If you’re in charge of procurement, you may already know that you could dramatically shift the direction of your organization with the right strategy. An effective procurement strategy can sharpen supplier relationships, lower operating costs, open up access to discounts, eliminate late payments, reduce errors, avoid supply chain disruptions, and help you hit your environmental, social, and governance (ESG) goals.
However, if you want a chance to steer the corporate ship, you’ll need to build out and execute a procurement strategy that impresses stakeholders and pushes your entire organization forward. This article lays out a step-by-step guide to building a powerful procurement strategy that propels your company forward.
How to Create a Powerful Procurement Strategy
Creating an effective procurement strategy is more straightforward than most procurement leaders realize. Here are four steps to building a procurement strategy that can reshape what your organization can accomplish:
1. Identify opportunities.
No matter how sturdy your organization seems, there will be operation-wide leaks where money, time, and efficiency are trickling out. By identifying these holes in the organization, you can spot which moves will make the biggest positive impact on your company. That’s why the first step in creating an effective procurement strategy is conducting internal interviews and identifying areas that need improvement.
Wondering where to start? Dig into spend analysis. This area of the organization reveals the company’s most strategic opportunities, including insights showing you how much costs are increasing, why they’re high in specific areas, and what actions you can take to shave expenses and spend more strategically.
Important Spend Analytics KPIs to Track
- Cost Reduction: The difference between previous and current costs
- Cost Avoidance: The amount saved by avoiding price hikes or extra expenses
- Total Savings: The amount your company saved on an annual basis
- Total Spend Under Management: The percentage of company spend that’s under management (ie: usually spend going through a system).
- Contribution to Total Spend: How much suppliers, categories, and items contribute to spend
- Maverick Spend: How much you can reduce spend that occurs outside your system
- Supplier Management: Reduce operating costs through better supplier performance
- Compliance: Track your percentage of compliant spend (eg: spend on contract and with approved and preferred suppliers).
2. Nail down your KPIs.
If you want to measure progress, shine a light on meaningful changes, and secure more buy-in from your leadership team, key performance indicators (KPIs) are essential. KPIs strengthen your strategy in two ways:
- They prove your strategy is working and show how your moves are paying off for the organization.
- They reveal weak spots within your organization so you can make smarter strategic decisions.
The best KPIs will depend on your organization’s specific goals, strengths, and weaknesses, but there are a few common KPIs that support successful procurement strategies. They are:
- Spend under management
- Savings totals
- Competitively sourced addressable spend
- Contract-compliant spend
- Percentage of electronically enabled suppliers
- Average cost to process a purchase order (PO)
- Average time to process a PO
- Average cycle times
- Orders per FTE
- User adoption rate
- Percent of purchases per PO
Once you’ve nailed down your procurement team’s most essential KPIs, review them regularly and use them to underpin your strategic decisions. The easiest way to keep track of KPIs and ensure they’re accurate is to adopt spend management technology that automatically gathers these figures and generates reports for you.
3. Draw your strategic blueprints.
When building a procurement strategy, spend analysis will show you where to focus your energy and KPIs will ensure you monitor and improve. The next step is creating a blueprint that maps out how you’ll push your procurement strategy into motion. Best-in-class procurement teams draw up this roadmap with three broad questions in mind:
- How can I use procurement to benefit the entire organization?
- How is my procurement strategy addressing the needs of all the company’s stakeholders?
- How can I use technology to speed up processes and drive more operational efficiency?
With those broad questions underpinning your strategy, you can create action plans to improve every inch of the procurement ecosystem, from spend analysis and supplier qualifications to contract management, receiving, invoicing, and payment.
Your plan will depend on your company’s unique needs, but here are a few areas to address in your procurement strategy:
- Spend concentration and opportunities for discounts
- Strategies for avoiding supply chain disruption
- ESG improvement
- Inventory levels and cycle time optimization
- Pre-approved discount levels
- Slow or costly purchase order processes
- Missing purchase orders or errors
- Opportunities to speed up PO approvals
4. Use a procurement solution to power your strategy.
There was a time when procurement leaders had to use intuition and spreadsheets to inform their procurement strategy. Those days are over. Here are a few ways you can use advanced SpendTech™, or spend management technology, to power your procurement strategy:
- Tie together systems and simplify work: Advanced SpendTech™, such as Vroozi, integrates with leading enterprise resource planning (ERP) and financial systems and provides an expansive application programming interface (API) library. That means your procurement team can roll all insights, workflows, and processes into one platform. Doing so breaks down work silos, keeps employees from wasting time transferring data between programs, and increases efficiency so your team can focus more energy on perfecting the strategy.
- Complete your digital transformation: Best-in-class SpendTech™ makes it easy to digitize your entire operation, from eProcurement ordering to full accounts payable (AP) invoice automation. When the entire procure-to-pay (P2P) process is digital, it widens your spend visibility, increases cost control, and improves operational efficiency.
- Increase compliant spend: If you choose a user-friendly platform like Vroozi, it will give your workforce access to a full digital supplier marketplace, automate procurement processes, make it easy to buy, and be intuitive enough for everyone to use. The result is increased user adoption, spend compliance, and spend visibility for you and your procurement team.
Use Advanced SpendTech™ to Jumpstart Your Procurement Strategy
By building an effective procurement strategy, you can improve your entire organization and place yourself firmly in the driver’s seat at your company. However, if you want to gain full visibility into spending, see the weak spots in your organization, and free your team up for more strategic work, you need advanced SpendTech™. Visit our eProcurement solutions page now to learn how you can use Vroozi to empower your team and execute your procurement strategy.
