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Redefining procurement series: Strategic planning (part 1)

Chris Gayner
Jul 20, 2011 6:02:00 PM

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Over the past few months, I have used the catch-phrase '‘strategic business partner' repeatedly -– looking at developing the capabilities within the procurement operation around leadership, stakeholder engagement, communication and talent management.

All of these capabilities require discipline and focus to ensure they are being developed and implemented effectively towards achieving the objectives of the business. However, more often than not the constant white noise we deal with in our day-to-day often reduces the discipline and shifts our focus away from building on these capabilities in a structured manner. As a result, we see a reactive culture encompassing many procurement operations in which long term planning has been replaced by a constant focus on the tick box marked ‘'urgent’' -– rather than focusing on the tick box marked ‘'important’'.

Developing a Strategic Plan

Wikipedia defines strategic planning as “"an organisation's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people”." A strategic plan can look anywhere from 3 to 5 years in the future and maps current capabilities against desired outcomes -– highlighting gaps and areas of focus. The strategic plan usually stems off the vision, mission and overarching objectives of the organisation –- each function will have their own set of objectives which will be intrinsically linked to these top level objectives.

This definition can (and should) be applied to any procurement operation. Below is a visual representation of an outline of a basic step-by-step guide to developing a strategic plan.

how-to-develop-a-strategic-state

Fig 1: Strategic Plan (Click to enlarge)*


1. Scan the environment

Outside of the usual scanning and monitoring of the supply market how many of you have actually conducted a more detailed PEST analysis (Political, Economic, Social, Technological) looking at both the supply market as well as the industry as a whole?

Macro industry trends can highlight positives and negatives which can have great impact on the way you deliver your service back to your customers. From a procurement perspective the external analysis is quite different to a sales or marketing market analysis in that both your customers and competitors are internal to the business:

  • Analyse your customer’'s needs: Throughout the series we have already talked extensively around stakeholder engagement –- your key customers. The need to truly understand their needs and drivers is critical to delivering a first rate service back to them -– in which they will come back to you time-after-time. Understanding the industry will put you on level grounding when you approach them with new ideas or challenges.
  • Analyse your competition: In many cases your key competitors are in fact the very stakeholders you are constantly supporting. A customer who does not wish to work alongside procurement, will instead hold onto the sourcing process themselves, undermining economies of scale and leverage capabilities procurement can attain in the supply market. Engaging and developing relationships with your key competitors is the first step in converting them into customers.

2. Determine the critical implications and develop the desired future state
Once the external analysis has been conducted, key critical implications will present themselves e.g. technology advancements, changes in regulatory compliance, effects on the supply chain from natural disasters such as Japan has faced or national uprisings, etc.  With these implications in mind we can start to plot a desired outcome or response next to each –- using a simple spreadsheet, this could look like:

Issue/Implication Detail/Potential Impact Desired Outcome
     

3. Assess the current state and identify gaps
There are a plethora of tools, methodologies and concepts available for monitoring, tracking and reporting on the market place (or external environment) surrounding all facets which might impact supply assurance (commodity prices, supplier changes, currency fluctuations etc). However, how many of you apply this same rigour and discipline to your internal environment?

When did you last conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) of your current procurement operation - looking inwards towards your internal stakeholders?

This particular step requires a lot of honesty and complete objectivity -– removing yourself from what you want to see with what the business (stakeholders and senior management) are telling you. The SWOT should be carried out in small focus groups with results fed back to all participants post event. This initial SWOT should act as a point of comparison for when you next run the analysis (enabling you to compare progress).

4. Develop the strategies, set the goals and outline implementation
The output of the above process will be a series of opportunities and gaps in your external and internal operations, better understanding of the market in which you operate and a better understanding of how procurement fits in with the overall business. Do not be put off or hide the negative aspects of this, these are beacons for development, and if you have been truly objective throughout the process -– showing improvements on these negatives (in front of your stakeholders) will only add credibility to the procurement operation.

The next step, which is probably the hardest, is putting this information into a succinct action plan highlighting important dates, responsibilities, accountabilities and most importantly metrics for measuring progress.

Critical goals and milestones should be setup at the start and adjusted at regular intervals, evolving with the plan. Goals should be SMART (Specific, Measurable, Achievable, Relevant and Time bound) and clearly aligned with the overall objectives of the function and the business. A mixture of short term and long term goals should be implemented, ensuring your team is motivated and able to go back to stakeholders with some frequent progress updates.

No two plans are the same as they should be completely tailored to the business and industry in which you operate. The thinking in developing the plan, however will be similar across the board.

Why should you care about strategic planning?
Going through this process, coupled with the internal and external audits/reviews, enables you to quickly pinpoint what you do well and where you need to focus. It also allows the procurement operation to:

  • Engage the wider organisation through clearly communicating procurement's vision and aims
  • Better forecast
  • Prioritise & focus to meet the business’' needs
  • Proactively plan and manage the long term demands
  • React to daily demands
  • Plan the portfolio further out (i.e. strategic, leverage, bottleneck & transactional)
  • Manage & report the performance of the Procurement function (scorecard/ KPIs) clearer to the business

I would be interested in hearing how you go about setting out your strategic plans – giving some examples of pitfalls or wins you have experienced along the way?

 

* Fig 1: STRATEGIC PLAN - Major Steps, Determinants of Successful Strategic Planning

Proxima Group

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