10 steps to create an effective procurement plan

The most effective procurement teams develop a blueprint for buying before diving into the purchasing process.

This process — procurement planning — helps purchasing teams develop a thorough understanding of stakeholder requirements, analyze risks, and reduce procurement costs.

Find out what’s involved in procurement planning, and learn the ten steps to take to write a successful procurement plan.

What is procurement planning?

Procurement planning is a strategic process that occurs before procurement itself begins. In the planning process, the procurement team and key stakeholders clarify business needs and justify the requirement for an external supplier.

During the procurement planning process, the team and stakeholders also discuss and record:

• How the procurement team will identify and decide on suppliers
• What kind of contract to use
• Who is responsible for which aspects of the procurement process
• What risks might exist, and how the team will mitigate them
• Realistic expectations around quality, cost, and delivery timeframes

The outcome of this process is the procurement plan, a master document that serves as the blueprint for purchasing as the procurement team and key stakeholders move forward with the procurement process. Key players in this process on the procurement side include the procurement manager, specialists, and officers.

What are the components of a procurement plan?

A good procurement management plan includes:

• An outline of the major steps involved in the procurement process
• Assignment of key roles and responsibilities, including required approval pathways
• Identification of the key metrics that measure vendor performance
• Recognition of the type of procurement contract that will be used
• Key project requirements (such as non-negotiable features when sourcing SaaS products)
• Planned dates for delivery, implementation, and onboarding
• Criteria to use to assess and choose vendors

10 steps for writing an effective procurement plan

1. Outline the procurement process

Start by detailing the steps to acquire the product or service in question.

For instance, the steps might look like this:

• Conduct market research and issue a Request For Information (RFI)
• Perform a make-or-buy analysis
• Compare potential suppliers against the description of procurement needs
• Choose the most favorable vendor
• Negotiate contract terms
• Sign an approved agreement
• Begin onboarding and implementation

This step is critical for ensuring team members don’t rush to completion and skip stages, like jumping into vendor discussion before completing a make-or-buy analysis.

Every procurement process looks slightly different. Learn more about designing a process that makes sense for your organization with our guide, How to build a procurement process at any stage of growth.

2. Describe needs and requirements

Detail the exact products or services needed and any specific requirements for them.

Say the business is looking for a financial modeling software platform. They might specifically require that the tool offers scenario analysis as a feature. Include this in the description of requirements.

Here’s an example of what that might look like.

3. Assign roles and responsibilities

In this section of the procurement plan, identify the team members working on the procurement project and any stakeholders who its completion will impact.

Aside from members of the sourcing and procurement team, this may also include:

• Department heads (for instance, the VP of Sales if procuring a sales automation tool)
• Project managers (if the good or service needed is only for a specific project)
• C-level executives who may be responsible for aspects of the approval process
• Legal team members who might assist with aspects of contract creation, such as developing termination clauses

Detail the tasks each person is responsible for, like this:

Assigning roles and responsibilities early on ensures tasks don’t slip through the cracks because everyone thought someone else was handling them.

4. Define the type of agreement required

Most pricing for software contracts falls into one of three categories:

1. Fixed price. A firm price is negotiated and agreed upon for the goods or services provided. Used in most cases, especially when purchasing software or supply chain components.
2. Cost reimbursement. The vendor pays for the project's costs up front, and they’re reimbursed at the end of the project—with a fixed or percentage fee on top. Generally used for service-based projects (such as marketing services).
3. Time and materials. The vendor is paid an hourly or day rate plus the cost of materials. Used mostly for physical services, such as construction projects.

Determining the type of contract up front helps the vendor selection process. For instance, some vendors may be unwilling to engage in a cost reimbursement agreement, as they have to foot the bill for expenses upfront.

5. Detail the procurement timeline

Lay out key dates, milestones, and timeline expectations for procurement. Gantt charts are a popular way of visualizing this information.

For example, assign dates for the following milestones in the procurement process:

• March 31 - Market analysis
• April 14 - Vendor selection
• April 21 - Contract negotiation
• May 27 - Delivery

Putting these dates in stone helps keep the procurement team on track and prevents timelines from creeping out.

6. Identify decision-making criteria

By what criteria will vendor bids be judged? Beyond price, factors to assess may include:

• Delivery guarantees
• Financial strength (to minimize financial risk)
• Regulatory compliance
• Sustainability
• Customer references

Identifying selection criteria before beginning conversations with vendors helps ensure the decision is objective and allows multiple project team members to analyze vendors individually.

7. Define processes for change approval

In this section, detail how the team will handle changes to the procurement plan if required.

For example, if the market analysis identifies that one of the required features is outside the budget, either the budget or the need for that function must be reassessed.

Use this section to explain how to manage that change, who is responsible for making changes, and how those adjustments should be communicated to key stakeholders.

8. Outline the vendor management strategy

When the procurement process is complete, the vendor management plan kicks off, so it’s a good idea to have an outline of this prepped during the procurement planning phase.

This section should outline the techniques to use to manage vendor relationships, including:

• How often to meet with vendors
• Which internal stakeholders are responsible for supplier management
• What metrics and measurements to use to define vendor success
• How to handle issues with contract non-compliance or poor KPI performance
• How often to reevaluate the value of the vendor relationship

Outlining this information before beginning the procurement process helps set clear expectations with vendors, so they know what to expect from the supplier management team if a partnership is created.

9. Identify risk management processes

All vendor relationships come with some degree of risk, be it financial, operational, or security risk.

The procurement plan should detail how to identify and mitigate risk.

Learn more about the different kinds of vendor risk and how to manage them in our guide, Vendor risk management: What to watch for and best practices.

10. Define costs and payment methods

The last step of the procurement planning process is detailing the expected budget for the deliverables, as well as ideal payment terms and methods.

Also note which factors are negotiable and which are not. For instance, it might be non-negotiable to pay via direct credit, as finance policies prohibit company card purchases above a certain dollar amount.

However, different pay structures may work, for instance, monthly, quarterly, or annual billing.

Drive procurement strategy success with Vendr

Procurement planning is only the beginning.

Once a solid plan is drafted, the procurement life cycle itself begins. That means initiating vendor conversations, assessing and comparing bids, and negotiating favorable agreement terms.

For SaaS buying, Vendr is a secret weapon for reducing costs and driving procurement efficiency.

You’ll benefit from:

• Automated approval workflows to cut down procurement time
• The largest set of SaaS purchasing data to help benchmark pricing and negotiate terms
• A single point of truth for managing vendor relationships and performance expectations

Find out just how much you’re overspending on SaaS tools today with our free cost savings analysis.