Hello and welcome back to Smart Consulting Sourcing, the only podcast about consulting procurement.
I am Hélène, and today we will discuss “Procurement strategy in consulting”.
However, before we get into that, let me first give you a quick recap of last week’s episode.
Last week, we talked about “how consulting buyers can stay ahead in a market booming for consultants”. As a consulting buyer, it is important to understand the market and stay ahead of trends. After all, it is your job to help your organization make the best decisions about consulting purchase.
The consulting market is booming. It is good news! it means that more companies understand the value they can get by working with consultants.
For consultants, this is a period of abundance: more projects, more clients, more revenues. But it comes with some serious downsides for clients.
For instance, your internal clients will have to find alternatives because their usual consulting firms are too busy to take on new projects.
And what does it mean for consulting buyers? More work. Because your incumbents might be busier, less available, more expensive than usual, you will need to go out of your way to find real alternatives for your internal clients.
But There are opportunities out there. All consulting firms in the world are not fully% booked. So if you do your homework, you will get through this. And cherry on the cake; you will identify new suppliers, develop new relationships, and be more credible with your internal stakeholders.
Isnt it wonderful?
To know more, please listen to the complete podcast about how consulting buyers can stay ahead in a market booming for consultants.
Now this week, I want to discuss about procurement strategy, why it is important in general, and why it is so important for consulting.
So, what is procurement strategy?
A procurement strategy is a plan that outlines how an organization will go about procuring goods and services. It starts with the overall strategy of an organization and translates it into simple actions at the procurement level. You can sum it up as the contribution of the procurement group to the execution of the organization strategy.
The market today calls for flexibility and new ideas. Organizations need to be leaner, faster, and more proactive if they want to stay ahead of competitors and customers and not get left behind. A procurement strategy helps them stay ahead of the competition.
Why is procurement strategy so important in general?
Well, think of it this way: procurement strategy is like the GPS for your business. Just like a GPS helps you get from Point A to Point B, a procurement strategy ensures that your business can achieve its goals effectively and efficiently.
Now, I’ll give you five reasons why a procurement strategy is so important.
Number 1, procurement should be linked to how the business plans to spend its money. Sourcing has an effect on the business, so the organization needs to come up with a way to measure that effect.
Number 2, the business world is becoming more and more global, with supply chains all over. This means companies must think about how they operate not just in terms of their local markets, but also on an international level if they want to succeed today.
Number 3, when you make a decision about what to buy, it is important that your choices are in line with long-term goals. Otherwise, the purchase could be considered poor and costly for an organization even if finances looked good at first glance.
The key point here is not just how much money you spend on something but also whether your investments will help achieve those future targets or milestones as well!
Number 4, there needs to be a proper balance between what the organization’s core activities are and how it can save money and work better and more efficiently.
And number 5, mapping how your products or services respond to customer needs is an important part of this process. This helps you produce a more focused portfolio, and it can also give insight into future areas that need work.
Now let’s talk about the advantages of implementing a procurement strategy within the organization.
- A procurement strategy holds the key to being competitive, and can help a company perform better.
- It can also help in identifying the risks that may lie within your organization.
- Strategic procurement can help you cut down on the number of suppliers and build long-term relationships with the best ones.
However, you have to be careful here:
First, you need to have your stakeholders on board with your procurement strategy. You need to have everybody rowing in the same direction.
Second, if your procurement strategy is not done right, you might increase the risk of heavy dependence on a smaller number of suppliers.
So we see that there are many advantages to design a procurement strategy in general. What about consulting?
Why is procurement strategy so important for consulting?
There are many reasons why procurement strategy is so important for consulting.
First, consulting takes up a large part of indirect procurement costs. By following the principles of procurement strategy, you can figure out what your goals are and make a plan for how to reach them. The strategy for getting things should also help your work more efficiently and save money.
Putting together a procurement strategy can be hard, but it’s important to do it right if you want the best results. And if it’s done right, procurement strategy can help your bottom line.
Second, consulting can have a positive effect on the overall strategy. It can help you to achieve your strategic goals faster and have a greater impact by identifying important projects or project areas where they can be used.
Third, consulting is a part of OPEX, which stands for “operational expenses,” and it needs to be kept in check. It’s important to have a clear plan for indirect procurement because it can have a big effect on OPEX.
When it comes to consulting, getting the right impact at a reasonable cost is the most important thing. That means working with a procurement specialist who knows the market and can help you identify the right suppliers.
It also means knowing what you want and how much you are willing to spend on each project. One of the first steps in the design of your procurement strategy is to define your consulting budget and then how you will spend it.
One more reason could be that the market has in extremely diverse and scattered. There are thousands of companies out there, but most executives only know about the biggest ones. You don’t always need a large consulting firm for your project. The key is to find the right mix of political and technical value in your panel. And the only way to do that and to anticipate your needs. And that’s what the procurement strategy is about.
How to design a procurement strategy for the consulting category?
If you have been in procurement for a while, you know how to build a procurement strategy. So instead of giving you a step-by-step plan, I will give the most efficient levers to define a procurement strategy that works for the consulting category.
First of all, you need to know about the consulting market, and how the category has done in the past in your organization. This is your starting point.
Another prerequisite is to be clear on the overall strategy and the budget allocated to the consulting category.
Now let’s have a look at the different levers you can use to design your procurement strategy?
One of the first and essential levers would be consulting strategy. Consulting can affect the overall strategy and is often used to speed it up.
When you build a consulting strategy, your goal is to find the most important projects or project areas where using consultants will move the strategic goals forward and have the biggest impact.
Once the consulting strategy is set and planned out for the next 12 to 24 months, it will help guide the teams toward the key actions that support the strategy. This means that you can then anticipate what suppliers you will need for the period, and build your panel accordingly.
A make-or-buy strategy is another key step in establishing the procurement strategy in consulting. The exercise usually leads to a process for making decisions that often includes a decision framework and a decision matrix. The framework lets you decide what projects should be done first and what is the best way to do each one of them.
For example, think of a large strategy project that a high tech company wants to lead, but with a limited budget. The goal is to build the growth strategy for the next five years.
The consulting firm could provide all the project’s resources, but then it will be rather expensive. Or you could decide to use both outside consultants and your own subject matter experts to make a hybrid team.
This will not only lower your fees, but also get the teams on board and help them learn more without losing the energy and focus on execution.
Preferred Supplier List & Master Service Agreements
Building a preferred supplier list is a strategy that can be handy in consulting, as it is in many other fields. It is the Pareto effect, you know, most of the time, 20% of your suppliers can meet 80% of your needs.
By looking at your past expenses and your strategy for the years to come, you can figure out what suppliers will be used, when, and how.
With these so-called “preferred” providers, you can start negotiating frame contracts, also called Master Service Agreements. The service agreements include terms and conditions that have already been agreed upon and discounts based on how much you buy.
Second and Third Tier Consulting Firms’ Integration
Another key lever is to integrate, in your panel of suppliers, 2nd and 3rd tier consulting firms (small to mid-sized ones) to lower the average costs and cover the niche and/or very operational needs from your business lines. It can also help you control the tail spend while maximizing the ROI.
You can start by having a look at your top 10 consulting projects from the previous years to see if you are making good use of consultants from these tiers. It’ll help you paint a clear picture and point out where you stand and where you need to go from there.
Consulting Procurement Process
When it comes to consulting services, you should always write an RFP, even a simplified one. The simple reason is that it sets expectations like the scope and the deliverables.
Writing an efficient RFP will maximize not only the performance of the procurement process but also the chances of success of the project.
If you want to know more on how important RFPs are for consulting, you can listen to my previous podcast “Why RFPs are important even without competition”.
You might also want to segment the projects based on the size, the strategic importance, the potential impact or the complexity to define what will be the process. Such as – RFI or not, simplified RFP or not, competition or not, and procurement support or not.
Most companies implement a threshold over which all projects have to go through procurement and various validations. Other projects are left at the discretion of the business lines. Yes, this is demand management, one of my favorite topics. Joke aside, if you are curious about how demand management applies to consulting, you can have a look at our YouTube channel and see my last webinar”How to implement demand management for consulting?”.
Coming back to our procurement process, a good way to put the process under control would be to add a few control points before making a new purchase order. For example, you could ask for the quotes of the losing parties to ensure there was a competition.
So, to conclude today’s episode, a procurement strategy is a process that fits in with the overall business strategy of your company.
But remember, procurement strategy is an on-going process. It can be tweaked, changed, and improved along the way as data analytics will provide new insights into what works best for you!
It’s clear that having a procurement strategy is important for any organization. It is the first step towards better control and efficiency in setting up the right procurement strategy for your organization. And it is extremely important for a strategic category like consulting since it will impact the transformation journey of your business.
It requires to have in mind the overall strategy and a consulting budget. And then use the different levers that I mentioned: consulting strategy, make-or-buy, etc. But again, the strategy you will define is strongly linked to your company’s context, organization and ambitions.
Now that my friends, is procurement strategy for consulting. Its real essence lies in its true value. So, if you’re not already implementing procurement strategy into your consulting category, now is the time to start.
That marks the end of our podcast. Next week is going to be very special because it will be our 100th episode of the Smart Consulting Sourcing podcast series.
It’s hard to believe we’ve made it this far. When we started the SCS podcast, we had no idea if anyone would even listen, let alone keep listening week after week. But here we are, 100 episodes later, and we couldn’t be more grateful.
Our 100th episode is next week, and we’ve got a special surprise in store for our listeners. So make sure to tune in. And in the meantime, keep spreading the word about the SCS podcast. We can’t wait to reach 100 more episodes with your help.
Till then, stay safe and happy sourcing!
If you have other questions about procurement strategy in consulting, remember you can always contact me directly on LinkedIn or by email. As you know, I am always game and up for a fruitful chat!
Bye and see you next week! Au revoir!
See you in the next episode. Till then, stay safe and stay connected with us through our community and follow our Twitter handle @ConsQuest.
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