Stage 1 – Define Business Needs and Develop the Specification of the CIPS Procurement Cycle isn’t just paperwork, it’s where value begins.
CIPS suggests that the buying organization has many opportunities to generate savings in the first stage of the procurement cycle. As a buyer, what should you do to add value during this phase?
Define Business Needs
Typically, procurement needs are triggered by an effort to solve a problem or seize an opportunity. However, not every business need is aligned with adding value to the organization. When receiving requisitions, it’s important to ask tough questions to challenge and clarify the actual need.
- What is the purpose of the purchase?
Buyers should communicate effectively with end users to identify the true purpose behind each purchase. If the objectives are unclear or lack justification, the request should be carefully reviewed. Many end users raise requisitions based on emotion or subjective analysis, which can result in obsolete or redundant stock. For example, when a problem arises, they may quickly conclude that a purchase is necessary to solve it. Buyers can apply a “5 Whys” analysis to explore the issue more deeply, helping uncover the root cause behind the request.
- How much value does the purchase contribute to the buying organization?
If the purchase adds little or no value to the buying organization, it should be removed from the purchasing list. Non-value purchases refer to items that do not support the organization in achieving its short-term or long-term goals. Buyers need to understand these goals to ensure that all procurement activities are aligned with the organization’s core values, strategy, and mission. Analysing value contribution is not a easy task, buyers have to collate quatitative and qualitative data to calculate value added.
Develop the specifications
Once the needs are justified, it is time to develop the specifications. This document plays a vital role in helping suppliers understand what the buying organization requires. Buyers must collaborate with various departments to incorporate precise and sufficient requirements into the specification. Both over-specification and under-specification can result in significant financial waste. For example, reducing unnecessary high standards or brand-specific requirements can optimize costs while still delivering the desired outcomes.
When the buying organization lacks deep knowledge of the purchased items, buyers can add value by using performance specifications to encourage supplier innovation. Buyers with strong communication and relationship management skills can encourage supplier’s innovation and leverage the supplier’s capabilities. For strategic items, buyers work closely with key stakeholders to develop conformance specifications, which allow the buying organization to maintain greater control over quality. Flexibility in applying different types of specifications enables the company to leverage the supplier’s expertise and achieve value for money in its purchases. The quality of a specification depends significantly on the buyer’s competence and skills. Skilled buyers know how to search for and obtain insights from others, then leverage that information to develop a clear specification in a timely manner.
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