3 Tips For Devising An Effective Procurement Strategy

B2B sales are extremely competitive, however, for early stage and growing businesses, the buying of such services can be complex, or more so than you may have imagined anyway.
The truth is that no matter what you’re buying, you’re always going to have to haggle a bit. Bartering isn’t always about cost either. It’s about getting the most value from suppliers, while paying a reasonable amount for the value you’re offered as part of whatever service you’re buying.
To ensure you get the deserved and required value, make sure you have the following three essentials worked into your procurement strategy.
1)      Use contract aggregation
When there’s a significant need in your business and you assess the market to discover there’s few suppliers large enough to accommodate what you need, it may be more effective to split your contracts into smaller lots. One of the main advantages you get with contract aggregation is you open the bidding process up to smaller sized business. This is particularly useful for working with local suppliers instead of large nationals.
It doesn’t always work out cheaper, and there will be more administration involved to oversee the contracts, however from a local economy standpoint, partnering with local suppliers can be highly advantageous.
2)      Open pre-procurement discussions with suppliers
This one should be obvious but unfortunately it isn’t always done. Before approaching the market for any supplies you need, research should be done. This isn’t just a case of researching online. Get on the telephone with representatives, go out and meet some suppliers and discuss what you need, find out what’s available and gain first-hand insight into what the market has to offer.
Efficiently researching the market by opening pre-procurement discussions will let you find out a lot more about what’s available and then use factual information to put together your written brief for inviting proposals from potential suppliers.
The more information you have and therefore can give, the more detailed an offering you can put out for tendering, leading to more informative bids from suppliers.
3)      Award contracts based on quality of proposals and cost
One of the worst things you can do for your business and customers is to accept the lowest bid from any service provider or supplier. There are some companies that will deliberately low-ball during the bidding process in an effort to seem competitive. Realistically though, the offer isn’t competitive at all. What it often can be is risky. If you contract with a supplier who provides a service at cost to them, meaning there’s no profit in it, they are likely to deliver a substandard service. That’s something you could definitely do without. The more obvious risk is that it won’t be sustainable therefore you’d need to find a new supplier eventually. And probably do some grovelling with disgruntled customers due to your suppliers’ impact on your service.

In conclusion

To drive the most value from any supplier, always engage in pre-procurement discussions as part of your market research. If you feel there’s a lack of sizeable firms able to accommodate your business needs, break things down to encourage smaller or local suppliers to put their proposals forward.
Always award your contracts based on the value you can get, with a realistic figure attached to the offer. Never award to the cheapest contractor, unless you’re confident and they are too that they can deliver the service with quality and make it monetarily worthwhile to partner with your business.

The suppliers you choose to award your contracts to will be a stakeholder in your business so make sure they are a company you’re comfortable working with before you engage them for the long-term duration of the contract. 
The Procurement Group

Join us...

and 2000+ other CFOs and FDs who are already enjoying our free resources and industry insights.