The Importance of Strategic Procurement in Supply Chain Management

Posted on Jun 08, 2023 at 11:06 PM

Strategic Procurement is a critical part of any company's supply chain management. It helps companies reduce costs, increase efficiency, and improve customer service. However, many companies refrain from resorting to it because they are ignorant of its importance.

In this article, we will talk about the essential benefits and importance of strategic procurement for the success and development of supply chains.

What is Strategic Procurement?

The strategic procurement process is concerned with the analysis or planning, control & implementation of purchasing supply chain operations. This strategic process aims to achieve the best results with the least effort. The strategic procurement process provides the company with the necessary technologies to procure the materials and supplies required for the success of the supply chain at the best prices and lowest costs.

The strategic procurement process answers the following questions in your mind:

What should the company buy?
Will people buy these products after they are made?
What are the best shipping methods?
How will the consequences be traded in the market?

The strategic procurement process may begin with creating a successful procurement plan through which the market situation is studied, and all suppliers are compared, after which the execution plan that guarantees the lowest purchase price is chosen. The aim is to attract and retain the most significant number of buyers as permanent customers of the companies.

Why Is Strategic Procurement So Important?

Undoubtedly, strategic procurement Practices are the most critical sections of supply chain operations because it contributes to the success of the teams mentioned below:

Supply chain planning

It focuses on managing the supply chain's resources to ensure sufficient buffer stock is always available so that customers do not face product availability issues. In addition, it reduces the waste of resources such as (energy or raw materials due to improper storage or lack of stock).

Procurement process

It focuses on identifying suppliers who can provide high-quality products at competitive prices and negotiating the process of purchasing and distributing products according to the agreed terms and conditions to guarantee the optimal investment of funds.

Supply strategy

It is the process of determining the supplier from which the company will purchase based on factors such as (materials sources, prices, quality management assurance methods, and delivery date). In addition, the supplier selection process must be based on factors such as (product quality, price, and delivery time) to ensure the company gets the best value for money.

What are the benefits of strategic procurement?

The strategic procurement process depends on several methods of analysing performance and improving work for all participants in the production process (the company, suppliers, and customers) to obtain the best results.

The appropriate measure of resources and cost reduction

The first advantage of strategic procurement is that it reduces the production process costs by searching for the best purchase option (the most beneficial option at the lowest price) and making the right financial decisions for the company.

In addition to the above, strategic procurement techniques reduce the waste of resources (either by making purchases that cannot be marketed or through poor stocking) and thus reduce the need to replenish stocks of assets.

Improve customer satisfaction

Strategic procurement systems help improve customer satisfaction by allowing them access to a wide range of stocks and services at competitive prices. Strategic procurement is the industry's best method for developing production and marketing performance according to purchasing market standards or prevailing purchasing patterns. For example, strategic procurement allows analysing the types of purchases (online, in-store, or other methods) and the best shipping methods, facilitating the entire purchasing process.

Build strong supplier relationships.

By working closely with suppliers for a long time, the company can ensure the fulfilment of their needs and the regularity of the quality of goods and services. Thus, this leads to better cooperation and development of the company's relationship with the appropriate supplier.

Increase efficiency and the ability to perform work optimally

By implementing a strategic procurement system, companies can streamline the procurement process, reduce administrative burdens, and improve delivery times. This leads to better customer satisfaction and more robust results.

Stay ahead of the competition.

Furthermore, strategic Procurement Functions can help companies stay ahead of the competition: companies can build a competitive advantage by offering unique products or services and contracting with premium suppliers. Strategic procurement also helps companies keep abreast of market trends and ensure that their marketing decisions are based on the latest data in the business world.

Better data analysis

Using data analytics techniques in strategic procurement enables companies to make more accurate decisions regarding managing their supply chains. This technology allows organisations to reassess the supply chain, develop its elements, and create a marketing plan that ensures effective selling. Development methods include hiring an expert or self-learning through Online Procurement Courses.

Increase profitability

Strategic sourcing allows companies to reach new markets by offering more products to more customers at competitive prices while maintaining profitability. In this way, strategic sources help companies increase their revenues and profits, thus ensuring a position of strength in today's competitive market.

In Conclusion,

Strategic procurement is a critical part of effective supply chain management. Companies benefit from it to reduce costs, mitigate risks, build strong supplier relationships, increase efficiency, and stay ahead of the competition.