The success of a robust and highly efficient supply chain depends upon strategic purchasing. Strategic purchasing is defined as the process through which a company ensures a reliable supply chain by procuring from a third party. This process includes regularly tracking all a company’s purchasing activities and evaluating their impact.
Strategic purchasing is a broader term, and it includes more than just buying goods from a low-cost country to improve your bottom line. When we do strategic sourcing, we have to first identify the needs of the organisation and make a comprehensive assessment of the procurement strategy. Strategic procurement is distinct from procurement due to its proactive approach. In strategic procurement, the business must first define the right strategy, create and manage various business spend categories, forecast the needs and requirements of the business and evaluate past purchases.
The critical components of strategic purchasing best practices
To understand strategic purchasing more comprehensively, let us look at its components.
- Category management: This term refers to the process of categorisation of various groups and their management. The groups are categorised based on their similarity in nature, like IT and marketing. Additionally, in category management, you also need to define and categorise the budget heads of various organisational needs.
- Needs assessment: In this process, the business actively evaluates the various needs of its departments.
- Cost analysis: In the cost analysis process, the business evaluates and analyses the cost of each category/department.
- Forecasting: In forecasting, the business makes plans for the procurement and delivery of goods/services that are needed. Forecasting is done for a definite period, like annually, and the forecasts are evaluated regularly to check the performance against the plan you have based on the forecasting.
- Market research: One of the important reasons why businesses do strategic purchasing is to have a clear picture of which supplier provides you with what type of goods/services. This is important as it helps in planning the purchase of any new goods/services. Additionally, it helps you to consolidate your suppliers with overlapping offerings.
- Analytics: You have to regularly check all the major components of your strategy and other important operations. Important operations and components include historical performance based on the forecast. Regular analysis of the spending strategy is one of the critical components of strategic purchase.
- Supplier management: Strategic purchasing tries to manage the suppliers of the business. It focuses on categorising them, negotiating with them, consolidating the vendors’ et cetera.
Businesses should use the latest technology and efficient processes to bring transparency and efficiency to their strategic procurement process. It will help them to manage their spending strategy more efficiently. Strategic procurement helps businesses to reduce their expenses, improve productivity and increase efficiency. Whether you are a small start-up or a big multinational, strategic procurement helps you to build a base for creating an efficient and robust supply chain for your business.