PROCUREMENT / PARTNER STRATEGY
Learn everything you need to know about procurement and partner strategy. Includes how-to guides, examples, best practices, and a free procurement plan template at the bottom.
THE BIG PICTURE ON PARTNER STRATEGY
1. Improve costs 10-25% through partner strategy
Partners are a big part of any organization, so make the most of them with a strong partner strategy.
2. Solve for 3 main partner levers
Partner strategy is about deciding what to outsource, developing the right partners, and improving the value creation of existing partners.
3. Partner strategy takes structured problem solving
3. Partner execution comes down to discipline
It is important to properly structure and nurture strong partnerships and then hold partners accountable for performance.
PARTNERS ARE A BIG COMPONENT OF ANY ORGANIZATION
Everything an organization does is a process executed by partners, people, and infrastructure. Partners are a significant component of any organization. Just look at your accounts payable to see the magnitude and breadth of your partners.
For larger companies, the procurement, purchasing or sourcing team works closely with the business on partner strategy. Otherwise, it typically falls on the finance team and business to collaborate on partner strategy. Regardless of the team configuration, partner strategy is generally not leveraged to the strategic degree it should be, given partner spend is often a large percentage of a company's cost structure.
PARTNER STRATEGY COMES DOWN TO 3 MAIN PARTNER LEVERS
Fundamentally there are three main partner levers that comprise any strong partner strategy, with those being deciding what to outsource to partners, developing the right partners and improving the value creation of existing partners.
We'll go over each lever below.
1. THINK ABOUT WHAT TO OUTSOURCE FROM A STRATEGIC PERSPECTIVE
Too often, companies aren't strategic about what functions or sub-functions to outsource vs. insource. We've worked with companies who try to insource functions they should outsource and outsource functions they should insource. For instance, we worked with a fast growing product company that focused their precious capital and costs on building out a warehousing and customer support operations, while outsourcing their product development and engineering. Once they realized their future depended on building a core competency within product development and engineering, they went down the strategic path of outsourcing their warehouse and customer support, while insourcing product development and engineering. The ultimate point is to think about what to outsource vs. insource from a strategic perspective.
Companies should always insource their core competencies, which are those capabilities that a company needs to be world-class at to drive the differentiation of their value proposition and competitive advantage. They should also insource capabilities that don't make sense to outsource to a partner given no cost/benefit advantage, complexity, the pace of change, or the need for agility.
Companies should outsource those capabilities that are typically transactional in nature, and where partners have a scale, sophistication, and cost/benefit advantage, given it is their core competency. Also, think about outsourcing those capabilities that have a high opportunity cost.
2. PERFECT THE PROCUREMENT CYCLE TO DEVELOP THE RIGHT PARTNERS
Choosing and developing the right partners comes down to the effectiveness and efficiency of a company's procurement cycle. Each step of the procurement cycle is important to ensuring strong partnerships. Take a look below at the sequential steps to the procurement cycle and best practices. Strong procurement cycles are built on a foundation of cross-functional discipline and collaboration.
3. IMPROVE PARTNER VALUE THROUGH GOVERNANCE & DISCIPLINE
For your larger partners, the best way to improve the partnership value is through consistent and collaborative communication and problem solving. Best practice is to set up periodic (quarterly, semi-annually) meetings to problem solve a partner scorecard, future initiatives, needs, etc. While partner governance comes down to some pretty basic concepts, actually executing on the scorecard, initiatives and accountability is too often lacking in companies.
CREATE COST SAVING OPTIONS WITH THE PARTNER HYPOTHESIS TREE
Improving partner value comes down to evaluating, deciding on and executing initiatives that lower volume, improve price/value per unit, or lower cash needs. For prioritized spend categories, 10-25% savings can be achieved by systematically assessing value improvement options throughout the partner hypothesis tree.
Simple ideas can often save a lot. A casual restaurant chain saved millions by substituting expensive Swiss gruyere with Austrian gruyere, and many more millions by switching the crayons they give kids to color menus from 5 colors of Crayola crayons to 3 colors of generic crayons. In each case, the customers never knew the difference.
Understand what is and isn't important to the internal or external customer, along with the business and partner. And, when negotiating always prepare and focus on collaborative problem solving to find win-win solutions.
THE FIRST PARTNER STRATEGY OUTPUT IS A PLAN FOR PRIORITIZED CATEGORIES
A partner strategy should be synthesized into the goals and actions to increase value (more benefit and/or lower costs) for prioritized spend categories. Of course, there is a lot of analysis that goes behind the partner strategy, which we'll get into later. Ideally, you want the goals and action plan synthesized on one page, like below.
SECOND OUTPUT - PROCUREMENT TEAM STRATEGY
Whether your company has a procurement team or not, continuously improve the procurement cycle by developing and executing a procurement team strategy. The strategy comes down to the goals of the procurement cycle and team and the core initiatives necessary to achieve the goals. Projects to develop the procurement team strategy typically involve creating a baseline, collaboratively problem solving with the team and business, and developing the goals and necessary initiatives.
THERE ARE FOUR MAIN STEPS TO CREATING A PARTNER STRATEGY
There are many different methodologies and tools to execute a procurement/partner strategy project, but fundamentally it comes down to four steps: 1. Diagnose, 2. Ideate, 3. Renegotiate, 4. Implement. Developing a partner strategy is about basic blocking and tackling with some creative problem solving, lots of collaboration, negotiation, and execution.
FINAL THOUGHTS ON PARTNER STRATEGY
For most companies, partners are critical to their overall strategic and financial success. Yet, too often, there isn't enough focus and discipline applied to partner strategy. As you think through partner strategy, start with the big strategic question of what functions and capabilities should we insource and outsource? Once you create the strategic context of what to insource vs. outsource, it is much easier to develop the right partners and improve the value creation of existing partners.
DOWNLOAD THE PARTNER PROCUREMENT STRATEGY TEMPLATES
To get you started on developing a killer partner procurement strategy, download the free PowerPoint, which includes:
1. Partner Excellence Plan Template
2. Partner Value Improvement Ideation Worksheet
3. Spend Strategy Template
4. Partner Procurement Strategy One-pager