Strategic, tactical and operational procurement

For the most successful organisations – from SMEs to large enterprises – the procurement function plays a crucial role in driving profitability, ensuring stability and planning for future growth. And their approach to procurement includes three fundamental branches: strategic, operational and tactical.

All three are essential and each plays a distinct role in helping businesses to achieve cost savings, improve efficiency, foster innovation and build strong supplier relationships that are aligned with the organisation’s long-term objectives.

In this blog, we explain what’s involved in each type of procurement activity, why they’re all important, and how to bring these three strands together for a comprehensive approach you can’t afford to miss.

Collaboration and analysis by business people working in office

What is strategic procurement?

Strategic procurement, as its name suggests, involves a holistic and forward-thinking approach. Underpinned by business principles of predictability, agility, and precision, it’s concerned with long-term planning and decision-making that aligns procurement activities with the overall business strategy – whether that’s increased savings, more accurate forecasting or something else. In this way, wider business benefits can be achieved through procurement.

With strategic procurement, there’s an emphasis on information and analytics, particularly considering global supply chain disruptions, to help businesses tackle these challenges, be more agile and make data-driven decisions. Strategic procurement looks at where greater operational efficiency can be achieved by lowering costs associated with disconnected processes or mismanagement. It also requires teams to embrace specific frameworks and tools to collect and then analyse this data.

What does it involve?

Strategic focus

By analysing market trends and making strategic decisions, you can impact your organisation’s future. Leveraging data can help you assess and reduce risk across your entire P2P process and identify forecasting opportunities.

Long-term planning

As well as developing long-lasting and effective supplier relationships, strategic procurement looks ahead in terms of sourcing, risk management and innovation.

Value creation

By improving product quality, reducing total costs, enhancing innovation and supporting sustainability, procurement can be a value-creating function of the organisation, contributing to its competitiveness and long-term financial performance.

Supplier relationships

Unlike the more operational side, strategic procurement is concerned with developing long-term, collaborative relationships with suppliers with the aims of mutual growth, innovation and commitment.

Why is it so important?

There are a number of undeniable benefits of strategic procurement. Firstly, it enables you to maximise your investments for higher ROI, whether that’s from process automation, streamlining workflows, or prioritising supplier management. You can also strategise to reduce your organisation’s total expenditure – direct and indirect – by consolidating suppliers, improving cost categorisation, closing process gaps and implementing new tools.

Beyond financial gains, there’s the opportunity to minimise the risk to your supply chain by taking a more proactive approach and using data to predict possible disruptions. Risk can also be mitigated by building a more diverse portfolio of suppliers that align with your strategic objectives.

Business man, presentation and graph screen in office for training, meeting or workshop. Men and women at table to listen to speaker, coach or manager talking about strategy, sales growth or pitch

What is operational procurement?

Operational procurement is what we often think about when we hear the word ‘procurement’. It refers to the day-to-day procurement activities and transactions that support the ongoing operations of an organisation, including purchasing goods and services, but also indirect demand. It’s sometimes referred to as MRO purchasing – related to the ‘maintenance, repair, and operations’ of a business.

What does it involve?

Routine transactions

Operational procurement centres around regular purchases for items that a business needs on repeat, such as office supplies, parts for machinery maintenance, etc.

Efficiency and speed

It’s all about streamlining processes, reducing costs and ensuring the goods and services that keep operations running smoothly are delivered on time.

Transactional relationships

Because of its nature, supplier relationships are more transactional with operational procurement, with the focus on price and availability.

Process-oriented

To ensure efficiency, control costs and keep errors to a minimum, this type of procurement relies on following predefined processes to the letter.

How is it different from strategic procurement?

The main difference here is the end goal – whether you’re strategising for long-term benefits across the entire procurement process or focusing more on maintaining day-to-day operations. Strategic procurement requires a bigger-picture approach, with lots of planning going into decisions, while operational procurement demands that you focus on immediate needs and make quick decisions.

Two people in a business enviroment negotiating a contract.

What is tactical procurement?

So, you’re probably wondering where tactical procurement sits in relation to strategic and operational efforts? The answer is – right in the middle. This is the medium-term implementation of the strategies you develop. It includes activities like supplier selection, contract negotiation and performance measurement.

What does it involve?

Supplier selection

This where you identify and evaluate potential suppliers based on your strategic criteria, such as cost, quality, reliability and ability to meet specific needs.

Contract negotiation

With your strategy in mind, you can negotiate terms, pricing, and other conditions with those selected suppliers, ensuring all contracts are aligned with your organisational goals, benefitting you and the supplier.

Performance measurement

This is where you keep track of your suppliers’ performance to make sure they’re meeting KPIs and living up to your strategic goals. That includes checking they’re complying with contracts, assessing their effectiveness and identifying areas for improvement.

A quick recap

Strategic procurement defines the strategy procurement teams will take that aligns with your company’s long-term goals.
Tactical procurement implements the strategy developed to ensure effective execution and performance measurement.
And operational procurement executes this strategy through everyday transactions and processes.

Now let’s look at how these three types of procurement activity work together to supersize your procurement efforts.

How to integrate strategic, tactical and operational procurement

Each of these procurement activities serve different purposes, but their integration is critical for achieving business efficiency and gaining a competitive advantage. Without alignment between strategic thinking, tactical steps, and operational action, you’re more likely to get a higher percentage of people not adhering to framework agreements and a low percentage of managed spend as a result.

This lack of alignment is usually caused when strategic procurement isn’t considered early enough in supplier selection, such as in the tendering process and early-phase project planning. This can sometimes be because of the cost of internal resources, making it a step that tactical or operational efforts overlook.

If your strategic procurement team tends to be overseeing compliance to framework agreements (a tactical activity) as opposed to driving commercial benefits across procurement projects, then there are definitely improvements to be made. Without a strategy-first approach, you’re more likely to experience long procurement times, high process costs and maverick buying that’s out of control.

A standardised and
strategic approach

But don’t panic! This can all be avoided by putting strategically aligned and standardised processes and tools in place (including automation) that clearly delineate the roles, tasks and responsibilities of an effective procurement function.

You’ll need to take a long, hard look at your company’s product use, processes, and what roles people play in your procurement function to understand what’s happening and identify where improvements can be made. Answering key questions like ‘What should be purchased centrally, and what products can departments take care of themselves?’ and ‘Where are our procurement bottlenecks?’ can help you build out standardised assortments and processes with a mix of centralised and decentralised efforts.

You should also put policies in place that require strategic procurement to be involved from the very start of projects, particularly strategically important and high-value ones. This way you can ensure that all your procurement activities are supporting the day-to-day operations of the business while contributing to the long-term strategic objectives of the organisation.

By incorporating strategic thinking into tactical and operational efforts, you’ll be well on your way to procurement perfection. And we can help. Our tools are designed to embed strategic thinking into your whole procurement function, giving you complete control and transparency over supplier management and spend.