How do you set a strategy for your procurement function? Discover what to actually do.
How many times have you heard the word ‘procurement strategy’ throughout your career? Hundreds, if not thousands? And how many times have you seen one created and executed brilliantly?
In 2020, especially after this year’s crisis, we all know that a procurement and supply chain strategy is more important than ever. But it’s also more challenging than ever to create the right one, as we posited in our last article Procurement Strategy: What You’re Currently Doing Wrong.
So with all the challenges and complexities that a procurement strategy brings, is it possible to create an ideal one? One that goes beyond a ‘your wish is my command’ strategy, yet doesn’t make the mistakes inherent in a ‘market leader’ strategy?
It most certainly is. And here is how you do it.
Step 1: Assess and define
The first step in setting a strategy is assessing the one that you already have. Think you don’t have one? Think again. As we showed in our last article, all procurement functions have a strategy – whether they like it or not.
If you’re struggling to define your strategy, or it seems like it’s nonexistent, have a look at the choices and activities you undertake every single day. Are you constantly behind, putting out fires left, right and centre and at the mercy of your stakeholders? If so, you’re probably pursuing a ‘your wish is my command’ strategy. Or alternatively, are you rocketing towards an idyllic vision of ‘procurement best practice,’ focusing more on the doing side rather than consultation with your stakeholders? If this is the case, you’re pursuing a market leader strategy which, although it may seem ideal now, will soon lead you astray.
Assessing your current strategy will force you to confront the truth about what you’re doing but more importantly, what is and isn’t working. Understanding your mistakes here will help set you up to create a strategy that does work.
After you’ve discovered your strategy, the next critical step is understanding the strategic priorities of the organisation. For example, perhaps you’ve always been focused on costs, yet your business is more focused on quality? When undertaking this step, as procurement professionals, it’s tempting to pour our everything into it, meticulously researching our business, their competitors, and so on and so forth. Yet with all things strategy, the solution is more important than the problem, so ensure that you spend no longer than a few hours figuring out both your own strategy and that of your business.
Step 2: Identify stakeholders and laser-focus
From a stakeholder analysis perspective, the problem with the ‘market leader’ strategy is that, quite simply, the firm’s internal stakeholders aren’t consulted in its creation. Conversely, the problem with the ‘your wish is my command’ strategy is that stakeholders aren’t consulted here either – they are just left to make demands.
The obvious solution for procurement, then, is to identify your primary stakeholders within the firm, figure out your core offering to them, and define what you will be able to deliver, and what may need to be outsourced.
Dave Pastore, Senior Director, Sourcing Operations, at Corcentric, believes that identifying key stakeholders is absolutely essential to secure buy-in across the organisation:
‘You’ll find that some stakeholders are more inclined champions of procurement than others, identifying them early and collaborating with them will lead to a snowball effect on procurement’s successful collaboration across the organisation.’
To give an example of, let’s say that a business has recognised that their rate of returning customers is low, due to substandard product quality. The primary stakeholders who are concerned by this trend are the executive, customer service team and marketing team – and they are exactly who, from a strategic perspective, you’d need to prioritise. As a procurement function, then, your focus may be on sourcing new, higher-quality suppliers, while also carefully balancing cost considerations, as undoubtedly the finance team would still be a key stakeholder for you. With the focus on product quality, you may then choose to outsource quality assurance or administrative tasks, so you can laser-focus on what will add the most strategic value.
When considering the overall corporate strategy, and which stakeholders to prioritise, you’ll inevitably need to choose the parts of the strategy that you can influence the most.
Step 3: Consider your competitive advantage
When it comes time to decide which strategy to pursue, your decision-making process should be similar to the way that any business decides their own strategy: by figuring out your competitive advantage.
Think about it. How does Starbucks get ahead? By providing better value coffee than Dunkin’ Donuts. And McDonalds? They need to find their unique value proposition and deliver on it, vis-a-vis Burger King. As strange as it may seem, this is no different from you and your procurement strategy.
Diego De la Garza, Senior Director, Global Services, at Corcentric, believes that your competitive advantage may not be just one thing, but rather it should evolve over time:
‘Your competitive advantage should evolve as the environment of the organisation changes, one day the organisation is ripe to capture savings and the next is prioritising process automation.
‘Procurement competitive advantage is predicated on its ability to deliver value to what the organisation needs most.’
Even if your competitive advantage is something that evolves, it still can be challenging to discover. For example, it clearly doesn’t make sense for procurement as a function to compare themselves against other internal functions, such as finance. It also doesn’t make sense for procurement to compare their own function to procurement in another organisation, as that business may have a totally different strategy. Procurement, as with all other internal functions, has an effective monopoly within each individual organisation, so comparison is hard. Often, the most effective comparison is an outsourced provider.
This can often be a useful starting point to define your competitive advantage, though. All things considered, what value can you deliver that an outsourced provider cannot?
Step 4: Play to win
Once you start to understand what value you might be able to offer your organisation, and your stakeholders in particular, create several different strategies with different focuses, and then decide on the one you believe will have the highest chance of success. For example, with the situation described above, you may decide to focus on procuring higher-quality suppliers, or alternatively, technology that can guarantee better quality assurance.
You won’t know which strategy will be the most successful, of course, but ensure that you’ve comprehensively consulted your stakeholders to maximise the best outcome. Then, throughout your implementation, make sure everyone is continually consulted, and informed, especially if requests akin to the ‘your wish is my command’ strategy start creeping in.
Stakeholders are well and truly key to a successful strategy, says Dave Pastore:
‘A key to ensuring the successful adoption of your procurement strategy is to collaborate with those who will be most impacted by it: your stakeholders.’
We all know that strategy is important – but equally, that it’s hard. But by understanding your company’s strategy, then figuring out your competitive advantage as a function and, finally, consulting with your stakeholders, you’ll have the best chance of creating and implementing a strategy that will add the value you know you can bring.
What challenges have you had in setting your procurement strategy? Let us know in the comments below.