The 7 steps of a strategic procurement process

Doing business in the modern world is both more rewarding and more risky than ever before. Digital transformation and emerging technologies like artificial intelligence, Big Data analytics, and process automation have radically altered the ways in which businesses seek to meet the needs of their customers. Constant monitoring of purchases made ensures that full value is being achieved from the contract. Failure to do this will not only mean lost savings but will promote the practice of “maverick” spending. Ensure that the supplier, internal end-users and everyone affected are involved in the design and implementation of the solution.

The fourth step introduces the need to establish the requirements for your suppliers, and how you wish to evaluate them. Examples include service, quality, transparency, delivery time, and total unit cost.

Consumer Products

«Companies recognize that procurement is no longer limited to a back-office function and that they will lose a competitive advantage if procurement is not making a strategic contribution.» It’s important for procurement to turn strategic to become a part of the solution that moves the entire organization forward. The process of gathering, organizing, assessing, and maintaining all the data generated by a procurement organization to make this data accessible, accurate, analyzable, and thus, actionable. Digitization of downstream procurement helps provide consistency and accuracy to these repetitive tasks while improving productivity and compliance.

  • The sourcing plan is the result of all planning efforts on strategic sourcing.
  • The needs recognition stage of a procurement process enables businesses to sketch out an accurate plan for procuring goods and services in a timely manner and at a reasonable cost.
  • The term «strategic sourcing» was popularized through work with a variety of blue chip companies by a number of consulting firms in the late 1980s and early to mid 1990s.
  • This evaluation can take into consideration the global market, specific current supply chain conditions, and individual supplier conditions, and offers alternatives to address the buyer’s sourcing goals.

Continuous Improvement Opportunities – As strategic sourcing is a recurring activity, not just a one-off; You will need to regularly and continually evaluate strategy. Having this information also enables stakeholders to make informed judgments about developing the business model, taking advantage of market opportunities, and remaining competitive.

Basware Solutions

On the other hand, strategic purchasing is a comprehensive array of processes that includes purchasing and sourcing. The vendor delivers the promised goods/services within the stipulated timeline.

The 7 steps of a strategic procurement process

It’s critical to integrate suppliers into your meetings or discussions included in the implementation stage, making sure they’re up-to-date on the most recent changes and updates. Strategic sourcing software paired with a digital business network increases efficiencies, minimizes supply risks, and achieves cost savings. A solid procurement strategy is important for the business and the procurement The 7 steps of a strategic procurement process function. However, the process of creating a successful strategy is not always straightforward. Usually, the procurement strategy depends on a number of factors such as timeline, budget constraints, potential risks, and more. Cost savings has always been on the agenda of CPOs, but now, more than ever, stakeholders want to implement advanced analytics and technology to support these efforts.

Collect Potential Vendor Details

While the former is focused on purchasing all the required materials, components, and services needed to produce a product, the latter focuses on expenses required to operate the business. Both, of course, can benefit from a strategic approach, but the indirect spend is primarily focused on cost-efficient collaboration with suppliers. Strategic sourcing pulls the scope out, instead opting to seek out long-term relationships with suppliers that provide quality, value, collaboration, and flexibility in an ever-changing supply chain.

As strategic sourcing is put in place and practiced over time, many large, sophisticated organizations will modify the process to better meet their individual corporate needs. Since the whole process is customizable, it will tend to differ from one organization to the other. This automation makes tracking easy and the risk of errors greatly reduced.

Step 3: Grow a Sourcing Strategy

While your goals will differ, it should be established that the best cost and minimum requirements will be a major focus. A segmentation model could be helpful here, allowing you to connect your TCO from the prior step to a yearly cost forecast, which can also identify savings later on. Your strategy summary should account for both cost and operational importance as you weigh things like availability, alternatives, savings, and quality or innovation. This approach is highly focused on seeking out the lowest cost among suppliers and managing the execution process from PO, to invoice, to payment. SCMDOJO aims to help Supply Chain Professionals grow by providing high-quality supply chain on-demand courses, guides, best practices, tools and consulting from industry experts.

What is the strategic sourcing process?

A strategic sourcing process is an approach used to align their business objectives and purchasing strategy.

The first 8-step model for strategic sourcing came about in 1994, thanks to Toshihiro Nishiguchi. Judging by their surface meaning, anybody would think that strategic sourcing and procurement are synonyms for getting supplies for a business. While both are related and play crucial roles in a company’s supply chain, they are pretty different and must be implemented in distinct ways to ensure success. Of course, the most effective way to track the success of your current program is to use e-procurement software. By using automated software for reporting, you are more likely to get accurate feedback, simplifying your supplier relationship management .

Smooth implementation is only possible with extensive communication and a strong focus on change management. Companies must implement full monitoring of purchases and delivery to ensure there are no lost savings or overspending. To facilitate the signing of a contract that specifies buyer and seller expectations, contract management software should be deployed to automate the process.

  • On the other hand, strategic purchasing is a comprehensive array of processes that includes purchasing and sourcing.
  • Your procurement team will need to take all of the responses received from the RFP process and apply the evaluation criteria set out in Step 3 to determine which supplier is the best fit for your business.
  • This approach is highly focused on seeking out the lowest cost among suppliers and managing the execution process from PO, to invoice, to payment.
  • With the help of the information obtained and analyzed in the previous steps, you can now draft your procurement strategy.
  • Your next step is to figure out what approach suits the type of service you’resourcing.
  • The company’s range of patented source-to-pay tools makes it a prominent industry example.
  • Through understanding the vendor’s market environment, buyers are better positioned to negotiate the best deal on their purchases.