4 Simple Steps to Building a Procurement Plan

Growing companies will need to evolve their purchasing processes to scale efficiently, and this transformation should occur sooner than it usually does. Graduating from ad hoc buying controls to a structured procurement plan will help organizations manage spend more effectively. The byproduct? Better control, more savings, and less risk.

Whether you’re a finance or procurement leader managing contracts or building out a purchasing function, the key to enabling efficient growth is understanding where to focus your time and how to leverage data to make informed decisions. The sooner you can nail this down, the easier it becomes to control and reduce spend.

Learn what successful procurement planning looks like, plus four simple steps that will help you develop an effective procurement plan in 100 days for your company.

What is procurement planning?

Procurement planning is a process where finance and procurement teams analyze spend data and align with major stakeholders on business goals to support the need for certain suppliers within various spend categories. The final deliverable is to create an initial procurement plan that guides purchasing for your entire organization and this plan should allow you to iterate and scale the process as business needs change.

As companies mature and increase headcount, a strong procurement plan can mean the difference between efficient spend control and chaotic cash burn that hurts your bottom line (i.e. rogue spending, duplicative tools, etc.). To put your company on the right track to efficiency, start the procurement planning process by tackling these four simple steps below.

4 fundamental steps to building an effective procurement plan

1. Organize suppliers and contracts in one place to improve spend visibility

Innovative companies know that visibility is the foundation of good spend management. After all, you can’t manage what you can’t see.

Without visibility, finance and procurement teams cannot effectively improve controls, optimize efficiency, and drive cost savings to the best of their ability. Here’s a simplified approach to gaining more visibility within your company:

1. Conduct a simple spend analysis: Identify where your spend is going. This involves tracking down all your vendors, which may require you to reach out to stakeholders or search emails and hard drives to collect contracts if they are scattered throughout your organization.
2. Organize contracts in one central location: Once you’ve collected all contracts, consolidate them in a single place such as a shared folder in the cloud or a repository tool (even better). Doing this work now will reduce the time spent tracking down contracts in the future.
3. Pull and track critical meta-data: Track relevant information and details from your agreements. Look for key terms like:
   • Contract end date
   • Contract opt-out date (the window before the auto-renewal kicks in)
   • Total spend amount over the contract term
4. Understand upcoming budgeted spend: As you sort the meta-data you pulled above, you want to understand any budgeted spend for the upcoming year and take that into your forecast.
5. Determine a working pipeline of projects sorted by urgency and importance: You can now leverage upcoming budgeted spend and details from your contract meta-data to define a clear to-do list of contracts with deadlines. It’s that much easier for you to align goals with stakeholders and have enough time on your side to prepare, source, and/or negotiate.

2. Build relationships with internal and external stakeholders to reduce “procurement bypass” and get buy-in

After you have sorted projects by digging into contract metadata and forecasting upcoming budgeted spend, it’s critical to bring this information to your stakeholders and suppliers as early as possible. 

This will help you gain alignment on goals and needs up front before you begin to source and negotiate in the third step.

How to build relationships with stakeholders

• Show them the data you’ve collected: By showing stakeholders the information you’ve collected from the previous step, you present yourself as more knowledgeable. Numbers don’t lie, and this will help ground your discussion in data.
• Share your plan while being open to their ideas, priorities, and collaboration: Share that pipeline of urgent and important projects you built from the previous step and communicate your project recommendations (even present options). The most important thing to do here is to stay open to their ideas, priorities, and collaboration. By actively listening and understanding their needs, you can start to win their trust by focusing on strategic and urgent areas on their plate.

How to build relationships with suppliers

• Communicate your team’s goals: Outlining the needs of your stakeholder to your vendor is important in aligning expectations (i.e. features, services, cost, etc.) and determining whether or not they can meet your criteria. At the very least, vendors may be able to get creative with you in their proposals and pricing structures to meet you in the middle.
• Leverage transparency and collaboration to build trust: In addition to communicating your team’s needs and goals, expressing your desire to work together with your vendor and find common ground goes a long way in building goodwill.

3. Leverage data and insights to start sourcing and negotiating 

Understanding what is important to your stakeholders helps you focus on what actually matters. Once you align on goals, it’s time to source competitive solutions and negotiate the best deal possible (according to your stakeholders’ needs). 

Here are three tips as you start sourcing suppliers and negotiating contracts:

1. Leverage benchmark data to increase negotiation leverage

Gain access to unbiased pricing data for key suppliers and understand the competitive landscape in order to increase specialized knowledge. You can use this data to help you evaluate general price points/ranges in a given market during sourcing exercises and understand if you’re even getting a fair price during conversations with vendors.

2. Get involved on a few immediate contracts and close some quick deals

You’ll learn quickly by jumping into a sourcing exercise or renewal negotiation (bonus points if you leverage benchmark data like above). This is a great way to build momentum and trust while collecting internal data for future negotiations.

3. Look for process bottlenecks and opportunities to streamline sourcing

Actively search for areas that slow the sourcing and purchasing process down. This is another way to build momentum and trust because it allows you to appropriately leverage and communicate opportunities with stakeholders to create change.

4. Implement a simple purchasing policy for stakeholders to follow

By this point, you’ve made great progress for your organization. You’ve gained spend visibility (and developed a working pipeline of projects), built relationships with stakeholders and suppliers (and communicated your team’s needs), and leveraged data for sourcing/negotiating (while getting involved in some early contracts and documenting ways to streamline current processes).

Now it’s time to take these insights and develop (or improve) a simple purchasing policy that your organization can easily follow. To lay this foundation, follow this approach:

• Take your insights and document the processes: Use your learnings to understand what might/might not work well for your company based on current processes (or lack thereof), budgets, and organizational hierarchy. Start drafting a simple framework that defines how purchase requests will be managed from the intake stage to final payment (i.e. intake-to-pay) and who will be responsible for various tasks of the process (sourcing, negotiating, approving, etc.).
• Seek input from key stakeholders: Once you have a simple framework, you must seek feedback and buy-in from key stakeholders such as Finance, IT, Infosec, and Legal. Be ready to adjust any part of your process according to additional needs and gaps.
• Host a monthly spend review: As you implement this initial policy org-wide, conduct a review every month with stakeholders to discuss open requests, upcoming spend, and process changes to iterate and scale according to the needs of your business.

Improve your procurement planning with Tropic

Too many companies remain stuck in the Wild West of purchasing, characterized by a lack of visibility into spend, poor relationships with stakeholders and suppliers, little negotiation leverage, and ad-hoc controls.

Simplifying your procurement planning in those four simple steps allows you to develop an effective and scalable procurement plan in 100 days, which dramatically puts structure around your purchasing and gives your company a strong start to control/reduce spend effectively.

If you’re interested in learning how Tropic can enhance procurement planning and improve process efficiency through intake-to-pay capabilities, spend analytics, and supplier intelligence, request a demo.