The two major functions of procurement have very distinct approaches…one tactical, the other, highly strategic.
Ask 100 people to explain procurement and most would likely say its function in the company is that of negotiating the pricing and purchasing of goods and services. But it’s so much more than that. And as the role of procurement evolves in an ever more complex and global business climate, the defining and understanding of strategic and tactical functions become essential.
In its simplest terms, procurement involves the process of selecting vendors, establishing payment terms, strategic vetting, selection, negotiation of contracts, and actual purchasing of goods. Procurement is concerned with acquiring (procuring) all of the goods and services that are vital to an organization’s operation. Procurement is, essentially, the overarching or umbrella organization within which tactical and strategic functions can be found.
Start with strategy [Systematic, long-term, and holistic approach]
As in any business undertaking, you need to first start with strategy. For procurement, that role is played by the supply management, or strategic sourcing team. Before any research, sourcing, or negotiations begin to take place, supply management needs to focus on the requirements of its internal customers (which may include engineering, marketing, IT, etc.) as well as the overall goals of the organization. In order to acquire those requirements of the internal customers, supply management needs to effectively manage its supply base with the help of cross-functional teams, with the target of achieving organizational goals. Since this process usually involves overseeing the largest portion of your organization’s spend, supply management must focus on strategic sourcing in order to meet these goals.
With all of the new regulatory compliance that now affects third-party relationships, supply management needs to have much deeper involvement with suppliers to ensure their compliance with all regulations, and that requires the supply management team to be constantly aware of changing regulations and reassessing strategies as necessary.
Turn to tactics [Short-term, reactive, and highly transactional approach]
Tactical or location purchasing, on the other hand, focuses on ensuring that there is enough supply as well as addressing supply and payment issues at the site level. As often happens with tactics, minutiae can eat up time and effort. That’s often the case with location purchasing; it can consume all of a purchasing team’s time and resources and that, in turn, limits the efforts for optimal leveraging and drive savings. That’s why supply management’s role is so vital to supply chain success.
Yet, under the procurement umbrella, not one of these functions can succeed without the other. Regardless of the size of the company or its procurement department, the roles played by supply management and purchasing are often complimentary. Both roles need to work together and communicate frequently. When strategy and tactics are aligned with one another, the supply chain will benefit and that ultimately leads to greater organizational profitability and productivity.
Read more of our blogs on the many facets and levels of procurement and how they work together to boost savings, innovation, and growth.