Develop a procurement and sourcing strategy overview

Applies to: Dynamics 365 Commerce, Dynamics 365 Field Service, Dynamics 365 Finance, Dynamics 365 Project Operations, Dynamics 365 Supply Chain Management

This article describes the Develop a procurement and sourcing strategy business process area within the Source to pay end-to-end process. Sourcing and procurement strategies are outlined for both materials and services that are needed within your organization. The benefits of using Dynamics 365 to support this process area is also explained here.

Developing a comprehensive procurement and sourcing strategy is crucial when implementing Dynamics 365, as it ensures that the organization can effectively manage its procurement processes and achieve cost efficiencies. This strategy involves several key subprocesses, including developing procurement catalogs, which streamline the purchasing process by providing a centralized repository of approved products and services. Moreover, developing supplier segments allows the organization to categorize suppliers based on various criteria, enabling more targeted and effective supplier management. Establishing procurement policies ensures that all procurement activities are conducted in a consistent and compliant manner, while defining accounts payable policies helps manage the financial aspects of procurement, ensuring timely and accurate payments. Developing a spend strategy is essential for optimizing expenditure and achieving cost savings, and analyzing the sourcing market provides valuable insights into market trends and supplier capabilities, enabling informed decision-making. Together, these subprocesses form a robust procurement and sourcing strategy that enhances the overall efficiency and effectiveness of the organization's procurement operations.

It's a critical step at the beginning of your implementation to define the strategies for procurement and sourcing. However, the strategies develop and refine over time as your business and operations change and evolve to support your organization's goals and objectives. It's important to continually evaluate all procurement and sourcing strategies to ensure you're receiving the best pricing, lead time, and quality for your products and services.

Stakeholders

There's collaboration with multiple departments in an organization when defining procurement and sourcing strategies, which include but aren't limited to:

• Chief Procurement Officer (CPO): The CPO or similar stakeholders, such as Head of Procurement and Director of Procurement, are responsible for overseeing the entire procurement function within the organization. They provide strategic direction, ensure alignment with business objectives, and approve procurement policies and strategies.
• Procurement Managers: Procurement Managers or similar stakeholders, such as Sourcing Manager and Category Manager, are involved in developing procurement catalogs, supplier segments, and procurement policies. They ensure that procurement activities are efficient and compliant with organizational standards.
• Accounts Payable Managers: Accounts Payable Managers define accounts payable policies and ensure that financial transactions related to procurement are processed accurately and timely. They play a key role in integrating procurement processes with financial systems.
• Supply Chain Managers: Supply Chain Managers or Logistics Manager analyzes the sourcing market and develops spend strategies. They ensure that the procurement strategy aligns with the overall supply chain strategy and supports efficient operations.
• Compliance Officers: Compliance Officers ensure that procurement policies and practices adhere to regulatory requirements and internal standards. They help mitigate risks associated with procurement activities.
• Category Managers: Category Managers or Strategic Sourcing Manager focuses on specific categories of spend and develop strategies for sourcing and procurement within those categories. They work closely with suppliers and stakeholders to optimize procurement outcomes.
• Financial Analysts: Financial Analysts or Procurement Analyst analyzes procurement data, develops spend strategies, and provides insights into cost-saving opportunities. They support decision-making by providing financial analysis and reporting.

Process flow

The following diagram illustrates the Develop a procurement and sourcing strategy business process area. Each solid gray rectangle on the diagram represents an end-to-end business process. The solid blue rectangle represents the business process area. The diagram shows the subprocesses for the business process area. The arrows on the diagram show the flow of the business process in an organization. If a subprocess can lead to more than one other subprocess, the parallel subprocesses are shown as branches.

1. Start
2. Source to pay end-to-end process
3. Develop a procurement and sourcing strategy business process area
   1. Develop procurement catalogs
   2. Develop supplier segments
   3. Develop procurement policies
   4. Define accounts payable policies
   5. Develop spend strategy
   6. Analyze sourcing market
4. Manage supplier relationships business process area
5. Source and contract goods and services business process area
6. Procure goods and services business process area
7. Manage accounts payable business process area
8. Analyze procurement and sourcing business process area
9. End

Benefits

There are many key benefits that can be used to monitor and measure the success of implementing technology to support the Develop a procurement and sourcing strategy business process area. The following sections outline the key benefits that an organization might monitor and measure when developing procurement and sourcing strategies.

Cost savings

Efficient procurement management with Dynamics 365 leads to significant cost savings. Organizations can reduce procurement costs by optimizing inventory levels and negotiating better terms with suppliers.

Enhanced efficiency

Streamlining procurement processes with Dynamics 365 enhances operational efficiency. Automated workflows and real-time data visibility help reduce manual tasks and improve decision-making speed.

Improved visibility

Dynamics 365 provides real-time visibility into procurement activities, enabling better tracking of purchase orders, supplier performance, and inventory levels. This transparency helps in making informed decisions and identifying potential issues early.

Better supplier relationships

With Dynamics 365, organizations can manage supplier relationships more effectively. The system facilitates better communication and collaboration with suppliers, leading to improved terms and stronger partnerships.

Compliance and risk mitigation

Dynamics 365 helps ensure compliance with procurement policies and regulations. It also reduces financial risks by enforcing approval hierarchies and maintaining audit trails for all procurement activities.

Strategic sourcing

The system supports strategic sourcing by allowing procurement teams to evaluate and select vendors based on comprehensive criteria, including cost, quality, and lead time. This strategic approach ensures that the organization gets the best value for its purchases.

Next steps

If you want to implement Dynamics 365 solutions to assist with the Develop a procurement and sourcing strategy business processes, you can use the following resources and steps to learn more. (Links are added when the articles are ready.)

1. Develop a procurement and sourcing strategy (The article you're currently reading)

   1. Develop procurement catalogs
   2. Develop supplier segments
   3. Develop procurement policies
   4. Define accounts payable policies
   5. Develop spend strategy
   6. Analyze sourcing market

2. Manage supplier relationships

3. Source and contract goods and services

4. Procure goods and services

5. Manage accounts payable

6. Analyze procurement and sourcing

Related information

You can use the following resources to learn more about the Develop a procurement and sourcing strategy business processes in Dynamics 365:

• Procurement catalogs overview - Supply Chain Management
• Purchasing policies overview - Supply Chain Management
• Set up a procurement category hierarchy - Supply Chain Management
• Create a procurement catalog - Supply Chain Management
• Approve vendors for specific procurement categories - Supply Chain Management
• Classify a product using category hierarchies - Supply Chain Management

Contributors

This article is maintained by Microsoft. It was originally written by the following contributors.

Principal authors:

• Lindsay Friddle | Senior Program Manager, ACE for Dynamics 365
• Praveen Jagotra | Senior Solutions Architect, FastTrack for Dynamics 365  

Other contributors:

• Adi Vijayashankar | Senior Solutions Architect, FastTrack for Dynamics 365
• Yuki Jain | Solutions Architect, FastTrack for Dynamics 365