PROCUMENT planning has been there since the dawn of industry and commerce. But for some organisations, this very important business process has been regarded as a poor second cousin of other procurement functions.
In some instances, it has been treated as but one of those small unwanted spokes in the wheel. But others have also acknowledged (begrudgingly of course) that it is an important spoke - a spoke that really matters in the professional life of a procurement practitioner.
Procurement plans are a necessary evil although the attention given to them rarely matches the value that is derived from them. This cautionary statement applies strongly where there is no careful procurement planning for the purchase of requirements.
Since the turn of the decade, the fluid business environment characterised by dramatic shifts in supply chain competitive forces have seriously called into question many of the assumptions upon which legacy procurement planning models were founded upon.
However, despite the disquiet, slowly but surely the procurement business fraternity appears to recognise the importance of procurement planning as a valuable tool for the avoidance of unnecessary exigencies in the procurement of goods and services.
Within the same procurement business fraternity, there are those sceptics who will tell you that procurement planning takes a lot of time and effort for little return.
On the other side of the equation, there are those who will tell you that procurement planning can create valuable benefits by proactively identifying potential suitable suppliers well ahead of a purchase request.
For those organisations that have faith in procurement planning, the process will always be regarded as a pathway to competitive advantage and profitability. It is valued as a best way (by a substantial distance) of moulding foundational blocks to fully explore alternative procurement scenarios in light of the volatility associated with the current business environment.
- Procurement planning retold
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A couple of decades back, most business organisations were directly involved in the whole manufacturing process and could easily control their own means of production.
Business leaders in such environments could easily possess complete and detailed information and knowledge of the capacity of the plant, production schedules as well as the whole logistics arrangements of the entire supply chain.
In such an environment, it was fairly easy for companies to quickly adapt to changes in the business environment making it easy to maintain supply and demand balance at optimum levels. However, in an environment where business conditions are constantly changing, early and accurate procurement planning (with regular reviews) is essential to avoid last minute and or ill planned procurement which often times result in inefficiencies in the supply chain.
Whenever suppliers realise that time is running short for processing purchase orders, the power of negotiation will shift from procurement to the supplier.
Procurement plans are also useful for the identification of user needs which may be required within a specified period of time. Plans will ensure that such requirements are obtained by the procurement department within specific scheduled deadlines within specified available financial resources without comprising service delivery.
More importantly, plans could be used to group those requirements that may be acquired using the same procurement method. Where there are similarities in goods and services, the procurement department could find it necessary to aggregate those requirements deemed of similar nature that could be obtained from similar sources. This will create economies of scale and scope for suppliers.
Procurement planning process flows will also give procurement professionals and user departments a framework to assess if delivery expectations are realistic especially in cases where user requirements may be complex and required at short notice.
The time-frame requested for the supply of goods by the user department should speak to the use and application of the corresponding procurement method that is fair and transparent.
Where there is no procurement plan, the chances of running out of supplies early are very high. It will force supply chain personnel to resort to last minute procurement arrangements that are costly.
Goods that are sourced at short notice are normally expensive and in some cases of poor quality.
The procurement landscape is inherently risky. Experience over the years seem to suggest that a well-prepared procurement plan will facilitate organisations to identify early signs of potential supply chain risks, making it possible for the procurement department to come up with proactive measures to avoid the said risks.
Other factors that are equally of critical importance is the risk analysis of whether or not the supply market is going through a period of growth, decline or stagnation, an indicator of possible competitiveness of the supply market of the product required.
Robust procurement plans should always be ready to deal with potential contingencies by providing frameworks to identify the said procurement risks while offering vantage points to foresee challenges and calibrating procurement solutions.
Procurement plans could be relied upon as tools that will contain what-if scenarios with a view to identify other procurement strategies that may function as shock absorbers whenever unforeseen events overwhelm the supply chain ecosystem.
Procurement plans will also assist in structuring expenditure patterns to be within budget limits as well as adhering to the predetermined standards of quality which promotes the effective use of allocated funds.
Procurement plans are, therefore, a vital cog in the mechanism of organised procurement by avoiding excessive spending. It is paramount to ensure clarity of expectations.
Plans must be tailormade for the specific requirements that support the overall business plan. They will assist in deciding what to buy, when and from what sources.
They will also assist in determining whether user departments’ expectations are realistic. The procurement plan will give relevant stakeholders the opportunity to discuss the procurement requirements.
Stakeholders such as end users, finance department, procurement department, and technical experts will get the opportunity to share notes on prices, delivery timeframes, supply market sources and payment terms.
The best-in-class procurement professionals are also alive to the fact that procurement plans will require constant and continuous revisions to reflect changes in circumstances as the business environment evolves.
For all intents and purposes, procurement plans are never meant to be prescriptive either in form or content. Some would argue that their form and content should always reflect minimalist starting points which should be refined in line with the evolving corporate environment that is circumstantial to a particular purchase.
However, as is often said, for procurement plans to provide a step-by-step direction on a hypothetical correct path, there are certain preconditions that are critical to take into consideration otherwise it can easily end up as an exercise in futility if it is not done properly.
One of the most important ingredients for success is information. A successful procurement plan is only as good as the information that is being fed into it.
Planning systems require data (and a lot of it) on which to build and derive actionable business intelligence that adds value to the business.
It is of utmost importance to have buy in from the user departments so that accurate information with the correct specifications is passed on to the procurement department.
Procurement plans should not be etched in stone. There must be some form of wiggle room to manoeuvre in the event of any unexpected turn of events.
This will enable procurement personnel to keep up with the changing market trends and user department requirements, ensuring that the procurement plan is aligned with the overall business strategy.
The procurement plan will stipulate timelines for completing the procurement process flows allowing the business to meet its procurement deadlines, avoiding costly delays and mistakes down the line.
It will ensure a continuous supply of necessary materials as and when required ensuring that all procurement stays on track and within budget. The procurement plan will also ensure that inventory stock levels are balanced avoiding over and understocking of key items. Think of your plan as a living document.
It must be flexible enough to handle the ebb and flow of the business’s procurement requirements. Procurement plans should not be just another document full of wishes and well-intentioned goals that are rarely achieved.
It should not be a time sucking ritual where rules of expenditure are thrown into the air with reckless abandon. Without proper planning even the brightest minds can falter on the path to success.
Leading thinkers in supply chain management are of the firm view that setting procurement plans is the first step of turning the invisible into the visible.
In conclusion, in a world of perpetual uncertainty, where we are slowly moving away from business-as-usual approach to a disruption-as-usual approach, the best way to predict the future is to create your own future.
The ground continues to shift beneath the feet of supply chain professionals. Volatility remains the watchword for supply chain professionals.
One consistent thing in such an environment is that change will often come fast and furious. The only thing constant in business is change and this platitude is particularly so true in supply chain. Making procurement decisions without well-thought-out procurement plans is like relying on luck for consistent results.
Most businesspeople are feeling the squeeze and a procurement plan are now regarded as a standout competitive advantage to be prepared for anything and everything.
Procurement plans will be required to set guardrails and guidelines on how procurement professionals should conduct their day-to-day routines. As companies continue to struggle with drastically curtailed earnings in the face of razor thin margins due to the highly competitive business environment, procurement plans will provide proper guidance.
With properly structured procurement plans, real-time visibility becomes a defacto standard, ensuring increased value is within reach.
In its best version, a procurement plan becomes a single source of truth that enables real-time tracking of expenditure patterns leading to an agile supply chain that can flex to business cycles and trends.
When you are sailing the high seas of procurement, it is not just what you are doing that matters, but how you do it. There is need to take time to plan ahead, and you can be sure you are mapping out a course to success by minimising unplanned expenditures and creating sustained availability of products.
There is an old truism, being prepared is half the victory.
The collective chorus from the supply chain fraternity for the regular use of procurement plans cannot be ignored, although the debate on whether they are game changers continues to polarise opinion.
- Nyika is a supply chain practitioner based in Harare. — [email protected].
