In mid-sized companies, strategic procurement is not always separated from operational procurement. The procurement department, especially in manufacturing, is often responsible for both areas or strategic procurement is even completely neglected. High staff shortages and operational processes usually take up so much time that there is too often no time left for the strategic side of the business. However, strategic procurement is precisely what is essential when it comes to placing the procurement organization on a stable foundation for the long term and developing it further.

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So what should be done to better implement strategic procurement topics within the department? Below we have compiled five tips for your department.

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You Don't Always Need New Employees

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Whether separating strategic and operational topics across different employees makes sense must be evaluated on a case-by-case basis. What is important, however, is that strategic work is not neglected and that there is clear accountability within the procurement department.

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One way to get processes moving without hiring new staff is training and professional development for employees in strategic topics. Strategic thinking, negotiation skills, and familiarization with new tools are all topics that can be well covered in internal training programs. Since operational and technical buyers are usually already part of the company for a longer time, they are typically already familiar with the workflows and can implement the new competencies within existing structures faster than newly hired professionals.

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Expanding Commodity Group Management

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The strategic processing and grouping of goods into logical commodity groups enables the strategic buyer, through commodity group management, to achieve optimal landed costs while considering total cost of ownership. Commodity group management is a prerequisite for finding and leveraging savings potential for individual areas and thus plays a central role in creating a sustainable cost structure. 

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Based on the available procurement data, logical commodity groups are developed. The key characteristics of a commodity group can be summarized on a commodity group profile. Similarities arise, for example, based on:

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• the supplier portfolio
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• the procurement strategy,
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• the similarity in demand planning, as well as
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• commonalities in objectives and implementation measures

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In a mid-sized company, this typically results in 20 to 30 profiles. These commodity groups are now optimally suited for optimization in terms of quality, price, or delivery reliability. Not all commodity groups have the same goals: individual commodity groups are examined and analyzed separately. The following questions should be answered for each commodity group:

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• What are the costs and selling prices?
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• What quantities of the raw materials belonging to the material group does the company procure at what prices?
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• What terms have been agreed upon with the corresponding suppliers of the commodity group?
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• How will own demand, the supply situation, and manufacturing capacities within the material group develop in the future?
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• What business model do the suppliers within the commodity group pursue?

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Those who want to take a more "modern" approach can use software instead of physical profiles to analyze commodity groups. For example, with Tacto's software, you can create analyses for different commodity groups at the push of a button. This makes the time-consuming and technically difficult Excel evaluations a thing of the past.

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Introducing Active Supplier Management

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Engaging with suppliers is a central component of every strategically thinking buyer's work. The high dependence on a solid network has been evident long before many raw materials became scarce. Good supplier management means, conversely, good relationship management. The supplier should not be seen as a cost driver within the company, but rather as a value creation partner. 

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The strategic buyer embodies the face of the company and stands as a contact person for all matters. When difficult negotiations or problems arise, they know who has the decision-making authority at the supplier and how to approach the individual negotiation situation. The common goal of the medium- and long-term partnership is to optimize the entire value chain. Despite all optimization, in many cases it is sensible to prioritize the long-term partnership and not jeopardize it for short-term goal achievement.

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Building the Procurement Department as a Central Interface in the Company

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Procurement represents the business area with the most cross-departmental as well as external interfaces. A strategic buyer must coordinate with multiple departments simultaneously while maintaining an overview.

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To enable a strategic orientation of the procurement department, it makes sense to maintain regular contact with all relevant departments. Many procurement leaders, for example, value being involved in important management meetings or at least establishing a regular meeting with the executive team. 

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Additionally, close coordination with manufacturing, engineering, and all relevant planning departments makes sense. Strategic buyers are central interface managers and should position themselves accordingly within the company. Establishing regular meetings and planning rounds on a monthly or even biweekly basis can be quite valuable.

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Driving Digitalization

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Mid-market procurement is still somewhat behind its larger industrial competitors when it comes to many digitalization questions. The necessary IT resources are often not easy to obtain, and there are personnel shortages everywhere. 

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Especially in procurement, however, the following applies: if you want to understand your procurement activities, you need to know the current figures, data, and facts. An up-to-date and accurate data analysis is particularly essential when preparing for difficult negotiation discussions with suppliers. However, the reality in many mid-sized procurement departments is as follows: the ERP system remains the most commonly used system for data management, followed by Excel. Data management with Excel is demonstrably associated with high effort and error-proneness. 

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In recent years, a whole range of new software solutions and tools have emerged that can offer real added value especially for mid-market procurement. Especially for strategic procurement, some software developers offer dedicated solutions that make the use of Excel completely obsolete. With some programs, it is possible to evaluate existing procurement data at the push of a button, thus avoiding the error-proneness of self-created Excel analyses while saving valuable time. Furthermore, there are several solutions for the quick management and evaluation of supplier data without the need for heavy email traffic. 

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Simplify strategic procurement with Tacto

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Tacto's software, for example, offers all of these capabilities. What makes it special is its specific focus on the needs and requirements of the industrial mid-market. Feel free to consult with one of our procurement experts on this topic.

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Mid-market procurement and its importance for the manufacturing sector continues to be underestimated. 5 important tips for mid-sized companies in strategic procurement.