Developing Procurement Strategies PDF

CHAPTER 5: DEVELOPING PROCUREMENT STRATEGIES ============================================ **THE NEW ERA OF PROCUREMENT** "*There's a growing need for procurement to enable growth, mitigate inflation/risk, and drive significant levels of value*." ([Deloitte, 2023](https://www2.deloitte.com/us/en/pa...

CHAPTER 5: DEVELOPING PROCUREMENT STRATEGIES ============================================ **THE NEW ERA OF PROCUREMENT** "*There's a growing need for procurement to enable growth, mitigate inflation/risk, and drive significant levels of value*." ([Deloitte, 2023](https://www2.deloitte.com/us/en/pages/operations/articles/procurement-strategy.html)) New \"currencies of procurement,\" transcending cost savings and price reductions, could transform procurement into a strategic superpower (Source: [McKinsey, 2023](https://www.mckinsey.com/capabilities/operations/our-insights/a-new-era-for-procurement-value-creation-across-the-supply-chain)[)]. - - - Ein Bild, das Text, Screenshot, Schrift, Zahl enthält. Automatisch generierte Beschreibung Source: [Kissflow, 2024](https://kissflow.com/procurement/procurement-strategy/) **THE GROWING IMPACT OF SUSTAINABLE PROCUREMENT** Sustainable procurement transforms how companies manage their supply chains by integrating environmental, social, and economic criteria into purchasing decisions. Altogether, this strategic approach strengthens corporate responsibility and drives significant business benefits. - **Environmental Focus:** Emphasizes green sourcing and eco-friendly supply chains. - **Social Responsibility:** Increasing consideration of social criteria like labor rights and ethical practices. - **Economic Benefits:** Up to 70% of supply chain costs pertain to procurement, making sustainability a key area for cost reduction and performance improvement. The push for sustainable procurement stems from a growing recognition of the supply chain\'s impact on the environment and society. Companies are increasingly adopting green sourcing practices, which focus on reducing waste, energy consumption, and emissions. This shift is not just about compliance but also about seizing opportunities for innovation and efficiency. **Discussion Point:** How can your company integrate sustainability into its procurement processes? **CONDUCT A CURRENT STATE ANALYSIS** Any successful strategy demands that you look at your current situation, so start by thoroughly assessing your existing procurement strategy to see if it\'s up to snuff for both current and future demands. Make a spend analysis to pinpoint strengths, weaknesses, and opportunities. Break down procurement costs into direct costs (like goods and services) and indirect costs (like administrative overhead). Examine costs related to specific suppliers, cost variables, and trends to get a clear picture of your total procurement expenditure. This is your foundation---know where every penny is going and why. **\ ** **DIMENSIONS OF CURRENT STATE ANALYSIS**  1. 2. 3. 4. **INTEGRATING LEAN AND CIRCULAR ECONOMY APPROACHES** "*The circular economy is a system where materials never become waste and nature is regenerated. In a circular economy, products and materials are kept in circulation through processes like maintenance, reuse, refurbishment, remanufacture, recycling, and composting. The circular economy tackles climate change and other global challenges, like biodiversity loss, waste, and pollution, by decoupling economic activity from the consumption of finite resources."* ([MacArthur Foundation, 2024](https://www.ellenmacarthurfoundation.org/topics/circular-economy-introduction/overview)) Integrating lean and circular economy approaches supports sustainable supply chains by minimizing waste and promoting resource efficiency. - - **Example:** A major retailer implemented circular economy practices by recycling packaging materials, leading to significant waste reduction and cost savings. This initiative not only helped the environment but also improved the retailer\'s bottom line. **ALIGNING PROCUREMENT WITH THE UN SDGs** Linking procurement practices to SDGs enhances overall sustainability by addressing environmental, social, and economic issues. - **SDG Impact:** Procurement affects multiple SDGs, including poverty reduction, health, and environmental sustainability. - **Research Gap:** Few studies directly link procurement to SDGs, indicating a need for more research. Although sustainability is increasingly becoming a key factor for buyer--supplier relationships in supply chains, a direct linkage with SDGs is often lacking. However, some industries have shown relationships with particular SDGs, such as the food, petrochemical, and textile supply chains. **DETERMINE ORGANIZATIONAL NEEDS** Every business aims to boost its bottom line, but it\'s crucial to pinpoint exactly how. Does your organization need to increase sales, manage cash flow better, shorten time-frames, improve forecasting, enhance quality management, or focus on sustainability? Align your procurement strategy with these specific needs to ensure it directly contributes to profitability and long-term success. **RISK MANAGEMENT** The modern procurement landscape is unpredictable, ranging from climate change to cyber-attacks. Risk management becomes paramount. Real-time monitoring and aligning with suppliers on shared values and processes are essential strategies to mitigate reputational and operational risks. For instance, a robust risk management framework might include continuous market analysis and supplier audits to ensure compliance and anticipate potential disruptions (Thurman, 2023). - **Cost Risks** - **Supplier Relationships** - **Data Transparency** **BUILDING THE PROCUREMENT FRAMEWORK** 1. 2. 3. 4. 5. 6. 7. **INTEGRATE PROCUREMENT SOFTWARE** Modern businesses have the opportunity to adopt procurement software solutions to strengthen purchasing decisions and streamline processes. - - - **MEASURING IMPACT** Altogether, these metrics provide a clear picture of performance, highlight areas for improvement, and ensure that objectives are being met: - - - - - - **KEY TAKEAWAYS** - - - - - - -