In the 21st century, it is hard to find someone from business sphere who has not heard about electronic procurement (or e-procurement). Today, supplier exchange is increasingly popular among different types of organizations and its popularity keeps growing every day.
It has been proven that a competent, fully integrated e-procurement approach is needed for overall prosperity.
However, if you want your business to grow and develop in the right direction, then you must be aware that implementation of e-procurement can yield benefits only when well-grounded e-procurement strategy is in place.
The statistic shows that properly selected procurement strategy delivers cost savings in the range of about 10% on the total spend, as well as competitive sustained advantage in the long run.
What is Procurement Strategy?
Procurement strategy is a method for optimizing external spends, procurement operations and other value investments in a manner that supports the overall corporate agenda. Comprehensive procurement strategy helps understand whether your procurement organization is aligned with the corporate strategy or not.
Top-5 Effective E-Procurement Strategies
Nowadays, among the most forceful e-procurement strategies specialists define the following ones:
Procurement researchers affirm that supplier optimization is one of the best-known purchasing strategies in e-procurement. Its main point: the organization chooses a group of the most suitable vendors who can provide the favorable prices and terms. During the process, the company studies in detail candidacy of the selected suppliers, decides on the best ones, and rejects services of those sellers, who cannot provide a quality service and convenient prices at the required terms.
Total Quality Method (or TQM)
Total Quality Management is a sought-after strategy by which both employees and management are involved in the continuous improvement of the production of certain items. It is a combination of quality and management tools aimed at increasing business and reducing looses due to lavish practices. Continuous improvement deals not only with improving results, but also with improving capabilities in order to produce better results in the future. The five major aspects that provide capability improvement are supply generation, demand generation, operations, technologies and people capability. TQM’s philosophy integrates all organizational functions, including finance, marketing, design, production, engineering, and customer service to focus on meeting buyer needs and organizational objectives.
Risk management strategy helps to avoid a variety of risks that most organizations usually face during the procurement process. Understanding the main categories of risk faced in the procurement process assists in risk assessment and planning practical management and operational measures that should be taken to diminish those risks. Risk management seeks to reduce the risk impact by reducing the likelihood of its occurrence and through thorough planning and monitoring.
Global sourcing is another procurement strategy through which an enterprise works to identify the most profitable location for product manufacturing, even if that location may be in a foreign country. The general sourcing process can be divided into 5 stages: explained preliminary research, supplier and market evaluation, selection of the supplier, implementation, and performance monitoring. Good global sourcing strategy addresses cost, laws, currency, lead time, culture and language, transportation, payment methods.
Vendor development is closely related to supplier relationship management. This strategy combines working with certain vendors on a one-to-one basis to improve their performance for the benefit of the buying company. If supplier can’t perform required standards, the purchaser assists the vendor in improving services or implements processes to improve the procurement cycle.
Effective Procurement Strategic Plan
Once you decided to implement any of the e-procurement strategies, you should take into consideration the industry type of your company and the corporate’s internal and external environment. Usually, organization follows several important steps when creating the effective e-procurement strategy. They comprise understanding of where your procurement operations are today, identifying what’s important — to the procurement organization as well as to the overall company, defining what success looks like, developing measurable targets that define success, and finally – implementing the chosen strategy.