Procurement strategy means bridging the gap between executive level plans and policy directives and everyday actions. When this gap is bridged, Procurement will not only meet expectations but surpass them.
To add context and to make sure I clearly convey my thought process here, an online business dictionary defines “Strategic Procurement” as the ”long-range plans for ensuring timely supply of goods and/or services that are critical to a firm's ability to meet its core business objectives.” No surprises there.
The same source also says that "strategy" is “the art and science of planning and marshaling resources for their most efficient and effective use." The term is derived from the Greek word for generalship or leading an army. It also says it is “a method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.”
From a nonmilitary point of view, strategy means assigning the necessary resources to achieve, among other things, sustainable growth, profitability, shareholder value and returns, community support and commitment, and much, much more.
The strategies and plans developed at the executive level are reflected in the strategies and plans of the individual functions tasked with carrying them out. This is where the procurement profession comes in.
In my own words, I believe Procurement is a driver and enabler of business strategy. It is a profession in its own right and can be responsible for achieving sustainable growth, profitability, ethical business practices, and other important business objectives.
Developing procurement strategy by building a bridge between the executive level and Procurement
Now let's go back to the question of bridging the gap that exists between the Executive directive and Procurement/Supply's starting point. It all begins when the Executive directive or shareholders set up a new business venture, a merger/ acquisition, a new major CAPEX project, or even decide to change direction when a new chief executive arrives. This is where procurement strategy needs to come in.
Imagine for a minute a business has just decided to embrace Procurement to get better value from its manufacturing costs.
They wish to use suppliers who will ensure a sustainable supply (which is especially relevant when a product may be subject to supply squeezes as a result of conflict or a commodity subject to price volatility) of key raw materials. The business wants to break into new and emerging markets for its product range (I do believe Procurement can positively contribute to this process), and offers to take Procurement to the next level in terms of professional development and training. (This is in contrast to a business or organization that may already have a procurement department, but it only focuses on transactional order placement, pits suppliers against each other, and doesn't have a view that extends past everyday sourcing activities.)
Imagine this business appoints a CPO or GM to Supply.
He or she should begin by asking these questions:
- How is procurement activity currently being carried out?
- How efficient is this activity? (Benchmarking is one way to determine this; another is to compare to similar businesses or competitors.)
- What are the skills and competencies of the existing human resources? (Look at a skills and gap analysis, among other things.)
- What are current procurement costs?
- Who are the internal customers? (Meet them and identify pain points with the current procurement function. We may already know what constitutes best practice, but we can also get a very good idea of what this should be from our internal stakeholders and customers.)
This new CPO will now have some metrics or KPIs that he or she will need to deliver on within a certain period of time. Now this is where the hard part starts.
What resources are available? What results need to be delivered and when?
These two questions bring two words to the forefront: change management. This could result in possible redundancies, training and skills development, and finding new team members with the required skills (e.g. category managers, sourcing specialists, contract managers, etc.). Here begins the importance of developing a true procurement strategy.