How to Build a Procurement Strategy: 8 Steps for Procurement Leaders

A procurement strategy is a medium- to long-term roadmap that defines how an organization strategically manages procurement activities to achieve cost optimization, value creation, and competitive advantage.

This guide provides procurement leaders with eight actionable steps to build an effective procurement strategy from current state analysis through execution and continuous improvement.

Why do you need a procurement strategy?

The importance of a well-defined strategy cannot be overstated. It is the starting point for creating an effective model to measure Procurement performance.

Key Components of a Procurement Strategy

• Spend visibility and control across all categories and business units

• Cost optimization through strategic sourcing and supplier management

• Risk mitigation across the supply chain

• Stakeholder alignment with finance, operations, and business leadership

• Performance measurement through defined KPIs and success metrics

• Sustainability and compliance integration

However, in practice, long-term plans may be well defined but cannot be translated into concrete behavior and action that harnesses the benefits. The beautiful yet theoretical vision may get lost in the noise of operative tasks.

A well-thought-out procurement strategy should highlight new approaches and push change in thinking that delivers higher customer value, cost efficiencies, and continuous process improvement.

Common Procurement Strategy Objectives

• Better spend visibility and control,
• Cost efficiency through strategic sourcing,
• Better contract delivery and coverage,
• Improved key supplier relationships,
• Quality management and product development,
• Improved customer experience and value,
• Process and policy compliance,
• Fewer errors and lost opportunities on purchase transactions,
• Sustainable development goals, such as reduced carbon footprint,
• Increased supplier diversity

Without a clear strategy, prioritization, and tracking of progress, such opportunities are lost - or there are simply too many to agree on and effectively push forward!

Questions Your Procurement Strategy Should Answer

• What are you trying to achieve? Define your procurement vision and mission.

• How will it be implemented? Establish clear action plans with timelines.

• What resources are required? Identify tools, technology, and talent needs.

• How will success be measured? Define KPIs aligned with business objectives.

• How does this support business strategy? Ensure alignment with organizational goals.

Answers to these questions should produce a strategy statement, an action plan with time frames, and success metrics. If there is a current strategy, this may be the time for a review.

Your proposed strategy must consider the organization’s goals and initiatives, its financial position, and its current level of procurement maturity. Consider the current state, available resources, and realities.

8 Steps to Build an Effective Procurement Strategy

Step 1: Conduct a Current State Analysis (CSA)

Documenting current expenditures and market conditions by category is the basis for developing a procurement strategy. This refers to understanding the full historical spend and analyzing it in relevant segments.

Identifying categories with a taxonomy that represents the business reality and market environment is vital to successful analysis.

The analysis will highlight spend trends, where the opportunities lie, and where cost reduction is possible. This knowledge base is the foundation of a functioning procurement strategy. The best way to go about this is through spend cube analysis. Document how you plan to harness the identified opportunities, manage costs, and mitigate risks.

Key question: What does your past performance and expenditure look like across all categories and business units?

Step 2: Engage Stakeholders Early and Often

Firstly, identify all those who may be impacted by the plan. These include business management teams, suppliers, finance, end-users, and subject matter experts. It is vital to manage their requirements and expectations. Some may not be in favor of all the proposed changes. Without stakeholder engagement, any strategy is doomed to fail. Some may have additional insights and business requirements you haven't taken into account. Stakeholder engagement is key in defining potential risks and opportunities as they hold vast substance and market knowledge.

Key Stakeholder Groups to Engage

• Executive leadership: Secure sponsorship and alignment with business priorities

• Business unit leaders: Understand requirements and gain operational support

• Finance: Align on savings targets, budgets, and reporting requirements

• End users: Address concerns and gather insights on current pain points

• Suppliers: Communicate expectations and explore collaboration opportunities

• Subject matter experts: Leverage category and market expertise

Stakeholder Engagement Best Practices

• Identify potential resistance early and address concerns proactively

• Gather insights and business requirements you may have overlooked

• Define risks and opportunities collaboratively

• Establish regular communication cadence throughout strategy execution

Key questions: Who are the stakeholders you need to convince? Who has the best market understanding and insights?

 

Step 3: Align Strategy with Organizational Goals

The strategy must align with the business's overall strategic intent. Fact-based spend analysis will help you align and prioritize your strategy to corporate goals across all functions.

Inputs for Strategic Alignment

• Corporate vision, mission, and values

• Medium-term business plans and growth initiatives

• Annual budgets and revenue projections

• Economic forecasts and market conditions

• Commodity indices and supply market trends

• Sustainability and ESG commitments

Key questions: What is the business vision and mission? How does your procurement strategy support business plans?

Step 4: Adopt the Right Tools and Technology

Big data can no longer be managed manually, it is time-consuming, inaccurate, and slow. Educated decision-making leaders need insights that are both relevant and timely.

Visibility is enabled using a suitable software solution. A dedicated spend analysis solution will identify opportunities, improve effectiveness and value-add from the teams, and reduce errors and costly mistakes.

Accenture’s four-part blog series on digital procurement sums it up nicely: “Digital procurement gives decision-makers better visibility, reduces risk, and boosts compliance—ultimately increasing spend under management and driving more value for the business.”

In part three of the series, the authors lay out these five elements to consider:

• Data: Internal and external data that touches every aspect of procurement

• Technology toolbox: Software solutions that leverage data for actionable insights

• User experience: Intuitive interfaces that drive adoption and accessibility

• Skills and talent: Critical knowledge and capabilities within the procurement team

• Policies and operating model: Clear processes and responsibilities

Key Technology Capabilities for Procurement

• Spend analytics: Consolidate, cleanse, and classify 100% of procurement data

• Savings tracking: Manage the full savings lifecycle from identification to realization

• Contract analytics: Link contracts to actual spend and monitor compliance

• Supplier management: Track performance, risk, and relationship health

• Sustainability analytics: Measure and reduce supply chain emissions

Key question: What technologies and tools do you need for your procurement strategy to succeed?

Step 5: Establish Procurement Policies and Processes

This is the point at which new policies, procedures, and operating models will be agreed upon and rolled out. This is an ideal opportunity to review processes and practices and adjust them to suit the new approach.

Policy Development Best Practices

• Communicate benefits, not just rules: Help stakeholders understand how policies support their objectives

• Be flexible: Policies should enable, not obstruct, business operations

• Monitor and adjust: Discard policies that create more friction than value

• Ensure visibility: Make policies accessible and easy to understand

Key Policy Areas to Address

• Sourcing and supplier selection criteria

• Approval workflows and spending thresholds

• Contract management and compliance requirements

• Preferred supplier programs

• Sustainability and diversity requirements

• Exception handling processes

Key questions:  What needs to change in practice to achieve your targets? Are current processes supporting strategy realization?

Step 6: Define and Prioritize Procurement Initiatives

Procurement is dynamic in its nature, and a list of sourcing opportunities is never-ending. Armed with reliable spend data that has been cleansed, classified, and categorized, areas of opportunity will emerge.

When the most business-critical areas of spend are covered in action plans, sub-categories that are underperforming can be identified and addressed. Certain low value/high volume transactions can be highlighted for attention.

How to Prioritize Procurement Initiatives

1. Identify opportunities through spend analysis and stakeholder input

2. Assess impact based on potential savings, risk reduction, and strategic value

3. Evaluate feasibility considering resources, complexity, and timeline

4. Align with stakeholders to ensure shared understanding and support

5. Set realistic objectives with clear timelines and accountability

Key question: What are the priorities guiding your strategy execution?

Step 7: Define Measures of Success

Tracking supplier and procurement performance open opportunities for continuous improvements and innovation. Measuring, monitoring, and reporting on supplier and category performance with pre-determined Key Performance Indicators (KPIs) creates a performance-driven environment in which people are engaged and accountable.

Measures should be aligned with business KPIs to ensure you're going in the same direction and delivering business impact.

Essential Procurement KPIs

• Cost Performance: Savings achieved, cost avoidance, price variance

• Efficiency: Cycle time, process automation rate, cost per transaction
• Compliance: Contract compliance rate, policy adherence, maverick spend
• Supplier Performance: On-time delivery, quality metrics, risk scores

KPI Best Practices

• Align with business KPIs to ensure procurement metrics support organizational objectives

• Balance leading and lagging indicators to track both activities and outcomes

• Establish baselines before setting targets

• Report regularly to maintain visibility and accountability

• Use data visualization to make performance accessible to stakeholders

Key question: How do you track progress and define success?

Step 8: Execute, Monitor, and Adjust

Strategy is a living document. External and internal circumstances change, and so must your plans. Don't be too fixated on your precious document, but instead consider it as a starting point. You will be wiser after you start executing your plans.

Stakeholder feedback should be used to fine-tune the strategy. Use data and insights to improve your strategy and the effectiveness of your actions. New opportunities may emerge that are more likely to succeed than the existing ones in your plan. This may require prioritizing projects and timelines.

Execution Best Practices

• Start with quick wins to build momentum and demonstrate value

• Communicate progress regularly to stakeholders and leadership

• Gather feedback and incorporate learnings into ongoing execution

• Use data and insights to improve strategy effectiveness

• Remain flexible as new opportunities emerge or priorities shift

When to Adjust Your Strategy

• Business priorities or organizational structure change

• Market conditions or supply dynamics shift significantly

• Initial assumptions prove incorrect based on execution experience

• New opportunities emerge that offer greater potential than planned initiatives

• Resource constraints require reprioritization

Key questions: Have circumstances changed along the way? Are business priorities still the same as when you started?

Key Takeaways for Procurement Leaders

1. Start with data: A current state analysis based on comprehensive spend data is the foundation of any effective procurement strategy.

2. Engage stakeholders early: Without buy-in from business leaders, finance, and end users, procurement strategies fail to achieve their potential.

3. Align with business objectives: Procurement strategies must directly support organizational goals to secure resources and demonstrate value.

4. Invest in technology: Modern procurement requires tools that deliver timely, accurate insights for strategic decision-making.

5. Prioritize ruthlessly: Focus on initiatives with the highest impact and feasibility rather than trying to address everything at once.

6. Measure what matters: Define KPIs that align with business objectives and create accountability for results.

7. Stay flexible: Treat your strategy as a living document that evolves with changing circumstances and new insights.

8. Execute with discipline: The best strategy is worthless without consistent, focused execution and continuous improvement.

Final thoughts

The main goal of a procurement strategy is to deliver business value and competitive advantage for the organization.

This is commonly achieved with cost optimization, increased efficiency, and improved performance. Spend analytics provides the key to developing a clear procurement strategy. The application of the right technology to spend management accelerates the identification of savings opportunities, management of risks, and optimization of an organization's buying power.

With an optimized cost structure and cash flow, more resources will be available for product development and creating customer value. 

Interested in learning more about how to level up your procurement strategy with insights while improving stakeholder collaboration? Then read more in our full-length eBook Procurement Loves Data.

Header photo by: Robert Tjalondo (unsplash.com)