Procurement Strategy explains how an organisation seeks to optimise external spend, procurement costs and other value contributions in a way that is aligned with corporate objectives.
Many companies lack a formal enterprise-wide strategy for how value is to be achieved through the procurement of goods and services. Consequently, it is very difficult to know if the procurement organisation is contributing to corporate objectives and how that contribution can be measured.
Lack of a procurement strategy can result in issues such as:
- Lack of alignment with corporate strategy and objectives, resulting in a lack of business unit support for Procurement, and even avoidance of engaging with Procurement
- Inability to proactively address and add value to the spend that occurs within various business units, often because Procurement is only brought into the contracting process at the time of contract negotiation, if at all
- Lack of Procurement involvement in defining requirements (e.g., specifications, demand profile) and go-to-market strategy resulting in sub-optimal sourcing and contracting outcomes
- Sub-optimal procurement operating model inhibiting procurement effectiveness and resulting in a perceived (or real) lack of agility and responsiveness
- Lack of defined category framework resulting in a lack of transparency and understanding of external spend (who is spending what with whom and why)
A clearly articulated procurement strategy will demonstrate alignment with corporate strategy and objectives on topics including process/cost efficiency, spend reduction, product innovation, global/local sourcing and corporate and social responsibility (e.g., ethical supply chain).
A clearly defined category management framework and specific category management strategies will provide the basis for improved business unit support and engagement in seeking their commitment to work collaboratively to achieve cost, quality, service and other outcomes. By demonstrating an understanding of business unit objectives and priorities there is the opportunity for procurement to act as trusted business advisor and change agent.
The procurement strategy will also form the basis for defining an efficient and effective operating model, including considerations of insource vs outsourced procurement operations and low cost country sourcing. The operating model will define organisation structure and accountabilities, resource and capability requirements, operational and governance processes and requirements for IT-enablement.
Our approach to developing an effective procurement strategy is to work with our clients to:
- Understand the current state of procurement across the enterprise
- What value does Procurement add?
- How efficient and effective is Procurement?
- Identify key objectives for Procurement, aligned to corporate objectives
- Define the target state for the procurement operating model
- Organisation structure, accountabilities & decision rights
- Culture, people and capabilities
- Category management framework
- Operational and governance processes / controls
- Performance management framework
- Requirements for IT-enablement
- Define measurable performance targets that will demonstrate progress towards key objectives
- Define an actionable implementation plan
The following are outcomes of this approach:
- Alignment of procurement and corporate objectives
- Support of business units toward achieving a more comprehensive ability to effectively manage spend across the company and for Procurement to be seen as a trusted business advisor and change agent
- A comprehensive roadmap for an effective and efficient operating model (organisation, processes & technology)
- Measurable performance targets for procurement value, efficiency and effectiveness
- Increased involvement of Procurement in strategic and transformational deals at an early stage that may improve sourcing and contracting outcomes
- Improved spend governance and transparency
- Increased spend under management
- Improved category management and sourcing strategies linked to overall corporate vision and objectives
- Measurable improvement in procurement value, efficiency and effectiveness
– BACK TO CONSULTING
"GRA helped us reduce inventories and improve operating cash flow by $12 million within 12 months whilst improving stock availability in stores. All the more impressive considering we were growing rapidly, but experiencing tough retail trading conditions at the time."
– Peter Birtles, Managing Director, Super Cheap Auto Group
- 20-40% inventory investment reduction
- increased service levels ranging up to 99.9%
- 10%-15% reduction in supply chain operating costs
- 5%-20% spend management savings
- the ability to fund business initiatives from operating cash flow (OCF) improvements
- improved return on capital employed (ROCE)
- a minimum 3:1 ROI (10:1 to 30:1 typical)