A Strategic Procurement plan is used to plan and manage all of Organization’s strategic procurement activities, which can include all or some of the following:
- Strategic sourcing (actions to achieve savings, cost avoidances)
- Supply chain risk mitigation (moving away from high-risk Single sourcing situations, increasing Vendor depth with finding alternative Vendors)
- Supply chain development (finding new suppliers for existing or new products)
- Supply contracts renewals
- Supplier management/reviews and site audits
- On Time Delivery (OTD) improvements
- Quality improvements
- Payment terms reductions
- Inventory levels optimizations (push for vendor held inventories, consignment stocks, just in time (JIT) deliveries, Kanban, etc.)
- Others
Note: Strategic Procurement plan should not be mistaken with Strategic sourcing plan, which typically only focuses on Savings/Avoidances actions.
The goal of a Strategic Procurement plan is to increase the efficiency, effectiveness and transparency of the key activities that Procurement is working on. The Plan specifically describes what Projects will be worked on, what will be the financial impact and the start/end dates for each Project. It also includes information such as who will be working on each Project, detailed tasks breakdown where applicable and any additional critical project details.
Creating and maintaining a Strategic Procurement plan helps organizations avoiding surprises and last-minute considerations. It also allows the Management to determine if their expectations and requirements are realistic and can be completed in the proposed projects timelines.
Typically, organizations start the yearly planning of strategic sourcing and other procurement activities a few months ahead of each new Financial year. For example: if the Financial year of 2022 is running from January to December 2022, the planning of strategic procurement activities for the next Financial year (2023) should already start in October 2022.
The following are the key steps to take in preparing the Strategic Procurement plan for the next Financial year:
- Budgets and Targets for the next Financial year
- Spend analysis of the last 12 months
- Existing Strategic sourcing plans
- Contracts to be renewed
- Critical business drivers
- Other strategic procurement activities
- Final plan of activities
1. Budgets and Targets for the next Financial year
Companies may have either a top down or bottom-up methods to develop the Budgets, which are then further used to determine the Targets for Procurement Cost savings and also for Cost avoidances. Regardless of the type of Budgeting approach, it’s imperative for Procurement to be heavily involved in this process early on in order to ensure realistic savings and avoidances targets are agreed on. Leaving Procurement out of the Budget and Target setting discussions can quickly result in setting unattainable cost savings goals.
The end result of this process is clear spend budget for the next financial year and targets for gross savings, price increases and avoidances for Procurement function.
2. Spend analysis of last 12 months
This process typically starts with an extract of spend data from the ERP system in a form of Purchase Orders or Invoices or any other spend/consumption dataset. Best practice here is to use the most reliable and accurate set of data that is available.
The following are the key steps:
- Identify spend values by categories/commodities
- Is this category already under contract?
- Is there already a sourcing action in current plan on this category/commodity?
- When was the last time this category/commodity was competitively tendered?
- Determine the supplier depth on each category, i.e. is there only a single supplier for this category or is there multiple suppliers? This information determines the level of Supply chain risks.
- How complex is the category sourcing processes?
- How long will it take to complete the sourcing review of specific category?
- What are the estimated savings or avoidances potential for each category/commodity?
- Who in the procurement team will be available to work on these projects and for how long will they be available?
In case the categorization is not yet implemented (either in-house list of categories/commodities or UNSPC or similar), it is advisable to do this as soon as possible since this is one of the most critical steps in spend analytics.
3. Existing Strategic sourcing plans
Procurement plan from the current Financial year already contains a number of Procurement actions that may not have been fully completed yet or are potentially delayed and pushed into the next Financial year. All such projects/actions need to be considered while during the planning for the next financial year.
The following are some of the factors that will decide whether some of the actions from the current plan should remain in the new plan or put on hold:
- Criticality and importance of various business drivers
- Spend Budgets and Targets for the next financial year
- Resources required to execute the work
It is also important to consider the dependencies between different factors, conduct a risk analysis and ultimately prepare an appropriate risk management plan.
4. Contracts to be renewed
Identify what contracts will be expiring in the next Financial year and who will be leading the renewal negotiations and/or “go to market” tendering activities. This will ensure that no contracts expire by mistake and break any automated procurement / invoicing processes in the ERP system.
5. Identify critical business drivers
Make sure the following are clearly identified and included in the Procurement plan:
- Overall Business Strategy and Drivers
- Procurement and Operations Strategy and Drivers
- Other critical business Functions Strategy and Drivers
Typically, the Procurement plan and activities should be aligned with the above drivers and this will influence the distribution and timing of the actions in the final procurement plan.
6. Other strategic procurement activities
Aside from Savings and Avoidances, Procurement will typically be working on a number of other strategic improvement initiatives such as:
- Supplier On Time Delivery (OTD),
- Payment terms,
- Quality,
- Inventory levels (vendor held inventories, consignment stocks, Kanban, etc.), and others.
It is important to consider these activities in conjunction with the steps above to ensure sufficient resources allocation and prevent disappointments with non-deliveries or delays of these projects/actions.
7. Final Procurement plan
Once the above list is completed, it typically takes a few rounds to get to the final version of the plan agreed and signed off considering all the drivers, resourcing, targets, etc. Depending on availability of existing Procurement resources, the plan may also require hiring of additional resources.
The process outlined above may be initially perceived as time consuming to some, but it’ll quickly start paying off the dividends once embedded and implemented. Once this process is deeply entrenched, it becomes a well-practised process that can be executed multiple times per year with a lot less effort.
What’s your goal today?
We have outlined above what should be the critical steps to take when creating and executing the yearly Procurement plans. These steps can be done manually using Excel and similar tools or alternatively you can opt for more streamlined solution such as Spend analytics/Savings Apps and similar Procurement software options that further automate and accelerate the process steps outlined above.
Use Procurement Savings Tracker App to plan, track and manage all your Strategic Procurement Activities
For example, Etomix Procurement Savings Tracker App has multiple functionalities that makes following and executing the process steps above a breeze:
- Project planning module makes planning of all activities super easy through quick sorting, filtering and other functionalities such as Forecasting and Tracking savings, increases and avoidances
- Contracts module allows quick identification of contracts that are due to be renewed and additionally enables automation of savings and increases reporting
- Carryover Savings and Avoidance projects are easily identifiable and tracked so the Procurement plan becomes a revolving plan that does not require a clean start every year
- Spend analytics with categorization support is super easy to do
We’ve helped save millions of dollars for our clients through better spend management, process automation in savings/avoidance planning and tracking and reducing financial risks.
- To discover how we can help grow your business, visit our Procurement Savings Tracker App page for more details.
- Check out our Blog for other articles that may be applicable to your business situation.
- BOOK A LIVE DEMO to see how Etomix Procurement Savings Tracker App works in action and what else can we help you with
