Before we start, lets define what we mean by strategy. According to the Oxford dictionary what is Strategic Procurement
strat·e·gy
/ˈstradəjē/
noun
- 1.a plan of action or policy designed to achieve a major or overall aim:”time to develop a coherent economic strategy“synonymsmaster plan, grand design, game plan, plan of action, plan, policy, proposed action, scheme, blueprint, program, procedure, approach, schedule, tactics, set of tactics
Procurement Policy
Purpose
The purpose of this procurement policy is to ensure that all goods and services acquired by [Your Company Name] are obtained in a cost-effective, efficient, and ethical manner that supports the company’s operational goals while maintaining compliance with all relevant laws and regulations.
Scope
This policy applies to all departments and employees of [Your Company Name] involved in the procurement process, including the acquisition of goods, services, and works from external suppliers.
Principles
Value for Money
Procurement activities should aim to achieve the best value for money, considering factors such as quality, price, service, and sustainability.
Transparency and Accountability
All procurement activities should be conducted in a transparent manner, with clear documentation and justification for decisions to ensure accountability.
Fair Competition
Procurement should be carried out in a manner that promotes fair competition, avoiding favoritism and conflicts of interest.
Ethical Standards
Employees involved in procurement must adhere to the highest ethical standards, avoiding any actions that could compromise the integrity of the procurement process.
Procurement Methods
Competitive Bidding
For purchases above [Specify Amount], a competitive bidding process must be followed. This involves obtaining at least three written quotes or proposals from different suppliers.
Direct Purchase
For purchases below [Specify Amount], direct procurement from a single supplier is permissible, provided that a reasonable effort is made to ensure competitive pricing.
Emergency Procurement
In urgent situations where time is of the essence, procurement can be expedited. The reason for the emergency procurement must be documented, and a retrospective competitive process should be undertaken if feasible.
Roles and Responsibilities
Procurement Department
- Develop and maintain procurement procedures and documentation.
- Ensure compliance with this policy.
- Manage supplier relationships and performance.
Department Managers
- Identify procurement needs and plan purchases in advance.
- Ensure that procurement activities within their department comply with this policy.
- Approve purchases within their delegated authority.
Employees
- Adhere to the procurement policy and procedures.
- Report any potential conflicts of interest or unethical behavior.
Supplier Selection and Evaluation
Supplier Selection
- Suppliers should be selected based on their ability to meet the specified requirements, including quality, price, delivery, and service.
- Preference should be given to suppliers with a proven track record of reliability and ethical business practices.
Supplier Evaluation
- Regular evaluations of supplier performance should be conducted, considering factors such as delivery times, quality of goods/services, and adherence to terms and conditions.
- Feedback should be communicated to suppliers to foster continuous improvement.
Contract Management
- All contracts should be documented in writing and reviewed by the legal department.
- Contracts must clearly outline the terms and conditions, including pricing, delivery schedules, and payment terms.
- Any changes to contracts must be formally agreed upon by both parties and documented.
Conflict of Interest
- Employees involved in procurement must disclose any potential conflicts of interest.
- Employees must not accept gifts, favors, or hospitality from suppliers that could influence or appear to influence procurement decisions.
Record Keeping
- Detailed records of all procurement activities, including quotes, proposals, contracts, and approvals, must be maintained for a minimum of [Specify Years] years.
- Records should be stored in a manner that ensures they are secure and accessible for audit purposes.
Compliance and Review
- Compliance with this policy will be monitored through regular audits.
- The procurement policy will be reviewed annually and updated as necessary to ensure it remains relevant and effective.
Training and Communication
- Employees involved in procurement will receive regular training on the policy and procedures.
- The policy will be communicated to all relevant employees and made readily accessible.
Exceptions
- Any exceptions to this policy must be approved by [Designated Authority], and the justification for the exception must be documented.
Effective Date
This policy is effective as of [Effective Date] and supersedes all previous procurement policies.
Approved by: [Name], [Title]
Date: [Approval Date]
This procurement policy sets a clear framework for conducting procurement activities within [Your Company Name], ensuring that all purchases are made in a responsible, transparent, and ethical manner
Leaving an indelible mark on the landscape of tomorrow.
Category Profiling
Category profiling in procurement is a strategic process used to gather, analyze, and document information about a specific category of goods or services. This process is essential for developing a deep understanding of the category, enabling procurement professionals to make informed decisions and devise effective sourcing strategies. Here’s a breakdown of the key components and steps involved in category profiling:
Key Components of Category Profiling
Market Analysis:
- Supplier Market Analysis: Identifying and evaluating potential suppliers, understanding their market positions, capabilities, and financial health.
- Market Trends and Dynamics: Understanding current and future trends, including technological advancements, regulatory changes, and economic factors affecting the category.
Spend Analysis:
- Historical Spend Data: Analyzing past procurement data to identify spending patterns, volumes, and costs associated with the category.
- Cost Structure Analysis: Understanding the cost drivers and breakdown of the total cost of ownership (TCO) for the category.
Supplier Analysis:
- Supplier Performance: Evaluating current suppliers based on performance metrics such as quality, delivery, and service levels.
- Supplier Relationship Management: Assessing the nature of relationships with suppliers and identifying opportunities for improvement or development of strategic partnerships.
- Internal Requirements and Demand Analysis:
- Stakeholder Requirements: Gathering and analyzing the needs and expectations of internal stakeholders who use or are impacted by the category.
- Demand Forecasting: Predicting future demand based on historical data, market trends, and organizational goals.
- Risk Analysis:
- Supply Chain Risks: Identifying potential risks in the supply chain, such as supplier dependency, geopolitical issues, or natural disasters.
- Mitigation Strategies: Developing strategies to mitigate identified risks and ensure continuity of supply.
Steps in Category Profiling
Data Collection: Gather relevant data from internal systems, market reports, supplier information, and other sources.
- Analysis and Insights:
- Conduct spend analysis to identify where money is being spent and with which suppliers.
- Perform market analysis to understand market dynamics and supplier landscape.
- Evaluate supplier performance and capabilities.
- Stakeholder Engagement: Collaborate with internal stakeholders to gather their insights, requirements, and expectations. This step ensures alignment with organizational goals and needs.
- Risk Assessment: Identify potential risks associated with the category and analyze their impact and likelihood. Develop risk mitigation plans accordingly.
- Strategy Development: Based on the insights gained, develop a category strategy that outlines how the organization will manage the category. This may include sourcing strategies, supplier relationship management plans, and cost-saving initiatives.
Implementation and Monitoring: Execute the category strategy and continuously monitor its effectiveness. Adjust the strategy as needed based on performance metrics and changing market conditions.
Benefits of Category Profiling
- Improved Supplier Relationships: Better understanding of suppliers can lead to stronger partnerships and improved supplier performance.
- Cost Savings: Identifying cost drivers and opportunities for savings can reduce overall procurement costs.
- Risk Mitigation: Proactively identifying and managing risks can prevent supply chain disruptions.
- Enhanced Decision Making: Data-driven insights enable more informed and strategic procurement decisions.
- Alignment with Organizational Goals: Ensures that procurement activities are aligned with the broader objectives of the organization.
By systematically profiling each category, procurement professionals can create more effective and strategic procurement plans, ultimately leading to better value for the organization.
The roadmap for category management
Category Management
Experience the fusion of category management into your procurement strategy
Value for Money
Our comprehensive suite of professionals caters to a diverse team, ranging from seasoned architects to renowned engineers.
“public sector definition”
3 E’s
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The “3 E’s” of Value for Money (VfM) refer to Economy, Efficiency, and Effectiveness. These principles are widely used in public sector management and project evaluation to ensure that resources are utilized in the most optimal way to achieve desired outcomes. Here’s a detailed explanation of each:
- Economy:
- Definition: Economy is about minimizing the cost of inputs while maintaining a certain quality. It focuses on acquiring resources (such as goods, services, and human resources) at the lowest possible cost without compromising on quality.
- Key Considerations: Procurement practices, budget management, and cost control.
- Example: Buying office supplies in bulk to get a discount, provided that the quality of supplies meets the required standards.
- Effectiveness:
- Definition: Effectiveness is about achieving the desired outcomes or objectives. It measures the extent to which the intended goals are achieved. While economy and efficiency focus on inputs and processes, effectiveness is concerned with the end results.
- Key Considerations: Goal alignment, impact assessment, and performance measurement.
- Example: Implementing a new educational program that improves student literacy rates, demonstrating that the program’s objectives are being met.
Integrated Approach:
- For optimal VfM, organizations should strive to balance all three E’s. For instance, focusing solely on economy (minimizing costs) might lead to inefficiencies or poor outcomes, while ignoring economy for effectiveness might lead to unsustainable practices.
In summary, the 3 E’s framework provides a comprehensive approach to evaluating and ensuring Value for Money by focusing on cost minimization, optimal resource utilization, and achieving desired outcomes.
2. Efficiency refers to the relationship between the inputs and outputs. It measures how well resources (inputs) are converted into outputs. High efficiency means producing the maximum output with the minimum input.
- Key Considerations: Process optimization, waste reduction, and resource utilization.
- Example: Streamlining a manufacturing process to reduce the amount of raw material waste and the time taken to produce each unit.
3. Effectiveness is about achieving the desired outcomes or objectives. It measures the extent to which the intended goals are achieved. While economy and efficiency focus on inputs and processes, effectiveness is concerned with the end results.
- Key Considerations: Goal alignment, impact assessment, and performance measurement.
- Example: Implementing a new educational program that improves student literacy rates, demonstrating that the program’s objectives are being met.
Communicate
Enhance your ability to build on Greenfield Procurement
- Greenfield procurement refers to the process of acquiring goods, services, or infrastructure in a completely new or undeveloped environment, typically in a situation where there is no existing infrastructure or framework in place.
- For instance, in the context of construction, greenfield procurement might involve building a new facility or infrastructure from scratch, such as a new factory, power plant, or transportation network, where there was previously nothing.
- This term is often used in business and government contexts, particularly in sectors like construction, energy, and information technology, where new projects or developments are initiated. Greenfield procurement contrasts with brownfield procurement, which involves acquiring or redeveloping existing infrastructure or facilities.
To be successful in applying strategic procurement, you need to earn your place and this means knowing the functional requirements such as the knowledge, processes and products that make up the area that you specialise in. For example, if you specialise in Marketing you will know that the client cares about creativity but you will also know the logic of how creativity can be priced to add value without reducing the service to a commodity benchmark.
The CIPS view on strategic procurement Strategic procurement incorporates actions aimed at reducing the supplier base, negotiations, communication and maintaining long-term relationships with suppliers (Ryals and Rogers, 2006; Swinder and Seshadri, 2001). It is particularly relevant in light of globalisation (on the sales side it increases pressures on the company’s own prices and on the purchase side it opens up new potential), the development of cost-saving communications and widely available IT, improved logistics and procedures, dynamic competition, high consumer demands, increasing environmental awareness and requirements for transparency. All these developments make operative procurement tasks obsolete and calls for a more strategic approach aligned with the wider organisational strategy. Some common mistakes that companies can make in relation to their procurement strategies include purchasing without defined tasks, failing to find the balance between central and local purchasing, failing to achieve efficiency despite suitable purchasing tools, or sole concentration on design and development (Kerkhoff, 2005).
In practice this means you can start by doing the following:
- Ensure stakeholder management is in place. Draw out a stakeholder map and keep those with a vested interest informed. Stakeholders do not like surprises, and make sure your updates are relevant and on point.
- Develop a Strategic Plan: The strategic bundle documents listed in this website is a good place to start. In addition there are lots of useful tips on the blog page, use the categories to filter by areas of interest.
- Develop High Performing Teams: Good team work is essential and this can be cross functional. Work with Finance, legal, business analyst, communications, think about the different resources you can tap into to help elevate your procurement brand.
- Governance: It’s important to have the correct governance procedures in place. Cutting corners will only cause pain later on, there should be a process for managing and monitoring compliance to ensure that full transparency.
- Business Sponsorship: Promote what you do well to get senior management buy in.
- Early Involvement: Procurement professionals are sometimes not engaged at the right moment. Getting a seat at the table requires good stakeholder management so start gaining trust by showing your credibility, do something tangible that demonstrates why they want to invite you to meetings early on.
- Market Engagement: Suppliers are more than happy to be involved in pre-market engagement. Use the opportunities available to understand market options, and to build category knowledge.
- Promote the function: What levers are you using to promote the commercial function check out the blog on 10 reasons why a procurement professional adds value
- Write a unified procurement strategy: Your strategy should be both annual and slightly longer term. It should be robust enough to help build a vision and explain what is being delivered but no so heavy that it’s boring to read.
- Supplier Relationships: Review your spend and make sure you have contract manage your key suppliers by value and risk.
Further resources are available for Patrons. VIP patrons can also put forward request for a template to be developed if its not already available subject to the terms and conditions of the subscription service.
If you like the guidance relating to the strategic procurement bundle you might like to get some inspiration on leadership styles, or find some additional information on strategic procurement in the blog section
Sourcing strategy template
1. Executive summary
1.1 Background
[In this section describe the desciption of the service and current sourcing strategy. Include information like the current total spend to date, current supplioers, performance and contractual situation. It might also be useful to include information on the client and thje department using the service]
1.2 Scope
[The project scope statement also establishes what is not included in initiatives, either implicitly or explicitly].
Summary of recommendations, timing, milestone and benefots, summary pf option not selected and why
Explain what the service improvement is expected to deliver and how this will contribute to the overall organisation objectives
[insert a summary of the expected benefits]2. Business Requirements
Insert a summary of the findings from the business needs analysis. A business needs analysis (BNA) helps a company identify the key drivers for change and determine the best options or solutions to resolve issues or improve productivity or performance. BNA helps determine what the customer needs are, their requirements, and what their specifications are. BNA helps you determine what changes can help you reach your goals.Check these are signed off by the senior responsible owner as established and agreed.]
[use the kraljic matrix to help explain what the portfolio matrix looks like. Provide reasons for why you have positioned your matrix], what have you drawn from your analysis]
Identify the total spend encompassed by the category scope
Assess the price and source flexibility rating (high/medium/low).
And the current effort and expertise applied to the management of the category (high/medium/low).
Assess the cost reduction factor (%) using the cost reduction matrix.
Explain what and who have been the key drivers of sourcing.
Include a brief summary and explanation of the past 3 or more years’ sourcing pattern.
Identify current sourcing arrangements and describe why they exist and what they “tell” the supplier.
Include tabulated and graphical representation of prices for the past three to four years with explanations of any movements. Identify on such graphs the corresponding movements in key cost drivers of the prices under review (e.g. volume, currency)
Quantify major elements of the suppliers’ costs.
What is the average gross margin of the suppliers, and what opportunities does your analysis reveal.
How do you intend to realise the opportunities?
Identify all steps in the supply chain. What processes occur at each step and what cost and value is added at each step.
Identify any opportunities to reduce cost, add value, reduce risk.
Include a profile of current and potential supplier capabilities. Describe how current business requirements are met by these suppliers.
If suppliers are not meeting business requirements, assess and describe the gap and current suppliers’ potential to bridge it.
Summarise findings to enable clear and precise supplier comparison.
Review the market place you operate in, its current / future trends. Include an assessment of key suppliers: their capabilities and our influence of the market. The analysis should also take account of social, demographic, political/environmental trend.
Options Generations: Options generated, including evaluation templates- Ensure facts and data have been analysed in an objective manner to support the decision criteria.
Have internal customers, business and functional colleagues been engaged in critical, objective challenge of options? Have resource requirements been assessed and committed?
Strategy chosen: Summary description of change; Quick wins; Projected benefits and comparison with business requirements; Required relationship changes.
Demonstrate the linkage between business needs and strategy.
Complexity reduction impact; Geographies impacted; Regulatory and compliance; Legal impact; Commercial impact; Operations impact; Logistical impact.
Risk and vulnerability analysis (in appendix)
Political and economic risk; Business interruption potential; Dependencies to other parts of Organisation.
Assumptions made and plans to test to ensure validity.
Benefits against business requirements (LQSCIR)
Implementation and running costs (Resource, Capital, Specification changes); PV analysis (if applicable)
8. Implementation plan and progress
Implementation approach including scope, product or service impacted, bid scope etc.
Include evidence of a long term (2 years or longer) perspective, that marries short and long term; commercial and technical options. State how and why the expenditure category is going to be purchased in line with this perspective.
Key milestones and timings; Geographies impacted; Information gaps to be filled; Assumptions; Resource requirements.
Detail frequency of reviews and governance.
Include detailed spend analysis and any relevant completed Templates.
Procurement House
I’ve seen different versions of the procurement house but in this iteration BCG have a technology slant. Traditional houses will layer based on a more procurement category management approach with the IT systems, and process’s tied into the different layers.
Source BCG- Jumpstart to Digital Procurement introduces BCG’s Procurement House, which comprises the three main dimensions of the authors’ approach: value, enablers, and data foundations. (See Fig. 1.) A company must identify the primary value it wants procurement to generate and the enablers that best support this value. It can then choose the right digital tools and applications. https://www.bcg.com/press/18january2021-book-shows-companies-how-digitization-will-revolutionize-procurement
If we continue on the theme of a procurement house a simplistic way of looking at this is make Procurement excellence as the overarching theme. It refers to the achievement of superior outcomes in the procurement process, which involves acquiring goods, services, or works from external sources. It encompasses various activities such as sourcing, negotiating contracts, supplier relationship management, and overall supply chain management. Achieving procurement excellence involves optimizing these processes to enhance efficiency, reduce costs, mitigate risks, and improve overall performance.
Using a house as a metaphor for strategic procurement can be helpful in understanding the concept more clearly:
Foundation: Just like a house needs a strong foundation to stand firm, strategic procurement requires a solid foundation built on clear goals, objectives, and policies. This foundation sets the direction for procurement activities and ensures alignment with organizational strategies.
Blueprint: A blueprint serves as a plan for constructing a house, detailing the layout, design, and specifications. Similarly, in strategic procurement, a well-defined strategy acts as the blueprint, outlining the approach for sourcing, supplier selection, risk management, and performance measurement.
Materials: Different materials are required to build a house, each serving a specific purpose. In procurement, selecting the right suppliers and materials is crucial. Strategic procurement involves identifying reliable suppliers who offer quality products or services at competitive prices, ensuring that the procurement process runs smoothly.
Construction: Constructing a house involves coordinating various tasks, such as laying the foundation, erecting walls, and installing utilities. Similarly, strategic procurement involves managing different stages of the procurement process, including sourcing, negotiation, contract management, and supplier relationship management, to achieve desired outcomes.
Maintenance: After constructing a house, regular maintenance is essential to ensure its longevity and functionality. Likewise, in procurement, ongoing monitoring, evaluation, and optimization of procurement processes and supplier performance are necessary to sustain procurement excellence over time.
By having a procurement house you can bring others together to visualize the components of strategic procurement more intuitively, emphasizing the importance of careful planning, execution, and continuous improvement in achieving procurement excellence.
Try building your own procurement house and tailor it to your own organisation
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