How and Why to Develop a Procurement Management Plan


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Procurement shouldn’t be one of those tasks that’s just tacked on to some secretary’s job description. It’s a business-critical function, and it needs to be handled as such. A solid procurement management plan can make all the difference when it comes to minimizing costs and keeping your supply chain strong.

Procurement management is a powerful tool that can help you meet the expectations and needs of your customers and investors without sacrificing quality and while keeping costs manageable. When procurement management is effective, employees are more productive and engaged, inventory remains at appropriate levels (so you’re not running out of popular items while less popular items pile up in the warehouse), and supplier relationships remain strong — and grow stronger.

You need a strong procurement management plan that can help you find and nurture supplier relationships. Even the smallest companies can benefit from understanding their positions in the market, nurturing strong supplier relationships, and measuring supplier performance using established metrics. Going beyond sourcing suppliers and managing those third-party relationships, a sound procurement management plan can also help you deflect any risk that might pop up in the larger supply chain.

Know Your Market Position

Chances are you already have a pretty good idea of where your business stands in the market, but before you can develop a procurement management plan, you need to have a clear picture of what demographic you hope to serve, what value your business can offer customers that they can’t get elsewhere, what your competitors are doing, and how your offerings rank among those of competitors. With this information, you’ll know which supplier relationships to pursue and which market and product opportunities will work best for your company. Then, you can select suppliers and other third-party vendors based on how well they meet the needs of your market and customer base.

For example, if you’re positioning yourself as a lower-cost alternative to your competitors, you’ll need to prioritize low cost when you’re negotiating contracts with suppliers. If a commitment to customer service is your value proposition, you’ll need to seek out suppliers who are service-oriented, even if they cost a little more. When you go into your procurement management process with an eye towards your company’s market position, you’ll be able to build relationships that will help you to better serve your customers.

Nurture Strong Supplier Relationships

Procurement is all about choosing the right suppliers and fostering strong relationships with them, because strong third-party relationships are beneficial for everyone. Your suppliers will prosper when you work closely with them to meet your business needs, and your company will prosper too as a result of close attention to your needs on the part of your suppliers. Your company can only be as strong as its third-party suppliers, so choose strong suppliers who share your corporate values and offer great service. Don’t be afraid to turn to other small businesses for some of these relationships — it wouldn’t be the first time a company and one (or more) of its suppliers grew together.

Set Metrics to Measure Supplier Performance

You can’t know how well suppliers are serving your company if you don’t measure their performance, so any good procurement management plan should include clear metrics by which to measure the performance of each of your suppliers. These metrics should usually be clarified in the terms of your contract with each supplier. Some vital metrics you might want to track include on-time delivery and quality of products or services. Keep lines of communication open with your suppliers so you can negotiate changes in performance as needed.

Protect Yourself from Extended Supply Chain Risk

Supply chain risk is a part of doing business, but you still need to incorporate supply chain risk management to succeed as a company. You may be able to exercise some level of control over how your third-party suppliers manage their supply chain risk, but once you start getting into fourth- and fifth-party suppliers, your ability to directly influence the supply chain evaporates quickly. Manage your business credit lines appropriately to mitigate payment-related supply chain risk, and take steps to protect your company’s intellectual property.

Procurement management is a vital component of running a company, so it shouldn’t be treated like an afterthought. Develop the comprehensive procurement management plan your company needs, so you and your suppliers can grow together for decades to come.