Why Selecting The Right Procurement Strategy Is Vital

Diving into the procurement process without first understanding the market and its drivers is never a good idea. Instead, thinking through your procurement activities to develop a strategy is incredibly important for getting the best result.

We spoke with Procurement Co co-directors Heath Jess and Ryan Jackson to find out why developing a solid procurement strategy is key for any business.

What's involved in a procurement strategy?

Developing a procurement strategy requires researching the market, or as Heath explained, "working out the best way to approach the market for a particular good or service". That's a process which is comprised of many elements, a number of which Heath listed:

"Often, organisations engage the market without knowing what the market capability is."

  • Is there a known market available for what we're seeking or is it an immature market?
  • Has the way we've packaged the particular goods or services together potentially precluded us from getting the best outcome - should we incorporate other services we haven't thought of into the tender?
  • How important are we in the market with respect to expenditure - would tier-one operators be interested in the project based on the expenditure or the complexity?
  • What's our approach - do we know that it's a limited market so it's best to directly invite suppliers, or is there a large and competitive market so an open tender would be more appropriate?
  • Are there local suppliers – Small to Medium Enterprises (SMEs), or are we engaging an international market?

All these types of things are considered as part of a procurement strategy - the pieces you need to consider to achieve a successful procurement.

Instead of doing this research, some firms, as Ryan pointed out, use the procurement process itself to find this information, which often gets them a poor result.

"Sometimes organisations engage the market without knowing what its capability is and they use the tender process as a way to do their market testing at the same time. This isn't always good, as they can get painted into a corner with having to engage providers that might not be able to deliver parts of the service directly. This can lead to higher costs from having to subcontract parts of the service, or it can bring about quality issues."

What can go wrong if you don't develop a procurement strategy?

There's a lot that goes into a procurement strategy - but what can happen if you don't have one?

For a start, you could get few or even no responses to your tender. If you haven't done your research, you might find no-one can actually fulfil your request as outlined. And sometimes, as Heath explained, you might only get sub-optimal responses.

"If you're not fully across developing your strategy, and haven't done your research on the products out there, new technologies, or the way services are delivered, you might miss something and not get the best result possible from what the market could potentially do."

There's also a chance that a poorly developed tender document might cause suppliers to price their response higher than they otherwise would have.

"If you look like you don't know what you're doing and there's a lot of vagueness in the tender, the provider can sometimes add some risk pricing into their response. If they're not exactly sure what you're asking for, adding an extra margin into their quote can cover their bases in case they misinterpreted the requirement."

How should procurement and project teams work to develop a strategy together?

The best procurement strategies are the result of project teams and procurement working together in a strategic partnership, but this requires early engagement from both sides.

"If it's a project team seeking to deliver something the procurement team is not across, it's on the project team to engage procurement early so they can provide input on that strategy - and vice versa; if the procurement team are aware that a contract is running out in the next twelve months, they need to be proactive in telling the business that it's going to occur and suggest some potential strategies for re-contracting or the next tender."

To learn more about how Procurement Co and how their procurement services can improve your business, get in touch with a member of the team today.

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