Getting Started with 7 Step Strategic Procurement Process
Choosing a cost strategy, decreasing delivery times, and identifying optimum business partners can all be achieved through an appropriate procurement process. There is no one-size-fits-all approach for purchasing products and managing costs, so it is essential to completely personalize the procedure to a company. Below is a brief outline of the 7 steps of the procurement process widely used by purchasing departments:
Step 1: Identify Needs of Profile Category
Identifying the needs of a profile category is essential to businesses and organizations. By understanding the specific goods and services that a business unit requires, the procurement cycle can be started sooner to save time and money.
There are four main steps in the procurement process: identifying a need, researching potential vendors, soliciting bids, and awarding the contract. To begin, businesses must first identify their needs by looking at their business units, discussing with steakholders and identify requirements. Once a need is established, businesses (procurement team) can start researching potential vendors who can provide the goods or services required.
After narrowing down the field to a few potential vendors, businesses will request bids from each one. The bid will include information on pricing, delivery timelines, terms and conditions, etc. Based on this information, businesses will award the contract to the vendor who provides the best value for their needs.
Step 2: Market Analysis for Suppliers
A good place to start is by doing a market analysis to potential suppliers. This will help you understand the ins and outs of the supplier market and give you an idea of what kind of sourcing strategy would work best for your business.
When conducting a market analysis, there are a few key things to keep in mind. First, you’ll need to gather data on potential suppliers. This includes information on their products, prices, delivery times, and more. Often you can get this data from online research, talking to other businesses in your industry, or attending trade shows or conferences. However, for some essential information such as commodity pricing data, price reporting agencies (suppliers) are very secretive about their pricing models and packages. This is exactly where Phycomex can help fill the gaps to help your internal teams do a thorough analysis.
Step 3: Review of Requirements for Effective Procurement Process
In management review, functional managers, Stakeholder and/or department heads perform a review of the request package and examine whether there’s an actual need for the requested goods or services as well as check the availability of funding. This is required to optimize the workflow and ensure the business is aligned with the procurement plan.
This may seem like a simple task but without knowing exactly how suppliers package services together its impossible to do this assessment correctly. Failure to do so often results in subscribing to large costly packages inncluding a lot of services that are not required. For instance if you need “WTI crude oil price”, you may be sold a package including 100’s of other crude oils, how do you ensure the package offered is the most cost effective? The supplier certainly will not be interested in presenting the most cost effective option to you. This is another area where Phycomex can assis with strategic procurement.
Step 4: Negotiate Contract Terms with Suppliers
An essential part of the 7 stages of procurement process involves negotiating contracts with suppliers. It is important to have a deep understanding of the legal terms as well as the competiative landscape. This includes knowing what the market is like for the products or services you are procuring, and having insights about the suppliers. How they package products, their sales methods, bidding process, clear understanding of licensing and compliance with supplier terms and so forth. Without this insight into suppliers the negotiation can be very one sided which is why some of the leading energy companies rely on Phycomex to help negotiate better deals specifically for energy market data.
There are several tactics that can be used when negotiating with suppliers. Compliance based sales are prevelant within the energy data space. Many companies are forced to sign up for multiple times greater fees through fear of non compliance or breach of contract. They have no alternative since this data is business critical. However, since we formed, with over 15 years negotiating and licensing data contracts, Phycomex can show you the alternative and help you remain compliant while reducing costs.
Other tactics include misleading companies into paying for more services or packages then they may need.
Step 5: Benchmarking Against Peers and Competitors
What’s the best way to gauge if your company is paying a fair price for the goods and services it purchases? One way is to compare your prices against those of similar organizations. This process, known as benchmarking, can help you understand whether you are paying above, below, or at the market rate for specific items. Suppliers often use this as a method to increase your costs under the guise of making you fee in line with similar companies. Without ever disclosing what others are actually paying leaving you completely in the blind, often with the false perception that you have a great discounted rate. When in fact the reality may be very different.
To benchmark prices, you need access to data on what similar organizations are paying for products and services. This spend data is very difficult to come by which is where a specialist consulting firm like Phycomex can help. We have over 5 years of spend data on our global customers within the commodity sector, spending from $250k to over $10M for energy market data. Our clients can compare suppliers offers to those offered to their peers and competitors.
Benchmarking can help you ensure that you are paying a fair price, especially for services where monopolies domonate the supply. It can also help you identify opportunities to save money by negotiating better prices with suppliers, using objective competitative intelligence.
Step 6: Select The Strategic Sourcing Process
An effective strategic sourcing process can mean the difference between a company thriving and one that just scraping by. In order to outsource and optimise their procurement, businesses need to take a good hard look at their internal process and costs. By understanding these things, they can develop a clear plan for how to best move forward. The in house expertise as where as gaps that may be complimented by specialist firms like Phycomex.
The first step is to understand what the company’s current state looks like. This includes taking a close look at current spending, supplier contracts, internal processes as well as deep knowledge of key suppliers. From there, the company can develop a clear picture of where they want to be and what needs to change in order to get there. Perhaps you have the expertise internally for all your subscriptions, but the chances are your internal teams will not have sufficient knowledge of certainly monopolies that may be abusing their market dominance.
Once the company understands its current state and desired future state, it can begin developing a plan of action. This plan should include specific steps that will help the company achieve its goals and more importantly, if external support may be required.
Phycomex operates on a contingent fee model, where our clients only pay us uon successfully reducing market data spend. Contact us not to book a fee consultation.
Step 7: Finalise Contract, Purchase Order and Post Contract Management
Now that you have a supplier and contract in place, it’s important to finalise the paperwork and make sure both parties are in compliance. This includes reviewing the terms of the contract, ensuring that both parties are clear on the expectations, and making any necessary changes or updates. It’s also important to keep an eye on costs and make sure that there aren’t any surprises down the line. By securing a good fee in year 1 are you putting yourself into a difficult situation for next renewal?
By regularly review your supplier contract and keeping open communication with your supplier, you can avoid potential problems and ensure a smooth relationship going forward.
How Phycomex Helps with 7 Steps of an Effective Procurement Strategy
Contact us know to learn why some of the leading energy companies inthe world trust us to help negotiate with oil Price reporting agencies, for energy information and market data services.