Webinar Notes: Five Steps To Creating A Successful Procurement Strategy

This week’s featured event was hosted by Sourcing Interests Group and presented by Denali Group’s John Evans and Grant Dearborn. Their ‘Five Steps To Creating A Successful Procurement Strategy’ logically started with their working definition of strategy, one that is specific to procurement:

“[Strategy] Defines a plan for optimizing external spend, procurement operations and other value contributions in a manner that supports the overall corporate agenda.”

Their advice on developing a procurement strategy assumes that you are working in an organization already ‘in flight’ rather than starting from scratch. As such, a very important part of the effort is setting a baseline. This baseline can be established by collecting information through a combination of stakeholder surveys, input from suppliers, and industry benchmarks. The gap between the baseline and the forward-looking strategy functions as a map of sorts for procurement, keeping resource allocation and priorities on course.

Evans and Dearborn segmented effort, results and metrics into two basic categories of procurement contribution: value and efficiency. Both categories need to be tied to overall corporate objectives, with procurement’s contribution and the associated metrics clearly spelled out. Most of what procurement does combines value AND efficiency, but the way they are measured differs. For example, a measure of value might include an overall return on investment for procurement (what it costs to maintain a procurement organization relative to the savings that organization generates). An efficiency measure based on similar data is the procurement cost per dollar of spend under management.

After getting into the details of some of the performance metrics discussed, addressable spend came to light as an important definition to put together. Usually, addressable spend excludes costs such as taxes and regulatory fees – spend that procurement cannot affect. Use caution when putting spend into this category however, as the idea is to keep as much spend on the table as possible.

If you are interested in more on how to develop an effective procurement strategy of your own, download and read the Denali Group whitepaper on the topic.