Eight examples of effective purchasing strategies

At the heart of every effective buying team is a strategy, a reason for making their purchasing decisions.

Without a well-thought-out and documented strategy, procurement functions merely by reactively buying things the business needs. Because there is no foundation upon which procurement team members decide between one supplier or product and another, they generally just pick the easiest option.

To build an effective purchasing team, you need to gain clarity on your purchasing strategy and communicate it.

Learn what a purchasing strategy is (hint: it’s not a process) and discover eight strategies for guiding buying decisions you can implement today.

What is a purchasing strategy?

One of the biggest mistakes when discussing and designing a purchasing strategy is confusing the strategy with the process.

If you’ve done five minutes of research on a purchasing strategy, you’ve seen many make this error.

A purchasing process describes the steps procurement professionals must go through to procure a good or service (for instance, performing a vendor risk analysis).

Your purchasing strategy, however, is the principles that define how you make decisions about purchasing.

For example, a cost-reduction purchasing strategy focuses specifically on identifying cost-saving opportunities. It doesn’t describe the steps one must go through to purchase anything since that’s what the buying process is for.

It does, however, provide the basis for decision-making. For example, a procurement leader following a cost-reduction strategy will weigh two potential vendors and choose the cheapest option.

Something important to note is that a single company might adopt multiple purchasing strategies, combining them into a more holistic approach.

For example, you might combine a cost-reduction strategy with a global sourcing strategy, which seeks to create vendor relationships worldwide, thus taking advantage of cost efficiencies and reducing risk by diversifying the vendor pool.

Next, we’ll explore eight of the most commonly used purchasing strategies. As we do, remember that you might wish to use a combination of approaches in designing your procurement strategy.

{{cta1}}

Eight commonly adopted purchasing strategies

1. Global sourcing

The global sourcing strategy focuses on developing strategic partnerships with vendors across the globe, as opposed to relying only on local suppliers.

Cost reduction is the most significant benefit here since countries tend to specialize, increasing quality while reducing overall costs.

Another win for purchasing departments is that global sourcing can be a risk mitigation strategy.

You might, for example, have your primary supplier for a given product or service based in Thailand. However, you’ve also sourced and pre-vetted backup options in Bangladesh and Argentina.

If your Thai vendor experiences a supply chain issue due to unforeseen circumstances—natural disaster, civil unrest, or disruption of significant shipping routes—you can quickly switch to one of your backup suppliers.

2. Vendor development

Vendor development is a strategy that prioritizes partnering with suppliers committed to continuously improving their offerings.

This might involve finding ways to cut costs (and pass the savings on to their customers), looking for more sustainable sources, or maximizing quality without increasing pricing.

Whatever the initiative, the idea here is that you, as the buyer, continue seeing increasing benefits without re-engaging in strategic sourcing activities like the market analysis.

3. Green purchasing

Green purchasing is a strategy where procurement teams focus on environmentally friendly, sustainable, and carbon-neutral purchases and vendor relationships.

This means including questions about the vendor’s sourcing and sustainability practices in your vetting process and choosing suppliers whose goods are the “greenest.”

The green purchasing model applies to software buying too. For instance, under a green purchasing strategy, you may wish to understand a software vendor’s commitment to offsetting their carbon footprint and compare them against competitors in their software category.

4. Corporate social responsibility

Corporate social responsibility is a business model that prioritizes the social accountability of a business beyond simply turning a profit.

As a purchasing strategy, corporate social responsibility includes green purchasing initiatives but also expands to concerns such as:

• The work conditions and remuneration of employees
• Their commitment to diversity and equity policies
• The shipping methods the supplier uses
• The social causes potential vendors are committed to or involved in

To adopt this purchasing strategy, you must define which aspects of corporate social responsibility are most important to your organization and which are non-negotiable commitments.

Then, design a system for assessing and ranking the commitment of potential vendors to those causes and choose suppliers most closely aligned with your values.

{{cta2}}

5. Centralized purchasing

Centralized purchasing requires a central purchasing team to make all buying decisions.

While individual stakeholders are involved in the purchasing process—they need to help the procurement team understand the company’s needs—the purchasing team does the vendor assessment, vetting, and decision-making.

This approach provides several benefits:

• Companies can take advantage of economies of scale by negotiating favorable pricing for large, multi-department contracts
• Purchasing risk is minimized, as a centralized team is more likely to stay compliant with internal policies
• Overlapping licenses are avoided because department leaders are not responsible for independently sourcing software solutions

6. Decentralized purchasing

Decentralized purchasing, the counterpart to centralized purchasing, allows branch or department leaders to make purchasing decisions for their teams.

While this opens businesses up to a little more risk and can reduce their ability to access economies of scale, decentralized purchasing is beneficial in speeding up procurement processes by eliminating red tape and lengthy sourcing decisions.

Decentralization is particularly helpful in the context of SaaS purchasing.

Department leaders tend to know exactly what they’re looking for—a newly hired VP of Marketing likely knows which email automation platform they want—so a decentralized strategy allows them to work quickly.

7. Cost reduction

A cost-reduction purchasing strategy is reasonably self-explanatory. Procurement teams prioritize sourcing decisions that reduce costs.

The most obvious outcome of this purchasing strategy is to always side with the cheapest provider, even if other vendors offer better total value.

However, the best procurement teams running a cost-reduction purchasing strategy examine the total cost of ownership for any potential purchase.

Say you’re weighing up two CRM tools. One costs $9 per month, and the other costs $21 per month.

The cheaper option doesn’t integrate with your email marketing platform, while the more expensive one does. Choosing the $9 tool would mean you also need to fork out for something like Zapier to build a custom integration, meaning the total cost of that tool is higher.

8. Risk management

A risk management purchasing strategy prioritizes reducing risk in purchasing decisions.

Of course, identifying and mitigating risks is essential for all procurement teams, regardless of your chosen purchasing strategy.

However, teams who follow a risk-specific purchasing strategy are more averse to risk, meaning they’re more likely to choose a more expensive option if the perceived supplier risk is lower.

Execute your software purchasing strategy with Vendr

Moving from a reactive to a strategic purchasing model is essential in optimizing your procurement team.

Once you choose one of the above purchasing strategies—or a personalized combination thereof—put a system in place to ensure your team makes buying decisions per the approach you’ve decided upon.

Vendr is the SaaS purchasing and supplier relationship management platform that helps ambitious purchasing managers gain a competitive advantage and deliver on their purchasing strategies.

Price benchmarking from the most significant data set of SaaS purchasing transactions helps ensure you get the best price from the start—ideal for teams running a cost-reduction purchasing strategy.

For those who opt for a decentralized purchasing approach, Vendr lets you create custom automated approval workflows. For example, branch or department leaders follow a predetermined process and send purchase requests to the relevant decision-making authorities for final sign-off.

Risk management-focused buying teams can take comfort in that Vendr’s database of SaaS tools provides information on each platform’s compliance with regulations like GDPR and SOC2.

{{cta3}}