7 steps for procurement strategy to maximize business costs

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The Procurement Strategy refers to the planned approach of purchasing the essential supplies of a business while also bringing about cost-effectiveness. In addition, the strategy also considers a number of factors and timelines for ordering, budgeting, risks, and opportunities, etc. with the goal of making an appropriate strategy.

In order to develop an effective sourcing and sourcing strategy, the business must first assess its existing goals, resources, and supplies, budget, and timeline. By evaluating these factors, the procurement team will be able to begin planning for an effective procurement strategy and maximizing possible costs for the company. The key point here is to ensure every detail of the plan will contribute to achieving the established goals of the company. When starting a procurement strategy that maximizes costs, you need to take 7 steps.

Step 1: Conduct internal demand analysis

To get started, the procurement team will need to evaluate the current performance and then identify needs and goals before developing a purchase strategy. This involves collecting a number of different data. The purpose of the initial data collection is to assess the performance, resources used, costs for all parts of the organization, and current growth forecast.

Step 2: Conduct a market assessment of the supplier

In this step, the strategic procurement team will have to identify potential countries as a viable supply of raw materials, components, finished goods or services necessary for the operation of the business. Specific requirements will likely result in a limit on the number of countries that fit. For example, if one of the raw materials used by businesses can only be found in one country, the options will be much narrower. For manufactured products, the choice of suppliers will be broader as more potential countries offer them. In addition, it is important to note that the service may be limited by the organization's technological requirements.

Step 3: Collect supplier information

The important thing in this step is that businesses must choose suppliers carefully and carefully. Failure of the supplier to meet selection criteria can result in significant loss to the organization. The supplier's reputation and business performance must be assessed and ranked so that the business can optimize its decisions. Financial statements, credit reports, and references must be carefully checked. If possible, the organization should arrange to check the supplier's website and talk to other customers about their experience with the supplier. The extraction of information from dealers, people familiar with the market and other stakeholders can also benefit this process.

Organizations can choose more than one supplier to avoid potential supply disruptions and create a competitive environment. This strategy is also effective for large multinational organizations and allows for centralized control, but more regional delivery.

Step 4: Develop a sourcing/outsourcing strategy

Based on the information gathered in the first three steps, an organization can develop a sourcing/outsourcing strategy. The following are examples of sourcing strategies:

• Direct purchase: Submit Request for Proposal (RFP) or Request for Quote (RFQ) to select a supplier.
• Acquisition: Buy from the desired supplier.
• Strategic partnership: Enter into an agreement with a selected supplier.

Step 5: Implement your sourcing strategy

Sourcing strategy involving the acquisition or strategic partnership is the main policy. In these cases, suppliers may have the following characteristics:

• Participation in core activities for buyers, such as the limited supply of raw materials for core products, access to highly confidential proprietary knowledge
• One of the limited number of suppliers available with specific equipment/technology and skilled workforce
• Part of a broader business strategy

For direct purchases, organizations can start with an Expression of Interest (EOI), prepare an RFP or RFQ, and solicit bids from potential suppliers identified as part of the competitive bidding process. RFP should include:

• Detailed documents
• Product or service specifications required
• Delivery and service
• Criteria for evaluating price structure
• Financial terms.

Step 6: Negotiate with suppliers and choose a price

The procurement strategy team must evaluate feedback from suppliers and apply its evaluation criteria. Bidding providers may request additional information to make the most realistic bid, and the business should provide this information to all bidders so that it can provide a basis for feedback on new information. before making a final decision.

The strategic procurement team will then evaluate the proposals, quotes or bids received and use the criteria to select a shortlist of vendors to request detailed proposals. more (if considering EOIs) or choose a provider by first and second rank (if considering RFPs or RFQs). After the review process is complete, the strategic procurement team will enter into contract negotiations with the selected supplier.

Step 7: Implementing a plan to transform or improve the supply chain under contract

Suppliers selected as strategic partners should be invited to participate in improvements. An exchange plan must be developed and performance measurement and evaluation system will be developed based on the use of key measurable performance indicators (KPIs). This is very appropriate in the early stages of cooperation with a new supplier. Special conversion planning is very important when there is a problem to switch suppliers.

Improve supply chains by contract

When working with new suppliers, businesses need to transfer information and establish links with communications and logistics systems, provide training and even specific physical assets if needed. Implementation of these conversions takes time and expertise to set up and startup. Business expectations of this time frame should be agreed upon during contract negotiation with the supplier.

Conversion plan

The transition from an internal service provider to the outsourced service provider may be one of the more risky aspects of outsourcing from the outset. The transition to an optimized outsourced service does not create potential risks and the way employees in the business perceive it is very important. Transparency and preparation are key to this aspect of the procurement strategy.

Source: vilas.edu.vn/7-buoc-cho-chien-luoc-procurement-toi-da-hoa-chi-phi-doanh-nghiep.html

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