Business expenses
What is the point of a purchasing strategy?
Gregoire Serre
Financial analyst
Updated on
How do you optimise the purchasing process with your suppliers? How do you procure necessary business resources at the best price? A well-thought-out purchasing strategy is the backbone of any organisation. Here are the main steps to implement and the objectives you should prioritise.
Overview
What is a purchasing strategy?
A company's purchasing strategy or policy is a broad and multifaceted concept. It refers to all the steps and actions necessary to optimise the purchasing process within an organisation.
Examples include:
- The selection of the best suppliers according to their costs and their quality/price ratio;
- The process of centralising purchases with a single contact person or company "purchasing manager" who controls purchasing functions;
- The complete listing of products and services regularly purchased by the company, making them easier to monitor;
- Annual negotiations with a supplier or another important commercial relationship (subcontractor, customers, etc.);
- The process of sending and receiving payments.
In short, a purchasing strategy groups together a set of measures and actions designed to optimise an organisation's performance and reduce its financial risks. It is a powerful purchasing management tool that serves three common company needs:
- The quality of the products and services purchased (as high as possible);
- Cost of goods and services purchased (as low as possible);
- The timeframe for product and service availability, which is particularly important for the smooth running of the supply chain.
Why appoint a purchasing manager?
An effective strategy typically means appointing a company purchasing manager. They do not need to validate every transaction, but they may set targets for various direct or indirect purchase categories, such as Class C purchases, which are considered non-critical or low-value.
Obviously, this must be someone capable of analysing company transactions and its services' needs.
Why implement a purchasing strategy?
Purchasing strategies generally have a positive effect on an organisation's performance:
- A strategic procurement approach invariably leads to savings, sometimes considerable. It reduces the costs of acquiring essential products for a company and reduces or even eliminates non-essential expenses from the purchasing process. Bear in mind a company's internal purchases can represent up to 60% of its turnover! In most cases this optimisation potential is, therefore, immense.
- It increases the performance of the purchasing process and supply chain. Consumables and resources are ordered at the right time, using the correct order references, for the right volume.
- A purchasing strategy provides a better understanding of the company's procurement needs and applies to all departments.
- If needs be, expenditure can be directed towards specific sectors or budget categories.
- It is a valuable asset for companies aiming for more responsible consumption as part of a CSR policy commitment.
Strategic issues and the purchasing action plan
The drafting of a purchase action plan formalises objectives set by your purchasing policy and also caters to any future actions. This action plan must embrace all the departments or employees concerned by the purchasing function if it is to be fully operational.
What actions should you prioritise for your purchasing strategy?
Whatever the nature of the measures you wish to implement, it is essential to define the right performance indicators and KPIs beforehand. This will provide you with all the necessary information you require daily.
In addition to this, companies often integrate other objectives into their purchasing strategy or matrix:
- Carry out a comprehensive survey and establish an accurate company procurement chart. This requires complete segmentation, split into suppliers and product categories. You will get a clearer view of the distribution of your purchases, and be able to focus on ordering from the most competitive or competent suppliers.
- Undertake a detailed analysis of expenditures according to each major budget line. This is usually based on Kraljic's strategic matrix. This strategy distinguishes between "direct purchases", which are strategically necessary for the company to function, and indirect purchases related to stewardship and operating expenses (purchase of computer equipment, maintenance of premises, etc.). Specialised purchasing software can help you refine and speed up this analysis.
- Integrate supplier risk into your purchasing strategy, i.e. the probability of one of your business partners letting you down at a critical time. For example, it is better to use a less reliable or untested supplier for products that are easy to procure and not for essential company purchases.
- Depending on your organisation's characteristics, the unification of the purchasing chain may also be an objective. Streamlining procedures and processes associated with each transaction will ultimately result in significant savings.
A company's purchasing strategy is at the heart of its economic and commercial performance. Do you want to get a better understanding of and an accurate analytical capacity regarding your purchasing procedures? Giving your main employees a Mooncard corporate card is perfect for tracking every expense.
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