The procurement and supply strategy of a company should always be planned in such a way so that it is effective when it comes to maximising growth and stabilising profits. Effective procurement strategy helps to maintain the expenditure within the budget and ensures that the company gets its money’s worth of goods and services from the market. Procurement strategies that are made by the company should ensure that they not only diversify the supplier base but also make the whole process of the supply chain stronger and less susceptible to any disruptions. Using procurement strategies that are dynamic helps the company stay ahead in business within the market structure, which in turn leads to greater profitability and more effective consumer satisfaction.
Here are 8 absolutely essential tips and suggestions that form the very base of the whole procurement network of a company.
Strategic Sourcing
Strategic sourcing is required for good procurement management because this forms the very foundation of requirements, as it focuses on creating long-term valuable profit opportunities for companies rather than saving money for the short term. An effective programming strategy begins with examining the requirements of purchasing of the company along with closely examining the situation of the markets and the cost involved. Strategic sourcing also involved picking up the appropriate supplier by testing quality and dependability along with their penchant for innovative techniques. It also helps business houses to keep risky affairs to a minimum. It increases clarity of day-to-day operations and also makes sure that the working of the strategies is relevant for the goals that the business stands for. The correct strategy for sourcing makes the supply chain processes more adaptable to various disruptions and also makes day-to-day operation more efficient so that the business houses that adopt these strategies stay ahead in competition and gain long-term profit.
Cost Management
Cost management is a very important part of sourcing because it has a deep influence on the company’s profits and how the company navigates its competition in the market. The technique of cost management is used to make sure that the company identifies savings wherever possible, whether it is supplier selection or bringing valuable contracts to the table or making sure that no surplus amount is spent on logistics or excess materials to prevent meaningless expenditure. It also analyses the pattern of spending adapted by the company, the prices set by suppliers and also the streamlining owning of the processes of day-to-day procurement affairs so that the whole system remains within the budget.
Supplier Relationship Management
Supplier relationship management is something that provides business houses with long-term and profitable partnerships between the company and the suppliers. Building a good relationship with the supplier makes communication steady and more transparent, along with increasing mutual respect and collaboration. A good relationship with the suppliers also makes sure that the suppliers are held accountable for their own decisions and actions. Together, suppliers and the business houses can work on developing better quality and adopting better technologies to ensure that they stay ahead of their competitors in the supply chain market. A good relationship with a supplier also gives the company better pricing, more value when it comes to contracts and also first access to resources, which makes the supply chain resilient to combat untoward events and make sure profitability & business activities are not hampered.
Risk Mitigation
Risk mitigation is an important part of the procurement strategies that are adopted by business houses because finding solutions to threats that pose a risk to the financial stability of the organisation is a necessity to help the business stay afloat and continue its operation despite disruptions in the market, thereby increasing not only its brand reputation but also strengthening the loyal consumer base. Taking steps to minimise risk and combat any unprecedented situations that might develop in the supply chain market helps the business build immunity against any sort of social, political or natural disruptions that might have a direct and harsh impact on the market. Risk mitigation also helps the company to smoothly operate during not-so-favourable times and recover fast in case of any setback, which gives the business much flexibility in day-to-day operations and in turn creates long-term sustainable profitability.
Contract Management
Contract management agreements help the business houses to make sure that the contracts that are brought to the table are in line with the goals and aims of the business houses so that they work efficiently to increase the margin of profit and contribute to better consumer satisfaction. It also helps the companies to hold the suppliers accountable for non-performance and also make sure that the work is done timely and deliveries are made on time. Contract management also helps the business houses comply with the prevalent laws and regulations and makes your supplier they are picking out to work with comply with them as well. Long-term collaboration with suppliers through efficient contracts helped the business houses to access cost-efficient resources and also enjoy benefits on the basis of priority. Contract management is also used to enforce the terms and conditions of the contracts and make sure that both sides benefit from the same and reduce the risk of violating any rule. A long-term partnership through a robust contract helps to develop mutual respect and encourages transparent communication and solutions to disputes. In this way a good contract management system helps the business houses to increase their value in the long run by promoting efficient operation and sustainable growth.
Technology Integration
The latest technology in business can not only improve the efficiency of day-to-day operations but also increase the accuracy with which the operations are carried out. Integrating technology with business decisions can actually lead to more accurate decision-making and also finding more efficient ways to make sure that the procurement strategies used by the company are foolproof and valuable. Using e-procurement as a part of procurement strategies helps to automate several aspects of the procurement process, which would not only increase accuracy but also take less time and improve the performance of the company as a whole. There are various cloud-based technologies that help to analyse market trends, examine supplier performance and also focus on several market-related predictions, which leads to smarter decision-making on the part of the company. It not only reduces human error but also improves clarity and collaboration with the suppliers and promotes faster action, which not only reduces risk but also leads to long-lasting growth and profitability.
Data-Driven Decision Making
If business houses rely on data for decision-making, then it would not only lead to accurate and smarter decisions but also improve their overall performance. Being data-driven when it comes to decision-making makes the company more flexible and adaptable to the ever-evolving market scenario because it is noted that data-driven decisions are based on accurate insights on the market and also rely on accurate predictions forecasted by data, which not only open the doors for saving surplus expenditure but also hold these suppliers accountable for their actions and performances. This way data-driven decision-making helps to keep risk at bay and make the overall system and network of supply chain management more effective so that the strategies that are in place with the aims of the company fulfil its goal and lead to profits.
Sustainability & Compliance
Sustainability and ethical sourcing are very important parts of strategies because with climate change and natural disruptions around the world, it has become obligatory for companies to maintain sustainable procedures when it comes to business. It is expected of them that they follow all the laws and regulations that are in order to promote sustainable business affairs so that the planet thereof does not bear the brunt of human activities. Therefore, sustainability today is not just an option but a necessity for business houses because they not only increase brand reputation and consumer satisfaction but also contribute to the natural world by adhering to ethical suppliers and ethical labour norms. Thus, sustainability has today become a way of innovation, long-term value creation and also profitability.
Conclusion
The eight points that are discussed in the article are an integral part of strategic sourcing. From managing cost to making sure that the decision-making is based on data to integrating technology in sourcing and making sure that all the sustainable rules and regulations are complied with, strategic sourcing is a complex network of various procedures, and when these are carried out in tandem with one another, they create value and profits for the company.
Want to make your procurement smarter and more resilient?
Start by evaluating your strategy against these pillars.
Author’s Bio:
Pankaj Tuteja
Head of Operations – India
https://www.dragonsourcing.com