Annual Procurement Goal-Setting
The value of an annual plan was emphasized to me the other day when my wife and I took our five-year old son, Daniel, to his first day of kindergarten. We were part of a somewhat amazed group of parents watching intently as the teacher explained her annual curriculum and related school requirements. She then painted a picture for us of the learning arc our kids would experience over the course of the year. How they would move from being somewhat rusty at letters and numbers after summer distractions to become basic readers and mathematicians by next spring. She was able to communicate with both audiences, parents and students. Most of us were mesmerized by her foresight and attention to detail. How exciting and how sensible to start with a vision and a plan!
In my case, I left there with a new energy to apply sound insightful procurement planning to my work with clients. Many companies have an opportunity to take a similarly proactive approach to annual procurement objective-setting and planning. By undertaking a formal process, we can identify the projects that will deliver the following year’s worth of savings and other desired benefits.
Here are the 5 key elements I employ with clients to develop annual plans that yield 3 - 10% annual reductions on total procured costs.
1. Refresh Spend Analysis - Many already have an established process with a monthly or quarterly refresh cycle. Otherwise, this is a great time to start ongoing spend analysis.
Suggested tools: QlikView or Ariba Spend Analysis
2. Engage stakeholders in the process – This is the natural time of year to meet with colleagues who have a stake in supplier outcomes and get their input on needs for next year, performance improvements, and other objectives that can be supported by procurement.
Suggested approach: Interviews with individuals or small groups of stakeholders
3. Reassess strategies – Look for at least a few major changes in strategy across your entire spend portfolio. Different results usually require a different approach. Look for areas to bring an enhanced level of competition (e.g. from globally competitive suppliers) or opportunities to establish strategic partnerships where relationships have traditionally been transactional in nature.
Suggested tool: Kraljic Purchasing Strategy Model
4. Prioritize opportunities – Use a prioritization matrix to assess each opportunity by impact and do-ability. Here is where we we can further engage stakeholders in a workshop-style meeting to assess each opportunity by likely savings yield, risk, other strategic benefits, effort, and timing of benefits.
Suggested tools: Procurement Prioritization Matrix and Chart
5. Formalize your plan - Document a plan with clear workstreams, milestones, and resource requirements. Publish the plan to management and other departments. This is where we get clear about our intentions and convince the organization we will deliver the anticipated results.
While this takes some effort, the payoff in readiness and results are tangible. The right set of tools and templates make this process easier and more effective.
What approach does your organization take to annual procurement goal-setting and planning? Please share your experiences.
