Mastering procurement strategy, planning and performance

By Peter Morichovitis, Principal Advisor and Joneil Palenzuela, Senior Advisor, Procurement Office and Professional Advisory

Mastering Procurement Strategy, Planning and Performance 

Councils can differ greatly in their procurement maturity. Some councils may be starting out on a journey to improve their procurement function, whilst others may have been on the journey for numerous years, having reached a greater level of procurement maturity and performance. 

Procurement Value 

At the macro level, there are three procurement value propositions or drivers. Your council may define and measure other procurement value drivers, however, they will, at some level fall within the following three procurement value propositions. 

1. Effectiveness - reducing the total cost of ownership of external spend using procurement techniques (such as category management, strategic sourcing and supplier relationship management).

2. Efficiency - reducing costs from within the procurement function and procurement processes (for example, through process reengineering, deploying technology and automation). 

3. Customer service - providing best value materials and services to internal customers on time, to specification, above expectation and with social responsibility. 

These procurement value propositions often compete with each other, and in some cases are diametrically opposed in nature. As a result, they need to be carefully managed and balanced to optimise value for your council. 

Six Building Blocks to Enhance Local Government Procurement 

Here are six key building blocks to enhancing local government procurement. If you structure your procurement efforts around these six blocks, you can develop and execute a simple and practical design to improve procurement capability and value within the organisation. 

The six building blocks to enhance procurement capability focus on extracting and balancing effectiveness, efficiency and customer service procurement value for a local government.

Primarily, from the 'top down', the right procurement strategy, associated plans and performance measurement methods need to be built to drive the procurement function. The second row of blocks enables a direct link to the wider council organisation through a procurement governance framework and the management of the organisational interface, particularly with internal customers, executives and suppliers. And finally, a foundational layer of people, processes, and technology, built upon your council’s core values and guiding principles. 

Mastering Procurement Strategy 

“All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.” Sun Tzu 

It’s interesting to note how many councils do not perform strategic planning activities to drive their procurement function. Our recent webinar attendees indicated that 48% did not have procurement strategies in place, whilst 21% were unsure if they had a procurement strategy. 

Procurement strategy is concerned with identifying, selecting and implementing the right procurement structures, systems, skills, processes, programs, shared values, initiatives and objectives for an organisation that add significantly to its goals and profitability. In essence, procurement strategy encompasses driving the other five building blocks for procurement capability - governance, the organisational interface, people, processes and technology. 

What’s the right procurement strategy? 

So, what are the right or best procurement strategies? Fundamentally, there is no ‘one-size-fits-all’ solution. The right procurement strategy for a council is dependent on that specific council’s strategic objectives, goals and values, coupled with the maturity level of its procurement function.  However, with that said, the following are essential principles for any council’s procurement strategy today: 

• Risk and total cost are balanced. 

• Individual end-user customer and overall company needs are balanced. 

• The strategies directly enable the three procurement value propositions of effectiveness, efficiency and customer service. 

• Effectiveness, efficiency and customer service value are balanced. 

• External influences, such as market and economic conditions, legislation changes and moral obligations are dealt with (e.g. security of supply, talent scarcity, renewable energy, social responsibility and sustainability, etc). 

• Procurement personnel are allocated to strategic and tactical roles, with technology and automation utilised to eliminate transactional procurement activities. 

• The other five building blocks for procurement capability (governance, the organisational interface, people, processes and technology) are built and continuously improved. 

• Simplicity. 

And the words of Michael Porter also come to mind: “The essence of strategy is choosing what not to do”. 

If I had to devise a Procurement Strategy for a council today, here are 10 things I would include: 

1. Maximising spend with suppliers within the council boundaries. 

2. Social procurement (CSR): meeting social objectives through procurement and in particular facilitating employment opportunities. 

3. Innovative procurement: work with suppliers to expand opportunities and identify suitable procurement spend categories for innovative procurement initiatives. 

4. Quality assurance: increase council’s confidence that procured goods and/or services will be of consistent quality. 

5. WHS: ensure all foreseeable health and safety risks associated with a potential procurement contract are identified, managed and mitigated. 

6. Ethics and probity: ensure ethical conduct that exceeds the legal requirements. 

7. Category management. 

8. Sustainable procurement: e.g. renewable energy, environmentally friendly products, circular economy. 

9. Supplier relationship management: developing strong supplier partnerships. 

10. Digitalisation: using technology to transform and automate procurement processes. 

Mastering Procurement Planning 

When procurement strategies have been analysed and selected, often the hardest part is the translation of these strategies into organisational action. That’s where a linked business planning and performance measurement process needs to be assembled as part of the first building block. 

Effective planning is crucial for the success of any procurement strategy. It involves identifying the key procurement activities, setting clear objectives, and developing a roadmap to achieve these objectives. Planning also includes the allocation of resources, such as people, processes, and technology, to ensure that the procurement function operates smoothly.  

Mastering Procurement Performance 

Measuring the performance of the procurement function is essential to ensure that it delivers the desired outcomes. Performance measurement involves tracking key metrics, such as cost savings, supplier performance, and customer satisfaction. By regularly monitoring these metrics including agreed KPI’s/SLA’s; councils can identify areas for improvement and take corrective actions to enhance their procurement function. As Peter Drucker wrote: "If you can't measure it, you can't improve it", emphasising the importance of designing and applying the appropriate metrics. 

Performance measures and goals should be linked to the procurement strategies and business plans, aligned with the council's strategic objectives, goals and values, with the link actively marketed.  Internal customer satisfaction and supplier feedback mechanisms should be incorporated into the performance measures.  Procurement work group and individual job goals should be directly linked to the performance measure outcomes and performance results used to review, change and develop new strategies and goals, and continuously improve the procurement function. 

Conclusion 

Mastering procurement strategy, planning, and performance is a continuous journey that requires dedicated effort by procurement professionals in local government. By developing a comprehensive procurement strategy, planning effectively and measuring performance, councils can achieve excellence in their procurement function and maximise value to their stakeholders.

Learn more about how Peak Services can become your Procurement Back Office. We have the team to deliver your council with immediate support. We are here to be your procurement partner, with a dedicated expert team of procurement and contract professionals trusted by Queensland councils.