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The fluctuation of prices across upstream and downstream supply chain processes has become a constant challenge for business procurement performance. As a result, accurate demand volume predictions, coupled with comprehensive ‘what-if’ analysis for price changes, have become more important than ever for effective supply chain management. This means effective procurement planning and management are essential.
According to the Hackett Group, procurement executives’ top priorities and planned improvement initiatives are ensuring supply continuity, combating inflationary price increases and reducing spending. Data accuracy and transparency play an essential role in achieving these objectives, and 65% of organizations anticipate changes to their business in the coming year to adapt to evolving demands.
Learn how modern procurement planning solutions can provide valuable insights into business strategy problems and supply chain issues, enabling procurement departments to perform at their best. Discover how these solutions help transform procurement performance planning and management by providing a unified data analytics platform that serves as a foundational component of your planning process.
What Is a Procurement Plan?
A procurement management plan is a systematic and strategic approach to acquiring goods, services or resources needed by an organization to fulfill its operational requirements and achieve its goals. It serves as a roadmap that outlines the steps and processes involved in procurement, from identifying the needs and requirements to the final acquisition.
An effective procurement planning and management process ensures that the right goods or services are obtained at the right time, in the right quantity and at the right cost. It involves thoroughly assessing the organization’s needs, market analysis, supplier evaluation and negotiation strategies. Developing a procurement plan typically consists of several steps:
Needs Assessment
This involves identifying and understanding the organization’s requirements, both in terms of quantity and quality. It includes determining the specifications, technical details and any specific standards or certifications needed.
Market Analysis
Conducting a comprehensive analysis of the market is crucial to identify potential suppliers, assess their capabilities, and evaluate market trends. This analysis helps in making informed decisions regarding supplier selection and negotiations.
Supplier Evaluation
Evaluating potential suppliers based on quality, reliability, pricing, delivery capabilities and past performance is an essential step in the procurement planning process. This evaluation ensures that the selected suppliers can meet the organization’s requirements effectively.
Negotiation Strategies
Developing effective negotiation strategies is vital to secure the best possible terms and conditions with suppliers. This includes negotiating pricing, delivery schedules, payment terms and any other types of contracts or agreements.
Risk Management
Assessing and managing risks associated with procurement is crucial to minimize potential disruptions or issues. This involves identifying potential risks, developing contingency plans and implementing risk mitigation strategies.
Benefits of Effective Procurement Performance Planning and Management
Effective procurement performance planning and management offer many benefits that can significantly impact an organization’s procurement processes and overall success. Let’s explore some of the critical benefits a unified data analytics platform and effective procurement process can offer.
Cost Savings
A well-executed procurement performance plan enables organizations to identify cost-saving opportunities and implement strategies to optimize spending. Procurement teams can analyze supplier contracts, negotiate favorable terms and leverage economies of scale to drive cost reductions and achieve significant savings. An effective plan also ensures that procurement activities align with budgetary goals and financial objectives.
Supplier Relationship Management
Procurement performance planning and management foster strong supplier relationships. Implementing effective supplier evaluation, selection and approval processes enables organizations to identify reliable and high-quality suppliers. Effective procurement processes create greater opportunities for strategic sourcing, which involves analyzing market trends, negotiating favorable contracts and leveraging economies of scale to optimize procurement decisions. Building strong partnerships with suppliers and vendor managers leads to improved collaboration, better communication and enhanced supplier performance. This, in turn, results in timely delivery of goods and services, reduced supply chain disruptions and increased customer satisfaction.
Risk Mitigation
An effective procurement process involves conducting thorough risk assessments, which enable organizations to identify potential risks such as supply chain disruptions, price fluctuations or supplier reliability issues. Proactive risk management strategies, such as diversifying the supplier base or implementing contingency plans, help mitigate these risks and ensure continuity of operations.
Process Efficiency
Strong procurement planning and management practices include implementing standardized procurement procedures, which eliminate redundancies, reduce manual errors and improve the overall process. Automating routine tasks, such as purchase order generation or invoice processing, frees up procurement professionals’ time, allowing them to focus on strategic activities and value-added tasks.
Data-Driven Decision Making
Procurement performance planning and management rely on data analysis to drive informed decision-making and gain valuable insights into procurement trends, supplier performance and market dynamics. Accurate demand volume prediction, coupled with ‘what-if’ analysis for price changes, allows supply chain managers to make informed decisions, optimize inventory levels, and ensure the timely availability of goods, ultimately driving supply chain efficiency and cost-effectiveness. This enables procurement professionals to assess key performance indicators, identify areas for improvement and optimize procurement strategies for better outcomes.
Compliance and Governance
Effective procurement performance planning and management ensures compliance with regulatory requirements and internal governance policies. Organizations can develop robust procurement processes to adhere to legal and ethical standards, mitigate compliance risks and maintain transparency and accountability in procurement activities. This also helps build trust with stakeholders and protects the organization’s reputation.
Modern Power BI Procurement Planning Solutions
Chief procurement officers (CPOs) and chief supply chain officers are increasingly becoming aware that a unified analytics platform provides valuable insights into business strategy problems and supply chain issues. The more procurement departments are supported with all necessary information and analysis, the better they can perform in their main task: acquiring materials, products or services to fulfill the company’s strategic objectives.
Modern unified data analytics and planning solutions come with process optimization and automation features that help save time and reduce procurement costs while allowing procurement managers to be better prepared for negotiations with suppliers.
Acterys, for example, provides write-back-enabled and AI-enhanced planning capabilities in Power BI, enabling users to perform consolidation, reporting and analytics with ease and speed. This PPM solution provides multidimensional spend analysis, price/volume forecasts with baked-in AI, risk monitoring, initiative tracking, contract analysis, savings forecast and seamless integration into Sales and Operations Planning (S&OP).
Analyzing Spend for Higher-Cost Savings
While CPOs define top-down saving targets, it’s the responsibility of procurement analysts and finance teams to monitor both direct and indirect spend, as well as the saving initiatives they oversee. Tracking actual spending, savings and suppliers is certainly critical. However, it’s equally crucial to strike a balance between supply and demand in S&OP and Supply Chain Management (SCM).
Combining Acterys AI-enhanced planning capabilities and smartPM’s PPM module, businesses can factor in external price forecast sources to simulate direct and indirect price and volume changes in real time across several dimensions like category tree, product, material/cost driver, region, supplier and many more dimensions.
Blending Sales Forecasts with Procurement Demand
Blending sales forecasts with procurement demand streamlines the process and improves procurement performance by translating expected sales into actionable procurement requirements. This ensures that procurement aligns with actual demand, optimizing inventory levels and production capacity.
With the right procurement software, sales forecasts can be translated into procurement demand via the Bill of Materials (BOM). Expected demand from sales can be balanced with production capacity, allowing procurement managers to make accurate demand volume predictions. Acterys also provides integration with online collaboration tools, such as Microsoft Teams, which facilitate seamless collaboration and task alignment for quick target achievement.
The solution fosters seamless collaboration among SCM, procurement and S&OP departments, leading to continuous improvement, and enhanced decision-making, among other positive effects. It enables all internal and external experts and stakeholders to work on the same data, have common long-term goals and contribute as a team to achieve strategic objectives.
Finance, S&OP, SCM, procurement, production, project managers and HR can finally be on the same page regarding target achievement and enterprise performance. All loose ends of typically scattered information can be connected in a truly integrated and unified analytics and procurement framework for extended Planning & Analysis (xP&A).
If you’d like to see how you can implement Acterys to optimize procurement performance and build an integrated business planning framework, get in touch with a solution expert today. Or you can start a free trial here.
