Building a Solid Procurement Strategy with Procurement Management Plan
Key takeaways
- Procurement has grown into a strategic business function that can help organizations achieve their business goals.
- A procurement management plan can help organizations save costs, improve profitability, and accelerate product time to market.
- A project procurement management plan can help organizations reduce risk.
- The goal of a procurement plan is to increase the efficiency, effectiveness, and transparency of the procurement process.
- Procurement planning allows organizations to compare real-world performance with the planned activities and timeline and alert departments to adjust processes to get them back on track.
What is a Procurement Management Plan?
In simple terms, a procurement management plan or a procurement plan is a document that is used to manage the process of finding and selecting a vendor. The procurement plan justifies the need for external suppliers and outlines the process of finding a supplier will be performed. All the steps from identifying the project requirements to closing the contract are outlined in the procurement plan. In this blog you will learn what is a procurement plan, the need for one, benefits of a procurement plan and ways to create a robust procurement management plan.
Table of Contents
Delving into Procurement Plan in Greater Detail
A procurement plan defines how the company acquires the necessary materials to produce its goods and services. The scope of the procurement function has grown beyond simple purchasing and vendor selection, it has grown into a strategic function that makes valuable contributions to business profitability. Strategic procurement planning is based on data and analytics for monitoring the procurement process, its impact and effectiveness. For sound procurement planning, you will need to understand every aspect required for producing quality goods and services.
Strategic procurement planning uses key performance indicators to regularly measure, review, and improve processes. A procurement management plan provides information on utilization rates or materials, how to effectively negotiate pricing, what supply chain and transport coordination is required, and how to mitigate any risks that may arise. Supply and demand analysis planning can also take inputs from the procurement plan. The most efficient procurement teams often operate with a robust procurement management plan for buying before diving into the purchase process.
Procurement planning helps teams get a thorough understanding of the stakeholder requirements, analyze risks, and reduce procurement costs. The framework of the procurement plan is built on the following points –
- How to identify and decide on the key suppliers?
- What kind of contract can be used for vendors?
- What are the risks related to vendors, and how to mitigate them?
- Who is responsible for which aspects of the procurement process?
- What are the realistic expectations around the quality, cost, and delivery timeframes?
Usually, the procurement manager, procurement specialists, and officers sit together to build the framework for the procurement plan. A well designed procurement plan not only ensures that projects are completed within timelines, but also serves as a blueprint that guides businesses through purchase of goods and services.
Why do you need a Procurement Plan?
So, why is a procurement plan important? A procurement plan may be considered as the cornerstone of project management. It ensures that procurement activities are aligned with the project timeline at all times. It gives a clear outline of the procurement process, along with key responsibilities of all stakeholders. A procurement management plan clearly delineates the procurement process from identifying potential suppliers to specifying contract type, which helps project teams anticipate procurement costs and makes sure that all raw materials or services are acquired on time.
Here are 8 reasons why a procurement plan is important for the business –
1. Saves costs
Any business welcomes measures that save costs. A comprehensive procurement plan cuts down on enlarged running costs and fosters cost optimizations. Successful price negotiations are possible when you have a solid procurement plan in place. By identifying and tracking tail spend and putting standard procedures into place, procurement planning goes a long way in cutting costs for organizations.
2. Quicker processing and executions
Although risk mitigation and cost optimization are critical for an organization, it is more important to focus on speedier processing of deliverables. The need for optimized procurement processes increases as supply and demand ratio increases proportional to organizational growth. Procurement planning equips organizations with the capability to monitor market analysis, supplier demand, and transaction turnovers.
3. Risk mitigation
Strategic procurement planning can identify inaccuracies in prior analysis, process delays, non-compliance, and poor decision making. Investing time into strategic planning gives organizations the advantage of mitigating risks and curbing them permanently.
4. Strategic sourcing and supplier management
Procurement is closely linked to supplier relationships. The loyalty and brand awareness that the organization builds with its vendors results in profitable negotiations and favorable scenarios for both parties. Establishing and maintaining strong vendor relationships is possible with a strong procurement plan.
5. Optimized procurement
Business owners need to revisit their current business models and adapt to newer technologies and innovations to stay relevant. The procurement function makes significant contributions to organizational growth. Studying strategic procurement market scenarios and building a procurement plan that aligns with the market helps optimize and plan procurement operations.
6. Sustainability
Companies that work towards fulfilling customer expectations almost always find themselves in a win-win situation. Such companies have a strategic procurement plan in place for cutting costs, providing sustainable solutions, and delivering customer-centric products/services.
7. Compliance and security
Having a procurement plan helps organizations maintain compliance and security standards at all times. The procurement management plan establishes clear operating procedures that teams have to follow in order to maintain compliance and security.
8. Outlines roles and responsibilities
A procurement plan clearly outlines who is responsible for which task in the procurement process. From contract managers to procurement managers to officers, the plan clearly outlines the responsibilities for each role, which is fundamental for maintaining control over procurement activities and ensuring procurement best practices.
Core Elements of a Procurement Plan
What are the elements that must be included in the procurement plan? Procurement plans can be designed for specific requirements and projects or for multiple requirements that are related to different systems. The details of every procurement plan will vary depending on the procurement workflow in your organization. A procurement management plan is designed with 3 integral components, each playing a pivotal role in the plans overall efficacy.
The core components of a procurement plan are –
Procurement Strategy
The first and the most important component of the procurement plan is the procurement strategy that defines the overarching approach. It outlines the products or services that need to be acquired, and when they need to be acquired. The budgetary constraints are also included in the procurement strategy. The strategy is a blueprint that guides the project teams towards achieving project specific procurement objectives.
Procurement process
The procurement process provides working details of the procurement strategy. It provides details on the who, what, and how of the procurement strategy. The actual steps involved in achieving the goals outlined in the strategy are part of the procurement process. It delineates the pathway from identification of the needs to the selection of suppliers and management of contracts. This systematic process ensures cost efficiency, adherence to project timeline, and cost-effectiveness.
Procurement control plan
The final component of the procurement plan is the procurement control plan. It provides detailed measures for monitoring and managing the costs associated with the procurement. Robust control measures ensure that the plan is executed within the budget and contributes to the organization’s value objectives. The procurement control measures aim at safeguarding the financial health of the procurement function. This plan implements the controls for detecting and preventing resource wastage and policy violations.
These 3 components work in tandem to create a strong foundation for a successful procurement management plan, and aligning procurement efforts with the overall project goals and organization’s strategic direction.
Critical Components of the Procurement Plan
For delivering value and gaining the competitive advantage through procurement, the goals and objectives must be clearly established. These are critical for framing the targets and end-goals of the procurement process. Clearly articulated objectives supported by sound implementation strategies ensure that procurement operations are carried out in an organized fashion. The following are the key components of the procurement plan.
Market analysis and supplier selection criteria
Understanding the market holds the key to informed decision making about the suppliers. The procurement plan must include robust market analysis and establish the criteria for selecting vendors based on delivery times, budget constraints, and vendor reliability. Comprehensive market research provides useful inputs for selecting the vendor.
Budget and cost consideration
The procurement plan must have an acute focus on the bottom line and incorporate a full spectrum of costs, relevant to the procurement activities. This includes direct costs like purchase price and also ancillary costs like shipping, taxes, or installation costs. Using automation software like Cflow can provide deeper visibility into expenditures and help manage within budgets.
Risk assessment and management strategies
Risk assessment and management is an essential part of the procurement plan. Vendor associated risks like delayed delivery, or quality issues, need to be anticipated and planned for. Accurate and comprehensive risk assessment is essential to create effective mitigation strategies. Mitigation strategies include contingency measures or having alternative vendors to counteract potential adverse effects.
Procurement schedule and timeline
The timeline is a critical component of the procurement plan that outlines when each procurement activity will take place. With a clear and structured schedule, forecasting and preemptively addressing challenges becomes easy. The procurement timeline stipulates that all procurement related activities, including market research and contract signing occur within specified timeframes.
Contract management and administration
Effective procurement relies on diligent contract management and administration. For effective management of contracts and compliance with the terms of the contract, you need a clear contract management workflow. Contract administrators handle negotiations, modifications, and resolutions of disputes. This strengthens supplier relationships and safeguards the organization’s interests as well.
Performance management and evaluation
The procurement plan must include a framework for measuring and evaluating performance. The key performance indicators outlined in the procurement plan can assess vendor reliability, cost-effectiveness, and delivery performance. Based on the KPIs, procurement strategies can be adjusted as needed to serve the organization’s needs better.
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How to Create a Procurement Plan?
Now that we are clear on the goals and objectives of the procurement plan, let us explore how to create a procurement plan. Defining goals and objectives is the foundational step in developing a procurement plan. Creating a procurement plan is outlined by the 10 steps listed below.
1. Identify the key stakeholders and their requirements
This is the most important step in the procurement plan that sets the tone for the rest of the steps. Stakeholder identification and assessment of their needs is important for crafting a successful procurement plan. The team of stakeholders may comprise business management teams, end-users, contract managers, finance personnel, and subject matter experts. Once the stakeholders have been identified, the next step is to recognize and understand their expectations. Having a good understanding of each stakeholder group helps design a comprehensive procurement plan that outlines all required activities.
2. Conduct market research and analysis
Market research and analysis is a must have tool in the procurement planner’s toolkit. This step helps pinpoint dependable suppliers, comprehend market conditions, and leverage insights into favorable price and delivery negotiations. Diligent market research helps procurement teams discover cost-saving opportunities, evaluate supply risks, and augment their strategies with data-based decisions.
3. Choose the appropriate procurement method
Determining the appropriate procurement method is a custom decision that stems from extensive stakeholder discussions While brainstorming on the appropriate method, the team takes into account the specifics of each requirement and evaluates the feasibility of diverse contract packages. This selection is predicated on inter-department alignments and also considering the technical expertise to shape specifications or the scope of work.
4. Develop procurement strategies and policies
Strategic development within the procurement function is similar to charting a map for acquiring necessary goods and services. These strategies align with organizational goals and include preferences for vendor origins or strategic service outsourcing. Procurement policies play the role of enforcing strategies by asserting adherence to both internal and external regulations. Procurement strategies and policies together shield the organization from non-compliance issues.
5. Establish a procurement budget
A procurement budget is a critical financial blueprint for acquiring goods and services. The budget acts like a fiscal safeguard that ensures that procurement spending remains realistic and actionable, thus, avoiding potential financial hiccups. The budget is the result of an interplay between strategic procurement objectives and realities of financial capacity. Accounting and operational leaders provide key inputs for the procurement budget. Organized and timely procurement management relies heavily on a detailed budget.
6. Create a procurement schedule
The procurement timeline may be considered as a strategic timetable that codifies the execution of procurement activities. It clearly outlines cornerstone dates and syncs them with the main project timetable, to forestall supply chain disruptions. The procurement schedule must stipulate purchase, delivery, and implementation dates, thereby, offering a vantage point to foresee challenges and calibrate vendor performance benchmarks.
7. Shortlist potential suppliers and vendors
Supplier identification needs to strike a balance between past procurement performances and current market offerings. All prospective vendors must be listed in the procurement plan. Procurement teams need to evaluate new entrants through market research and liaising with vendor representatives. Categorization of vendors must be based on cost, availability, lead times, etc. All these details must be included in the procurement plan. A methodical selection of suppliers goes a long way in anchoring vendor relationships and delineates the parameters for vendor engagement and selection.
8. Negotiate and finalize offers
Contract negotiation and finalization marks the end of the supplier selection process. While negotiating with vendors and finalizing them, the procurement team must interlink the project requirements with favorable vendor terms through detailed discussions and purchase orders. Careful navigation through this process is paramount to ensure clarity of expectations, adherence to agreed terms, and seamless integration into the project pipeline.
9. Implement and monitor the procurement plan
Implementation and ongoing monitoring of the procurement plan are operational necessities that actualize the plan blueprint. At this stage, the procurement team oversees the systematic execution of procurement activities, against the prescribed schedule and budget. For implementing the plan, the team uses workflow tools that provide deeper visibility into the procurement lifecycle. Such deep visibility ensures agile responses to realtime developments. Real-time monitoring of the procurement plan is critical for maintaining procurement integrity and aligning actual practices with planned benchmarks.
10. Review and evaluate performance
Reviewing and evaluating the procurement performance is a reflective process. The actual transactions are juxtaposed with the original procurement construct for gauging efficiency and effectiveness of the plan. Adaptable planning is needed for adjusting the dynamic events, while analytical evaluations provide foresight for refining future procurement strategies. Inputs derived from continuous reviews help in rewriting the procurement plan so that it stays relevant in dynamic market conditions. Moreover, the lessons learned through these reviews steer organizational procurement practices towards optimization.
Procurement Planning and Workflow Automation
Procurement managers are often expected to do more with less, which eventually requires them to operate within budgets and bring down procurement costs. In such scenarios, analysis of their current processes is required to determine the actual spending and negotiate to reduce costs directly. Moreover, thorough analysis of current processes also helps identify redundancies that lead to additional costs and eliminate them from procurement workflows.
The inputs derived from the procurement plan help managers identify areas that increase costs and eliminate them. Adopting technology based tools like workflow automation can help optimize the procurement process. Cflow is a no code workflow automation solution that streamlines the procurement workflow to eliminate redundancies, improve efficiencies, and reduce costs.
Key Features
Customizable templates
Users can create custom workflows based on the unique procurement plan for their organization.
API integration
For smooth process flow, Cflow supports API integration
Reports and analytics
Procurement teams can stay on top of all tasks with real-time reports and analytics.
Rules engine
The rules engine in Cflow helps create workflows that are aligned to business priorities.
Conclusion
The importance of having a procurement management plan cannot be denied, especially when managers and CPOs have to keep up with competition and market conditions. Successful implementation of the procurement plan requires an intuitive workflow tool like Cflow. With Cflow, managers can implement, monitor, and control the procurement planning process easily and efficiently. Ready to explore Cflow? Sign up for the free demo now.
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