How to build an effective purchasing strategy

What is a purchasing strategy?

Purchasing is one link in the chain of IT procurement. As a critical business function, the purchasing process refers to the point of transaction between buyer and seller and often demands its own unique strategy.

The aim of purchasing strategies is to make better business decisions, drive cost savings and reduce inefficiencies. By defining the guiding principles behind the buying of goods and services, purchasing strategies are essential for businesses looking to streamline purchasing workflows and reduce their bottom line.

Without an established purchasing strategy in place, risk management and quality management protocols become difficult to uphold, which can lead to overspending and security issues within an organization.

Effective purchasing strategies therefore align with the overall procurement process — as well as wider business goals — in an attempt to capitalize on market conditions, supplier relationships, and strategic sourcing efforts.

In SaaS and IT, a purchasing strategy can cover the following areas:

• Assessments of the current market and the solutions available;
• Price comparisons and competitive vendor analysis;
• Contract negotiations;
• Purchase orders and approvals;
• Invoicing and payments;
• Supplier management.

The difference between purchasing and procurement

Purchasing and procurement are two terms often conflated in business. It’s easy to see how this happens, but purchasing should be thought of as a key component of the procurement process.

Strategic procurement begins long before purchasing managers are involved — it’s a business discipline that covers the sourcing, purchasing, and continuous evaluation of procured products.

An effective procurement strategy is one that supports business needs and objectives; the same can be said of a purchasing strategy, but the focus there is much narrower.

Purchasing strategies tend to relate to the immediacy of a transaction with short-term goals in mind. These goals almost always target cost avoidance or reduction, looking for the best price in any given transaction.

Of much less concern to the purchasing strategy is the sustainability of long-term relationships with suppliers. This is a key difference between purchasing and procurement — for the latter, fostering successful partnerships with a network of the industry’s best suppliers is more valuable in the long term than an efficient and cost-effective one-time transaction, and is therefore worth pursuing.

These differences of approach can sometimes cause friction between purchasing managers and the wider procurement team. Both parties are essential to the purchasing of quality goods, so implementing a purchasing strategy that listens to the philosophies of procurement professionals will lead to better decision-making overall.

Common purchasing strategies

There are many different types of purchasing strategy, each with their own particular focus. Organizations often adopt multiple purchasing strategies in order to benefit from different approaches.

Here’s a list of six of the most popular purchasing strategies and what they mean:

• Global sourcing — A strategy that looks beyond the supply of local vendors towards developing partnerships with vendors in global markets. The benefits of this approach are twofold: one, buyers can often access cheaper and more specialist solutions in foreign countries; and two, buyers can effectively mitigate against risk by sourcing a wide range of pre-vetted alternatives in the event of vendor collapse.
• Vendor development — A strategy that invests in the continued development of a supplier in a bid to benefit from the improvement of its product offering. The idea here is that buyers will generate a competitive advantage by receiving a constantly improved service without having to re-engage in a sourcing strategy.
• Green purchasing — A strategy that concentrates its efforts on sustainable purchases, partnering with vendors committed to environmental practices. In the procurement of software, green purchasing strategies aim to understand how vendors are looking to offset their carbon footprint in relation to other suppliers.
• Risk management — A strategy that prioritizes security above all other considerations. Like cost reduction, risk management is inherent to all purchasing strategies, but companies that adopt this approach are particularly risk averse, favoring a more expensive solution if the perceived risk is lower than a cheaper option.
• Centralized purchasing — A strategy that defers all buying decisions to a centralized purchasing team. Companies adopting this strategy are more likely to stay compliant with internal and external data regulations, and can benefit from economies of scale through large, multi-department contracts.
• Decentralized purchasing — By contrast, decentralized purchasing is a strategy that allows individual stakeholders to make purchasing decisions on behalf of a wider team. This approach takes away the benefits of centralized purchasing, but speeds up buying processes in the interest of efficiency and productivity. When leaders know the specific product their team needs, decentralized purchasing allows them to work quickly.

Six steps to building a strong purchasing strategy

It can be helpful to break down the individual steps of a strong purchasing strategy for businesses to understand the areas in which they can improve their approach. We’ve identified six key steps in the process of building a robust purchasing strategy, as follows:

1. Identify the business need

Once a business need has been identified, the purchasing strategy can begin. The act of identifying the need really falls under the remit of procurement teams, but effective processes here will incorporate all relevant stakeholders, including product end-users and purchasing teams.

2. Specify the requirement

Listen to advice offered by other stakeholders to further pinpoint the specific requirements of the new product. If the solution is simple, this step won’t require much work. If it’s complex — such as a subscription to a new CRM system like Salesforce — consult additional team members to ensure the business purchases the right product.

3. Find and select a supplier

Research potential suppliers and compare their advantages and disadvantages. Once you’ve decided on your preferred supplier, file a request for proposal and arrange to meet.

4. Negotiate

Set up a date for negotiation and meet with supplier representatives. Competition is so high in the SaaS market that price negotiations are standard practice; these negotiations are often beneficial to suppliers too, who should be pleased to agree to longer contract terms if they’re also happy with the arrangement. During the IT procurement negotiation stage, make sure you establish the metrics and KPIs upon which the purchased product can be fairly assessed at future dates.

5. Order approval and placing

Once an agreement has been reached, open up discussions with supply chain management and accounting departments to receive an order approval. With this in place, you’re ready to go ahead and place the purchasing order — make sure all the legalities are in writing and have been signed off by both parties.

6. Approve the order

Make sure you’re satisfied with the product once it’s been received. Pay attention to timeframes here, and whether there’s anything the supplier has neglected.

Fortify your SaaS purchasing strategy with Vertice

Developing and then maintaining an effective purchasing strategy can be difficult when done manually. Now that the average company subscribes to over 100 different software tools, strategies can be particularly hard to uphold when it comes to SaaS purchasing.

The Vertice platform uses automation features to simplify much of the purchasing strategy. By forecasting expected results from a particular product and monitoring its performance against agreed KPIs, the platform offers essential support during all SaaS purchasing decisions.

The platform also facilitates a smoother contract renewal management process, highlighting key scorecard and renewal dates. When purchasing teams are given adequate time to prepare for these dates through platform notifications, businesses can enjoy the benefits of a more efficient purchasing strategy.  

Vertice further supports its clients through dedicated customer purchasing teams — a white-glove service leveraging unique market insights to ensure businesses never overspend on their SaaS subscriptions. We know exactly what other companies have paid for their contracts, meaning we can negotiate the right product at the right price for your organization.

For more information on how Vertice’s SaaS Purchasing platform can support your purchasing strategy, click on the link and get in touch.