How do I Choose the Best Procurement Strategy?

The very best procurement strategy is one that reduces the costs of products without negatively impacting quality, service, or delivery. The costs that should be included in the evaluation of a procurement strategy include both the internal soft costs of staff time and resources, as well as the hard dollar costs of the actual goods or services. Procurement is also known as purchasing and represents all the activity related to the acquisition of goods or services by a business or organization.

The first step in developing a procurement strategy is to analyze the current cost of procurement in your organization. Start at the beginning of the process with the person who requests an item. Document the time and effort required by all the staff involved in the business process. After the request form is completed, it is typically reviewed by a supervisor, who may then pass it on to the purchasing department or a local staff member responsible for ordering materials. Included in this analysis is the staff time dedicated to the payment of invoices for these goods, as one process is reliant upon the other.

Calculate the time required by each person in the process and multiply by his or her hourly rate. Include benefit costs, as well as the costs associated with the process. This may include paper forms that have to be printed, or an electronic tool that must be maintained and supported. The sum of all these costs is a true representation of the soft dollar cost to the organization of purchasing activity.

Review these costs and time to identify bottlenecks, processes that don't add any value, and time-wasting activity. Write up the ideal business process and include the people involved and the amount of time each step should require. Determine what changes are necessary to move to the proposed process. This may include investment in technology or changes in the actual responsibilities of several staff members.

Review the actual purchasing activity over the last two to five years to identify areas of potential savings. For example, purchasing all office supplies from one firm can result in lower costs on each item, due to discounts available for high volume purchasing. Analyze the amount of spending on different products or commodities to find potential for savings on product pricing. In an ideal world, the application of this procurement strategy is a systematic way to reduce product costs while strengthening relationships with key suppliers.