up unnecessarily due to a variety of reasons. The most common are late deliveries, defective goods, slow decision-making, slow payments, or just plain old human error.
Identify areas where you frequently experience bottlenecks. That one part of the process where everything seems to stall is one of the biggest hurdles that supply chain workers routinely face. There are a lot of disparate steps in keeping goods moving from one end of the supply chain to the other. By its very nature, this introduces many choke points along the way that could create a large bottleneck.
One of the best ways to prevent bottlenecks in your immediate supply chain is to practice good communication amongst you partners and internal procurement team. More importantly, keeping open communication between your procurement and quality control teams is absolutely crucial. In fact, many times your QC team can help you develop new strategies such as new templates for purchase orders. Sometimes, not always, but sometimes it really doesn't take much aside from one core operational strategy change to create a better path forward.
Map Your Procurement Strategy Process
While every company is different, most supply chain procurement processes follow a simple pattern:
Identifying your needs.
Researching multiple suppliers and selecting the most capable and/or cost-effective.
Communicating your needs and negotiating an agreement with the supplier.
Creating and approving a purchase order, and sending that order to the supplier.
Receiving an invoice for an order from the supplier. An initial payment may be required.
Receiving and inspecting the goods or services.
Making final payments.
Maintaining internal records and continuing communication with the supplier.
Map out how the process works in your organization. Include which team members or departments are responsible for the various steps. Speak openly with everyone involved and get their input. You want to know how the procurement strategy is currently being carried out on the ground, not just ideally. Identify which steps can be streamlined by creating templates, automating purchase orders, or increasing internal communication.
Have a Backup Plan
Supply chains face disruption by trade wars, political instability, sanctions, labor unrest, environmental disasters, or pandemics, just to name a few. Even if you are happy with your suppliers, it is always a wise idea to have a backup plan ready to launch. You may not always be able to predict when anything may fall through with your current suppliers.
Suppliers closer to home may be more costly but generally also comes with less risk in several ways. Additionally, this has the advantage of opening you up to the ability to provide faster shipping times as you are able to get goods and materials to your warehouse docks, ready to hit the road much quicker.
Knowing what options are available to you will make you build and maintain a more agile supply chain in the face of potential disruptions. Building resiliency in this way also gives you an advantage in negotiating with your current suppliers as resiliency usually signals stability and recurring business for your suppliers.
A well-built procurement strategy is absolutely vital to the success of your business. It should not be relegated to just one part of your team. In fact, your procurement strategy should be analyzed and updated regularly with the input of your procurement team.
Ultimately a strong procurement strategy will get your goods out faster, improve your bottom line, and save time. All of this leads to happier customers and partners alike.
If you follow these steps and your internal review uncovers bottlenecks, cost overruns, or supplier issues, you may want to consider partnering with a 3PL. By partnering with a 3PL like Redwood, you have the specialized support of a dedicated team to take some of the heavy lifting off your hands. Further, you also get to leverage the power of the latest supply chain tech without making a large investment in the tools you have access to with your 3PL.