C Vision Strategic Procurement

By:Rick Spair – Level C Practice Manager

Strategic Procurement Part One

A focus on strategic procurement is helping CIOs of large organizations improve

bottom-line performance. Take the first step towards making procurement a competitive
advantage for your IT department by assessing the strategic maturity of your
procurement practices.

A Dynamic Field

Procurement's increasing importance is being driven by two economic changes:

 Increasing competitive pressures are forcing companies to look at

procurement as a means of helping boost the bottom line. CEOs
are looking for areas to cut costs, and streamlining procurement
processes is a viable solution.
 A lot of companies are doing more outsourcing. This makes
procurement decisions increasingly important to business vitality.

There are numerous ways an effective procurement strategy

improves performance, including:

 Eliminating maverick spending.

 Streamlining operations.
 Improving supplier relationships.
 Increasing bargaining power with suppliers.
 Strengthening supplier relationships.
 Aligning purchasing decisions with corporate goals and objectives.

How Mature Are You?

Measuring an organization's procurement maturity involves assessing how close it is to

achieving each of the aforementioned results. There are four levels of maturity: novice,
intermediate, advanced, and expert. There is no relationship between company size
and procurement maturity. Companies of all sizes are at various stages in the
development of their procurement functions.

Maturity Assessment Guide

1. Evaluate maverick spending in the IT department. Talk to

supervisors and find out if unauthorized purchases are being
made. If so, what kind of purchases? You may be shocked by
the number of purchases occurring outside of formal
procurement protocols. On the other hand, with no protocol in

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 place, expect excessive amounts of maverick spending.
Procurement maturity is typically characterized by the following
levels of maverick spending:
o Level 1: Significant maverick spending.
o Level 2: Minimal maverick spending.
o Level 3: Virtually no maverick spending.
o Level 4: No maverick spending.
2. Examine your procurement processes and procedures.
Find your written set of procedures detailing the procurement
processes for your company. If there is no documentation,
does your company follow repeatable procedures? Or does
each purchase result in an ad-hoc patchwork of steps?
Procurement maturity is typically characterized by the following
levels of procurement procedures:
o Level 1: No processes or procedures.
o Level 2: Processes and procedures exist, but are not
documented.
o Level 3: Processes and procedures are documented and
implemented.
o Level 4: Major procurement decisions are determined by a
multi-function team.
3. Evaluate your relationship with suppliers. Look beyond
your internal procurement processes and focus on how well
you know your suppliers. Typically, the more information you
have about the people you do business with, the better the
relationship. With no purchase information on hand, you
cannot develop a partnership with suppliers and service
providers. With proper information, you can evaluate and rank
suppliers. Your procurement maturity level relates to your
supplier relationships as follows:
o Level 1: No purchase information on record; need to ask
suppliers for it.
o Level 2: Use supplier information to evaluate price, quality,
and delivery.
o Level 3: Rank suppliers and develop strong relationships
with select suppliers.
o Level 4: A supplier's percentage of business correlates with
performance ranking.
4. Assess your bargaining power. Information also provides
you with purchasing leverage. To what degree do you leverage
information about suppliers to increase spending power? Do
you coordinate purchases to increase leverage? Does your
company possess strong negotiating skills? Your procurement
maturity level is characterized by your ability to leverage
spending power:
o Level 1: Company spending power is not leveraged.
o Level 2: Major purchases are negotiated and coordinated to
increase leverage.

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 o Level 3: All purchases are coordinated and leveraged.
o Level 4: Supplier's cost-reduction ideas are brought to your
company first.
5. Determine procurement's strategic alignment. Experienced
buyers understand the overall corporate strategy and the
procurement strategy. How many of your buying decisions are
viewed as strategic decisions? Do you have a strategic plan in
place? Procurement's strategic alignment relates to maturity as
follows:
o Level 1: No strategic plan governing procurement.
o Level 2: Although no strategic plan exists, purchases are
strategically relevant.
o Level 3: Virtually all purchases are aligned with corporate
strategy.
o Level 4: Perfect alignment with company goals and
objectives.
6. Evaluate your buying experience. Do your buyers receive
training? Do they understand the strategic relevance of buying
decisions? Do they know how to apply cost accounting to a
negotiation? For example, do they know the difference
between direct and indirect costs, as well as overhead? Your
procurement maturity level with respect to buying experience is
characterized as follows:
o Level 1: Limited buying experience; no training.
o Level 2: Buyer training program is in place.
o Level 3 & 4: Buyers understand strategic buying and the
importance of cost.

In Summary

A strategic approach to IT procurement can help cut costs and improve efficiencies. The
first step to taking a strategic approach to IT procurement strategy is assessing your
current procurement maturity.

Strategic Procurement Part Two

Many enterprises have gained a strategic advantage by treating their procurement as a

strategic function. Map out your procurement process and make sure it encompasses
these best practices.

Strong procurement processes align purchasing decisions with corporate strategy,

increase bargaining power with suppliers, and increase the value obtained from
investments.

The key is determining when to put procurement through a detailed process. The dollar
value of the purchase is always a strong indicator of strategic relevance. For example,
ordering all of office supplies from one supplier at predetermined intervals can increase
purchasing leverage. More obvious examples include replacing 50 CRT monitors with

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 LCD monitors, purchasing 30 handheld devices, investing in a storage area network, or
establishing a wireless local area network. To achieve maximum value from purchases
such as these, a procurement protocol must be followed.

Best Practices

Add the following best practices to your current procurement procedures to minimize
maverick spending, maximize operational efficiency, achieve substantial bargaining
power with suppliers, and align purchasing decisions with corporate goals and
objectives.

1. Establish the procurement goal.

o Define the target consumer and the borders of the area impacted by the
purchase as precisely as possible (i.e. dependencies on other projects,
items and systems, the effects on business processes, etc.).
o Determine whether the purchase is aligned with corporate goals and
objectives. If the argument for the purchase cannot be justified along
strategic lines, save yourself a lot of work by aborting the purchase and
turning your focus toward more strategically relevant procurements.
o Interview stakeholders and analyze their stakes in the procurement.
o Analyze costs and benefits.
2. Define procurement requirements. The most important part of the
procurement process is planning out the details of the purchase. Keeping in
mind that even good plans are susceptible to change, it is essential to ensure
thorough version management of the goal and plan during the whole process.
The list of requirements demands completion of the following activities:
o Determine scenarios for receiving the product or service from the supplier.
o Analyze the risks involved in the purchase.
o Plan the procurement within a risk management framework.
o Identify the main decision points, including timelines, type of supplier, type
of tendering, flexibility of contracts, and project requirements.
3. Tender the offer. The objective of tendering is to select a supplier, and agree
with a chosen supplier on a contract that defines deliverables and the
responsibilities of both parties. The following activities are required to complete
this step:
o Evaluating the previous performance of suppliers (if the information is
available).
o Preparing a request for proposal (RFP).
o Evaluating the suppliers' response proposals.
o Selecting the supplier that best meets the strategic needs of the
organization.
o Preparing a supplier contract for the delivery of products or services.
4. Monitor supplier deliverables. This step aims to monitor the procurement
objective as defined in the contract, i.e. to ensure that the deliverables conform
to the requirements. Therefore, a defined number of contract status reports
should be prepared during the project. The purpose of these reports is to
minimize the risk of unfulfilled contract obligations, and to build a performance
knowledge base of the supplier.
5. Complete the procurement. This task ensures that all outstanding issues
regarding the procurement have been concluded to your satisfaction. Activities
to perform include:

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 o Ensure all contracts are completed.
o Assess the achievement of the procurement goal.
o Evaluate the results for future procurements, including supplier quality and
areas to improve the procurement process.

In Summary

A strong procurement strategy aligns purchasing decisions with corporate strategy,

increases bargaining power with suppliers, and boosts the value obtained from
investments. In order to develop your procurement function, focus on processes and
people.

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