What is a procurement strategy, and how do you build one?
Short answer
A procurement strategy sets what an organisation’s buying must achieve over the next few years and how it will get there: objectives, targets, category approaches, people and systems.
Key takeaways
- A procurement strategy links buying to the organisation’s goals. It states what procurement must deliver, how success is measured, how the main categories will be bought, and which people, rules and systems are needed.
- It is not the policy, which sets the rules, nor the procurement plan, which lists the purchases of the coming year. Category strategies apply it one category at a time.
- Build it from evidence: the organisation’s objectives, a spend analysis, the risks in the supply market and an honest view of the team’s capacity. Then set a few targets that can be measured from your own data.
- Some public bodies must have one. In Scotland, an authority expecting regulated procurement of £5 million or more in a year must prepare or review a procurement strategy, then report against it each year.
- A strategy that is not reviewed each year and turned into category plans and a pipeline of purchases stays a document nobody uses.
What is a procurement strategy?
A procurement strategy is a written plan, approved by leadership, that links an organisation’s buying to its business goals. It states the objectives procurement must deliver, the targets that measure them, how each main category of spend will be approached, and the people, rules and systems needed.
Take an invented example: a hospital group whose board has two priorities for the next three years: control costs and never run out of critical supplies. Without a procurement strategy, each buyer interprets those priorities alone. With one, the board’s goals become procurement objectives: for example, put 80% of spend under contract, qualify a second supplier for every critical medical device, and move routine supplies to catalogues. Each category manager then knows what the category strategy must deliver.
The words have a second meaning. In public projects, “procurement strategy” often names the approach chosen for one large purchase: the procedure, the lots, the contract type and the timetable. This page is about the strategy for the whole procurement function; the approach for one purchase is part of strategic sourcing and the procurement process.
How is a procurement strategy different from a policy, a plan and a category strategy?
A procurement strategy says where buying is going and why. A policy says what rules every purchase follows. A procurement plan says which purchases will start this year. A category strategy applies the procurement strategy to one group of goods or services. The table puts the documents side by side.
| Document | Question it answers | Time frame | Example line |
|---|---|---|---|
| Procurement strategy | What must buying achieve, and how will we get there? | Several years, reviewed each year | “Put 80% of addressable spend under contract by the end of year three.” |
| Procurement policy | Which rules does every purchase follow? | Stable, changed when rules change | “Purchases above €50,000 need a competitive tender.” |
| Procurement plan (pipeline) | Which purchases start in the coming year, when, and who runs them? | One year, often with a look further ahead | “Re-tender cleaning services in March; contract starts 1 September.” |
| Category strategy | How do we buy this category, from whom, on what terms? | Two to five years per category | “Two suppliers for laptops on a framework, three standard models.” |
| Category plan | How is the category strategy delivered? | Per category, updated as projects run | “Tender in Q2, award in Q3, catalogue live in Q4.” |
The procurement strategy sets the direction; the policy sets the rules; category strategies and the procurement plan turn the direction into purchases.
UK central government uses the same layers. Its commercial standard, GovS 008, asks each organisation for a commercial strategy and plan that sets out its vision and objectives and aligns with its business strategy and plan, an operational plan built from the pipeline of planned procurements, and category strategies, each delivered through a category plan. The rules sit in the procurement policy; how the function is organised and run is covered in procurement management. A guide to the procurement plan is in preparation.
What does a procurement strategy contain?
A procurement strategy can be short: a document leaders can read in one sitting, with the detail in appendices, is easier to approve and to use than a long report. Most strategies answer the same eight questions, whatever the sector.
- Context and objectives: the organisation’s goals for the period, and what procurement must deliver for each one.
- Baseline: current spend by category and supplier, the share under contract, the number of active suppliers and the main risks, with the date of the data.
- Targets: a few measurable targets, each with a starting value, a goal and a date.
- Category priorities: which categories matter most, and the general approach for each, such as competition, partnership, securing supply or simpler ordering.
- Suppliers and markets: how the organisation will work with suppliers, including small and local businesses where that is an objective.
- Operating model and people: who buys what, centrally or locally, the skills needed and how they will be built.
- Rules, processes and systems: changes needed in the policy, the processes and the software to deliver the targets.
- Governance and review: who owns the strategy, who approves it, how progress is reported and when it is reviewed.
The government of Victoria, in Australia, gives a public example of the same structure. Its purchasing board’s guide describes the procurement strategy as the document of “how your organisation runs its procurement function”, aligned with the organisation’s governance framework and business strategy. It must include a supplier engagement plan, a capability development plan, a contract management planning strategy and a procurement activity plan, and it must be reviewed every year.
How do you build a procurement strategy?
A procurement strategy is built from evidence, not from a template alone. The time it takes depends mostly on how clean the spend data is and how many people must agree. The steps below are a common order.
- Read the organisation’s strategy. List the goals of the business or public body for the period, such as growth, cost, service, risk or sustainability, and ask the leaders which ones procurement must support.
- Analyse the spend. Classify at least one year of spend by category and supplier, using orders and invoices. A spend analysis shows where the money goes and how much of it is under contract.
- Assess the risks and the market. For each main category, note the supply risk and the weight on cost. The Kraljic matrix, which sorts categories by profit impact and supply risk, is a common way to do this.
- Assess the team and the tools. Compare the spend and the number of contracts with the people and systems available. A target that needs three tenders a month with one buyer will not be met.
- Set objectives and targets. Choose three to six objectives linked to the organisation’s goals, each with a measure, a baseline and a date.
- Choose the approach by category. For each priority category, state the general route and the owner. The detail goes into the category strategy.
- Plan the changes. List what must change in the policy, the operating model, the skills and the systems, with dates and owners.
- Approve and communicate. Have the strategy approved by the leadership that owns the budget, then share it with budget holders and, in a short version, with suppliers.
- Review every year. Compare results with targets, update the baseline and adjust the targets and priorities.
Most process models place the strategy step early in the cycle. The CIPS procurement and supply cycle, for example, puts “develop the strategy and plan” third, after defining the need and analysing the market, and before any tender is issued.
How does a procurement strategy connect to category strategies?
The procurement strategy is applied through category strategies. Each organisation-level objective is translated into what it means for each category, then into sourcing projects in the procurement plan, then into contracts that procure-to-pay uses for orders. The chain only works if each level can be traced to the one above it.
| Organisation goal | Procurement objective | What it means for categories | How it is measured |
|---|---|---|---|
| Reduce operating costs | Use competition and volume where the market allows it | Tender leverage categories such as IT hardware or office supplies; fewer suppliers | Savings captured on invoices, not only negotiated |
| Secure continuity of service | Reduce single points of failure in supply | Qualify a second source for bottleneck items; longer contracts with safety stock | Share of critical categories with two qualified suppliers |
| Lower the cost of running the business | Make routine buying simple and fast | Catalogues and purchasing cards for non-critical items | Time from request to order; share of orders from catalogues |
| Meet climate commitments | Include environmental criteria in sourcing | Emissions or energy criteria in fleet, energy and IT tenders | Share of tenders with environmental criteria |
| Support the local economy | Open opportunities to small and local suppliers | Smaller lots, simpler documents, published pipeline | Share of spend with small and local suppliers |
Each line of a category strategy should trace back to an objective in the procurement strategy; a category plan that answers no objective is a candidate for less effort.
In GovS 008, a category strategy “defines the overall approach to managing the category”, including how it should support the wider business objectives, and a category plan “defines how the category strategy should be delivered”. How a category strategy is written, and the seven questions it answers, is explained in the category management guide; which sourcing approach suits which kind of category is set out in the strategic sourcing guide.
What must a public-sector procurement strategy include?
Some public bodies are required to have a procurement strategy, and the law then sets part of its content. The examples below come from three systems; other countries and funders have their own rules, so check the ones that apply to your organisation.
| System | Who | What is required | Review and reporting |
|---|---|---|---|
| Scotland: Procurement Reform (Scotland) Act 2014, s. 15 and s. 18 | Contracting authorities expecting regulated procurement of £5,000,000 or more in the next financial year | A strategy on how regulated procurements will contribute to the authority’s functions, deliver value for money and meet its general duties; policy statements on community benefits, stakeholder engagement, the living wage, health and safety, fairly and ethically traded goods and food; how invoices will be paid within 30 days, including down the supply chain | Prepared or reviewed before each financial year; an annual procurement report reviews whether procurements complied with the strategy and summarises those expected in the next two years |
| UK central government: GovS 008 Commercial, version 2.2 | Government departments and their arm’s-length bodies | A commercial strategy and plan with vision and objectives, aligned with the business strategy and plan, approved by the accounting officer; an operational plan from the commercial pipeline | The operational plan is updated and approved on a cycle; an annual pipeline of planned procurement |
| Victoria, Australia: Victorian Government Purchasing Board guide | Organisations under the board’s goods and services supply policies | A supplier engagement plan, a capability development plan, a contract management planning strategy and a procurement activity plan, aligned with governance and business strategy | Reviewed annually |
Where the law requires a strategy, it also requires reporting against it; even without a legal duty, the annual review is what keeps a strategy in use.
Public strategies are often published. Their structure is useful to private organisations too, because it forces a link between objectives, the pipeline of purchases and an annual report on results. More on public buying is in the government procurement guide.
How do you know whether a procurement strategy works?
A procurement strategy works when its targets move and the organisation can show why. Each target needs a formula, a data source the organisation already has and an owner. Three to six measures are usually enough; twenty measures nobody reads are not a strategy.
- Spend under contract: the share of addressable spend bought through an agreed contract or framework, from invoice and contract data.
- Savings captured: the price difference that actually appears on invoices, not the amount negotiated in the tender.
- Supply risk: the number of critical categories with a single source, and progress on qualifying alternatives.
- Process: the share of spend on purchase orders and the time from request to order.
- Objective-specific measures: for example, the share of spend with small suppliers or the share of tenders with environmental criteria.
Review the results once a year with the people who approved the strategy, and update the targets. The Scottish annual procurement report is a useful model even outside Scotland: it asks whether purchases followed the strategy and, where they did not, how future purchases will. How procurement as a whole is measured is covered in the procurement management guide; a guide to procurement KPIs is in preparation.
Questions
How long should a procurement strategy cover?
There is no fixed rule. Many cover several years, so that category strategies and contracts have time to deliver. Nottinghamshire County Council, for example, published a strategy for 2015–2018, later replaced by one for 2019–2023. Each year counts too: Scottish authorities above the threshold prepare or review their strategy before every financial year.
Who writes and approves a procurement strategy?
The head of procurement usually writes it, with finance, budget holders and the main users of each category. It is approved by the leadership that owns the budget: the executive committee or board in a company, or the accounting officer or governing body in a public organisation.
What is the difference between a procurement strategy and a sourcing strategy?
A procurement strategy covers the whole function: objectives, targets, categories, people and systems. A sourcing strategy covers how one category or one purchase will be bought: the suppliers to invite, the route to market and the contract type. Sourcing strategies apply the procurement strategy.
Is a procurement strategy the same as a procurement plan?
No. The strategy sets objectives and approaches over several years. The procurement plan lists the purchases that will start in the coming year, with dates, values and owners. The plan is one of the ways the strategy is delivered, and it should be checked against it.
Is there a procurement strategy template?
The eight questions in the contents section of this guide can serve as an outline: context and objectives, baseline, targets, category priorities, suppliers and markets, operating model and people, rules and systems, and governance and review. Public bodies such as the Victorian Government Purchasing Board also publish templates.
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