A Changing Field
Two economic trends are driving the growing importance of procurement:
•Increased competitive challenges are driving businesses to consider procurement as a method of improving their bottom line. As a result, CEOs search for ways to save money, and simplifying procurement procedures is one option.
•Many businesses are increasing their reliance on outsourcing. As a result, procurement decisions are becoming increasingly essential to the viability of companies.
An effective procurement strategy enhances performance in a variety of ways, including:
•Getting rid of irresponsible spending.
•Improving connections with suppliers.
•Increased negotiating leverage with suppliers.
•Improving supplier connections.
•Aligning buying decisions with the aims and objectives of the organization.
How Old Are You?
Measuring a company’s procurement maturity entails determining how near it is to attain the outcomes above. Maturity is classified into four levels: novice, intermediate, advanced, and expert. There is no correlation between the size of a firm and its procurement maturity. Companies of all sizes are at different levels of developing their procurement activities.
1. Evaluate maverick expenditure in the IT department using the Maturity Assessment Guide. Check with supervisors to see if any illegal purchases are being made. If so, what type of purchases did you make? The volume of transactions made outside of traditional procurement processes may astound you. Expect excessive levels of ad hoc expenditure if there is no process in place. The following degrees of maverick cost are characteristic of procurement maturity:
Level 1: Significant out-of-the-box spending.
Level 2: Minimal opportunistic spending.
Level 3: Almost no irrational expenditure.
Level 4: No irrational spending.
2. Inspect your purchase methods and procedures. Find your documented set of guidelines outlining your company’s procurement operations. Is your firm using repeatable practices in the absence of documentation? Or does each transaction necessitate an ad hoc jumble of steps? The following degrees of procurement procedures generally describe procurement maturity:
Level 1: There are no processes or procedures.
Level 2: There are processes and procedures in place, but they are not recorded.
Level 3: Processes and procedures are documented and put into action.
A multi-functional committee makes major procurement choices at Level 4.
3. Evaluate your supplier relationships. Consider how well you know your suppliers rather than how well you know your procurement processes. Generally, the more knowledge you have about the individuals with whom you conduct business, the better your connection. You cannot create a partnership with suppliers and service providers if you do not have purchasing information. However, you can assess and rank providers with the correct information.
As follows, your procurement maturity level is related to your supplier relationships:
Level 1: No purchase information on file; must request it from vendors.
Level 2: Evaluate pricing, quality, and delivery using supplier information.
Level 3: Rank suppliers and cultivate strong connections with a select few.
Level 4: The percentage of business a provider receives corresponds with their performance ranking.
4. Determine your negotiation strength. You may also use the information to increase your purchasing power. To what extent do you use supplier information to improve your purchasing power? Do you plan your purchases to gain a competitive advantage? Is your company’s bargaining abilities strong? The capacity to leverage spending power characterizes your procurement maturity level:
Level 1: The company’s spending power is underutilized.
Level 2: Significant purchases are negotiated and coordinated to build leverage.
Level 3: All purchases are planned and managed.
Level 4: Cost-cutting suggestions from suppliers are brought to your firm first.
5. Determine the strategic alignment of procurement. Experienced buyers are aware of the entire business strategy as well as the procurement plan. How many of your purchasing decisions are considered strategic? Do you have a solid system in place? The following is how procurement’s strategic alignment relates to maturity:
Level 1: There is no strategic strategy in place to regulate procurement.
Level 2: Despite the lack of a strategic strategy, purchases are strategic.
Level 3: Almost all acquisitions are in line with business strategy.
Level 4: Complete agreement with the company’s aims and objectives.
6. Consider your purchasing experience. Do your buyers go through training? Do they comprehend the strategic significance of purchasing decisions? Do they understand how to use cost accounting in a negotiation? Do they, for example, understand the distinction between direct and indirect expenses, as well as overhead? Your procurement maturity level in terms of purchasing experience is as follows:
Level 1: Inadequate purchasing experience; no training.
A buyer training programme is in place at Level 2.
Levels 3 and 4: Buyers understand strategic purchasing and the value of cost.
In conclusion, taking a strategic approach to IT procurement may help you save money and increase efficiency. Assessing your current procurement maturity is the first step in developing a strategic approach to IT procurement strategy.
Part Two of Strategic Procurement
Many businesses have achieved a competitive edge by considering procurement as a strategic function. Make a plan for your procurement process and ensure that it includes these best practices.
Robust procurement procedures integrate buying decisions with company strategy, enhance negotiating leverage with suppliers, and maximize investment value.
The trick is knowing when to go through a comprehensive procurement procedure. The purchase price is always a good measure of strategic importance. Purchasing all office supplies from one provider at set times, for example, might enhance purchasing leverage. Replace 50 CRT displays with LCD monitors, buy 30 portable devices, invest in a storage area network, or set up a wireless local area network are more obvious examples. However, the procurement process must be followed to maximize the value of such acquisitions.
The Best Practices
Add the best practices listed below to your current procurement procedures to reduce ad hoc spending, increase operational efficiency, acquire significant negotiating leverage with suppliers, and connect buying decisions with company goals and objectives.
- Determine the procurement aim.
a. As clearly as feasible, define the target customer and the boundaries of the region influenced by the transaction (i.e. dependencies on other projects, items and systems, the effects on business processes, etc.).
b. Ascertain if the acquisition is in line with the company’s aims and objectives. For example, suppose the purchase cannot be justified along strategic lines. In that case, you may save yourself a lot of time and effort by cancelling the buy and shifting your emphasis to more strategically important procurements.
c. Interview stakeholders and assess their involvement in the procurement.
d. Compare expenses and advantages.
2. Specify the procurement needs. The essential aspect of the procurement process is the planning of the purchase’s specifics. Keeping in mind that even robust plans might change, it is critical to guarantee complete version control of the objective and strategy throughout the process. The following actions must be completed according to the criteria list:
a. Create scenarios for getting the supplier’s goods or services.
b. Examine the risks associated with the transaction.
d. Plan the purchase within the context of a risk management strategy.
d. Identify the critical decision points, such as timeframes, supplier type, bidding method, contract flexibility, and project needs.
3. Make an offer. The goal of tendering is to pick a supplier & then reach an agreement with that provider on a contract that outlines deliverables and the obligations of both parties. This phase requires the following tasks to complete:
a. Evaluating vendors’ prior performance (if the information is available).
b. Constructing a request for proposal (RFP).
c. Evaluating the answer suggestions of the providers.
d. Selecting the provider who best fulfils the organization’s strategic needs.
e. Creating a supplier contract for product or service delivery.
4. Keep track of supplier deliveries. This phase seeks to monitor the procurement objective as stated in the contract, i.e. to guarantee that the deliverables meet the specifications. As a result, a certain number of contract status reports should be generated during the project. These reports aim to reduce the risk of unfulfilled contract commitments and develop the supplier’s performance knowledge base.
5. Finish the procurement. This assignment ensures that any outstanding procurement concerns will be resolved to your satisfaction. Among the tasks to be completed are:
a. Make sure that all contracts are executed.
b. Evaluate the procurement goal’s accomplishment.
c. Assess the outcomes for future procurements, including supplier quality and opportunities for improvement in the procurement process. Find out More