Written by: Donna Kirk – The Pro Forum Community of Practice

Did you know there is no official definition for Strategic Procurement? There are a range of descriptions and methodologies that have evolved from an early discussion piece from Japanese Author, Toshihiro Nishiguchi.

In 1995, Toshihiro Nishiguchi, defined the key steps to continuous strategic sourcing as:

  1. Assessment of a company’s current spending (what is bought, where, at what prices?).
  2. Assessment of the supply market (who offers what?).
  3. Total cost analysis (how much does it cost to provide those goods or services?).
  4. Identification of suitable suppliers.
  5. Development of a sourcing strategy (where to purchase, consideration of supply and demand, while minimizing risk and costs).
  6. Negotiation with suppliers (products, service levels, prices, geographical coverage, Payment Terms, etc.).
  7. Implementation of new supply structure.
  8. Track results and restart assessment.

While this process was relevant last century, some modifications have been incorporated to enhance the effectiveness of Nishiguchi’s approach.  Modifications such as Total Cost that now includes other factors of consideration in particular end-of-life costs, environmental factors and community impact has recently made procurement or sourcing a very tactical function of both the private and public sector operations.

And then COVID-19 happened.

The COVID-19 pandemic crippled not only the health and wellbeing of the world’s citizens, but the global supply chains were also disrupted, with the movement of people curtailed and the shutting down of economies.  Suddenly, we went from having certainty to no certainty almost instantaneously.  With businesses’ shutting their doors temporarily and others shutting down permanently, it was difficult to know for sure how the supply chains would be impacted in the long term when everything would go back to a ‘new’ normal.

Alternative sourcing options were needed, costs had to be adjusted and budgets aligned with a dramatically changing environment. Expectations had shifted while the crisis continued to evolve over a period of months. Everything that was normal to us, now requires a new set of rules, a different game plan and a sudden shift in organisational goals – for some it was a case of survival – for others it became a race to innovate.

Procurement became more complex and a core component of decision-making. This requires a reaching out of leadership and has been seen, globally, as a stronger shift to a longer view or a more strategic outlook.

Which highlights the change from Toshihiro’s tactical process to a more holistic approach such as the one adopted by Government earlier in 2016-2017 prior to the impacts of Covid.

Queensland Government[1] describes strategic procurement as a “holistic approach to procurement that focuses on specific areas of spend using category management to look strategically on how sourcing and demand management can rationalise products and services across divisions and departments.”

The description goes onto describe that “by taking a strategic approach to procuring goods and services that will meet the business’ strategic objectives requires a level of certainty about the market and a reliable forecast of how well the business is likely to perform in the coming periods.  It is with these known facts that allows for continuous strategic sourcing to occur to maintain a cyclical approach to strategic sourcing.”

However, Covid has created the uncertainty that this description relies on. Perhaps strategic procurement is more about the ability to navigate to meet organisational outcomes irrespective of the market?

As you can see the definition or expectation is still evolving as is the understanding of the Strategic Procurement Professional. 

 

[1] Strategic Procurement – Report 1:2016-17, Queensland Audit Office, https://www.qao.qld.gov.au/sites/default/files/reports/strategic_procurement_report_1_2016-17.pdf

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