This guest blog, exploring agile procurement and traditional procurement approaches, was written and contributed by technology expert Jenn Fulmer of TechnologyAdvice.
Many supply chains have been completely upended over the last two years. As a result, procurement leaders are looking to fine-tune their processes to get what their organizations need faster. Alternatively, they may just find that their typical procurement process isn’t providing the flexibility or accuracy that they’re expecting. During this optimization period, procurement leaders may find themselves torn between two approaches: agile procurement vs. traditional procurement.
Fortunately, with the right procurement method, you can help your organization limit supply chain disruptions. Consequently, this guide provides a detailed overview of both types of procurement to help organizations determine which option makes the most sense for their supply chain.
Procurement strategy basics
Traditional procurement definition
The traditional method of procurement requires careful planning and manual processes to ensure the procurement team makes the right decisions for the organization. The team must complete each step in order and then reach a consensus before they can agree on a purchase. Because of this, and the fact that traditional procurement teams can be large, a decision typically takes a long time.
Additionally, organizations generally don’t review traditional procurement decisions until the end of a project, which could leave them with gaps or problems for a long-term operation.
Agile procurement definition
Agile procurement is a method of procurement that is meant to be more flexible, allowing teams to make faster decisions than they could with traditional procurement. Some steps in the process may overlap to save time, and the team can review their progress at the end of each sprint and make changes as necessary. Additionally, agile procurement teams typically include fewer members than traditional procurement teams in order to reach a consensus more quickly.
Due to its emphasis on speed, procurement teams using agile procurement must rely on procurement software to automate steps in the process when possible and improve their analysis of vendors and market trends.
Procurement strategy: Agile vs traditional
Agile and traditional procurement strategies differ in their focus and speed. Agile procurement places an emphasis on results, whereas traditional procurement emphasizes processes. This means that agile procurement is typically faster than traditional methods. Additionally, agile procurement allows procurement teams to adjust as necessary during the process while traditional procurement would require them to start the process over if they hit an obstacle.
Traditional procurement method
The traditional procurement method follows these steps:
- Need or problem identification
- Supplier selection
- Quote or pricing requests
- Bid evaluation and comparison
- Contract negotiation
During the traditional procurement process, the organization must complete each step before it can move on to the next. Additionally, with traditional procurement, organizations are typically reacting to a problem rather than looking for proactive solutions to improve business operations. Cost savings can also be the main driver for many decisions, which may not result in the best relationships with suppliers.
Traditional procurement example
During the software development process, traditional procurement may be the choice for a completely new build. The team would develop the plan and identify everything they need for the entire project and get contracts in place up front.
While helpful from a planning perspective, this could make it difficult to make changes as the development progresses and the team runs into obstacles or finds they need to add or remove features. And if stakeholders want to make changes during the process, they may become frustrated with the lack of flexibility.
Agile procurement process
While agile procurement follows the same steps as traditional procurement for the most part, there is less rigidity in the process, allowing teams to work on phases simultaneously or work non-linearly. Additionally, there are more review phases built in to help them identify problems faster. Like agile project management, agile procurement also follows sprints, evaluating the success of the process after each phase and making changes as necessary. Agile procurement teams also use strategic sourcing to work with suppliers to find the best solution, not necessarily the lowest price, improving those relationships.
Agile sourcing relies on advanced data analytics to help organizations know exactly what they need or will need in the near future. Organizations need access to accurate, real-time data to identify market trends and get accurate demand forecasts, keeping them from procuring too much or too little of a product.
Artificial intelligence (AI) and machine learning can improve the analysis process to provide better procurement insights and help businesses source products from the right vendors, often providing alternate options if a company’s first-choice vendor doesn’t have stock of the product they need.
Agile procurement example
If an organization wants to add features to an existing type of software, they should consider agile procurement because they will likely experience more trial and error during the development process. New features might conflict with existing ones or stakeholders may request more features as the project continues, meaning the team will have to adapt on the fly and change their needs as they go. Agile procurement allows the organization to examine the project at the end of each sprint and make smaller changes, while traditional procurement would keep them from reviewing until the end.
How to choose the right procurement method
Choosing the right method of procurement can be difficult for an organization. However, while agile and traditional procurement are typically pitted against each other as standalone procurement methods, organizations can opt to use both. This allows them to make quicker decisions when necessary while keeping their traditional methodology for decisions that don’t have a strict timeline. However, for organizations that find they need to constantly make fast decisions or adapt on the fly, agile procurement is likely the best procurement method for them.
Organizations should look closely at their current procurement practices and determine what’s working well and where they could make improvements. If they realize they aren’t identifying problems until far too late in the process, that might be an indication that they should switch to an agile approach. Similarly, the feeling that too many people are involved in the procurement process could also convince them to switch to a smaller, more agile team.