How to Build a Successful Procurement Strategy

The role of procurement extends beyond transactional activities. Procurement strategies help organizations navigate increasingly complex global supply chains, quickly adapt to market fluctuations, and achieve cost optimization, operational efficiency, and growth.

By assessing and proactively managing the risks inherent in your supply chain, organizations can protect themselves from disruption and increase the resilience of their operations. Additionally, a well-designed procurement framework fosters innovation and sustainability. You can foster collaborative partnerships with your suppliers and integrate ethical and environmental (green sourcing) considerations into your sourcing strategy.

A procurement strategy is not simply a series of steps to acquire goods and services. It should be a strategic roadmap that, when designed and implemented effectively, aligns with the organization’s mission and contributes significantly to its success.

What is a Procurement Strategy?

A procurement strategy is a structured plan that an organization develops to guide its purchasing process in a way that meets its business needs. The goal of a procurement strategy is to efficiently, cost-effectively, and sustainably acquire goods or services essential to an organization’s operations. The strategy should describe and provide specific guidance for carrying out procurement process steps, including:

• Identify your business needs
• Sourcing Potential Suppliers
• contract negotiation
• Manage relationships with suppliers
• Keep records of all steps

The strategies used to guide these steps may vary from organization to organization depending on industry and needs. Examples of goals common to many procurement strategies include eliminating arbitrary spending, improving delivery efficiency, minimizing errors, and ensuring compliance with applicable regulations. Building strong supplier relationships to encourage favorable contracts and services is also a common goal.

Aligning procurement activities with corporate goals requires balancing talent, technology, compliance, ethics and sustainability. An effective procurement strategy should embrace new approaches and encourage ideas that bring value, efficiency and continuous process improvement to the organization. This enables an effective and adaptive approach to sourcing that creates value and minimizes risk.

When implemented with clear goals, a procurement strategy provides a roadmap for procurement managers to follow. It outlines their purpose, responsibilities and goals and the important role they play in the overall success of the organization.

Steps to a Successful Procurement Strategy

Key steps to developing an effective procurement strategy include:

1. Conduct status analysis (CSA)

Evaluate the efficiency and effectiveness of your current procurement strategy framework (if you have one) and determine whether it meets current and future needs. Perform a spending analysis. Identify strengths, weaknesses, and opportunities. Evaluate and classify the components of procurement costs, from direct costs, such as the cost of goods and services, to indirect costs, such as administrative costs and overhead. Investigate the costs associated with specific suppliers, cost variables and trends, and the total cost of your procurement process to gain a clear understanding of how much is being spent and where.

2. Determine your organization’s needs.

Businesses always want to improve their bottom line. But how specifically? Understand your organization’s needs, whether it’s increasing sales, managing cash flow, shortening time frames, improving forecasts, managing quality, or sustainability, and how these fit with your overall business strategy and long-term plans. A procurement strategy integrated with these requirements ensures that the procurement process contributes directly to the profitability and success of the organization.

3. Stakeholder participation

Identify and collaborate with internal departments, vendors, and anyone else who may be affected by the plan. Some may disagree with the proposed changes. Gather insights, understand needs, and manage expectations. Stakeholder engagement is important to ensure that the strategy is well planned and supported throughout the organization.

4. Determine your business goals

Define specific, measurable, achievable, relevant, and timely (SMART) goals for the procurement function. These goals should directly support important business goals and provide a clear framework for your procurement strategy. For example, if cost reduction is the goal, the procurement objective may be to achieve that level of cost reduction. Additional goals may include risk management and mitigation, supplier relationship management, and sustainability considerations.

5. Define procurement policy

Establish and agree on clear procurement policies, procedures and operating models that align with organizational goals. Now is a good time to review your current processes and adapt them to a new approach. Tasks such as supplier selection criteria, contract management, and compliance initiatives must be clearly defined. Communicate the opportunities these changes bring and explain their benefits to stakeholders. Be flexible. The policy serves as a guide for the procurement team, ensuring consistency and adherence to ethical standards.

6. Integrate new tools

Explore tools and technologies to help your new strategy succeed. Procurement is no longer an analog process. More and more of it is being done online (e-procurement). Procure-to-pay (P2P) software can connect procurement practices to accounts payable and streamline steps such as supply management, purchase orders, and invoicing. Additional procurement software includes spend analysis tools and supplier relationship management (SRM) software. It provides data visibility that increases accuracy and productivity, tracks purchases, informs decisions, and reduces risk, inefficiencies, and time-consuming delays.

7. Strategy development

Develop a comprehensive procurement strategy based on the insights gathered in the previous steps. This includes creating a strategy statement outlining the procurement approach, including supplier management, risk mitigation and cost optimization. The strategy must be flexible enough to adapt to changing market conditions and organizational needs.

8. Define success

Establish key performance indicators (KPIs) that will be used to measure the success of your procurement strategy. These metrics should be consistent with defined business goals and provide quantifiable benchmarks for evaluating performance. Typical success criteria include reducing errors, leveraging cost savings opportunities, evaluating supplier performance, improving workflow, procurement cycle time, and regulatory compliance.

9. Execute Strategy

Deploys defined policies, procedures and technologies to execute procurement strategies in a phased and coordinated manner. We provide the training you need to ensure procurement success.

10. Measure and improve your strategy

Regularly measure strategy performance against established success metrics. Determine if you are driving change and improving the overall performance of your organization. Use data and insights to analyze results, identify areas for improvement, and improve your procurement strategy accordingly. We continuously monitor and adapt to ensure your strategy remains responsive to changing market dynamics, evolving business goals, and new opportunities or challenges.

Benefits of a Successful Procurement Strategy

By implementing strategic sourcing and purchasing opportunities, organizations can achieve significant cost savings. An effective procurement strategy also improves operational efficiency by streamlining processes and adopting automation technologies. This reduces administrative tasks and accelerates procurement cycles.

A successful procurement strategy also mitigates the risks inherent in the supply chain. Using risk assessment and management practices, organizations can protect against disruption and ensure agility and continuity. This strategy can also foster improved supplier relationships, collaboration, and innovation. Collectively, these benefits enable organizations to navigate the complexities of modern business with resilience, agility, and competitive advantage.

Procurement and IBM

By systematically exploring these stages, organizations can create a procurement strategy that meets immediate needs and can evolve to contribute to the organization’s ongoing success.

IBM’s procurement consultants work with clients to create intelligent workflows that combine the expertise of procurement teams, exponential technologies like AI and automation, and internal and external data sources, all in a hybrid cloud. By building smarter, end-to-end procurement workflows, we help companies provide powerful insights to their employees to perform higher-value work and transform sourcing and procurement strategy initiatives.

Explore procurement with IBM Consulting