Define procurement and sourcing strategy overview
Applies to: Dynamics 365 Commerce, Dynamics 365 Finance, Dynamics 365 Project Operations, Dynamics 365 Supply Chain Management, Microsoft Supply Chain Center
This article describes the Define 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. During this process, the sourcing or procurement teams collaborate with several different departments focusing on three primary areas: price/cost, lead time, and quality.
This business process area mainly covers:
Defining procurement process to outline overall procurement strategy for both material and services that are needed within your organization
Defining procurement and sourcing policies to reduce financial risk that organization is taking and ensure compliance requirements are met and proper approvals are completed before any procurement transactions can be processed
Creating and updating pricing contracts after vendor evaluation and selection, and analyzing product proposals.
Developing procurement and sourcing strategies is a critical step at the beginning of your implementation. However, this will continue to be refined 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:
Procurement and sourcing stakeholders: Engage in contract negotiations with vendors, aligning their efforts with the organization's specific requirements. They also play a crucial role in establishing procurement and sourcing policies, as well as managing purchase requisitions, purchase orders, and changes to purchase orders.
Finance stakeholders: Participate in assessing budgetary requirements and contribute to establishing approval hierarchies for both personnel and monetary limits related to purchases and invoices.
Operations stakeholders: Work directly with the sourcing teams as new components or services are needed for new and existing products. Operations personnel help provide the product or service details, for the sourcing team to work with new or existing vendors to analyze cost and quality.
Accounts payable stakeholders: Responsible for invoice generation, approval of invoices, and matching invoices.
Define procurement and sourcing strategy process flow
The following diagram illustrates the define 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.
Start
Source to pay end-to-end process
Define procurement and sourcing strategy business process area
Define procurement and sourcing policies
Define procurement process
Analyze product proposals
Is it an existing vendor pricing contract:
Yes leads to update vendor pricing contract
No leads to create vendor pricing contract
Define procurement catalog business process area
Manage vendor relationships business process area
Procure material and services business process area
Process vendor invoices business process area
Issue and settle vendor payments business process area
Process vendor rebates and incentives business process area
End
Define procurement and sourcing strategy benefits
There are many key benefits that can be used to monitor and measure the success of implementing technology to support the define procurement and sourcing strategy business process area. The following sections outline the key benefits that an organization might monitor and measure when developing sourcing strategies.
Improved compliance
Policies and procedures will be reviewed by internal and external auditors to make sure the correct checks and balances are in place within your organization's procurement processes. Within Dynamics 365 Supply Chain Management, workflow history is captured for all document types configured for workflow with quick reference to the decisions, assignments, and approvals that the transaction followed. The workflow history can be used to review past transactions or to determine if improvements or changes to the workflow need to be made.
Consistent processes
Having policies and procedures in place ensures employees have a set of rules to follow and comply with when performing procurement processes.
Reduce risk
Policies and procedures such as workflow and approvals that are mandatory help reduce spend or fraud risk to your organization. Within Dynamics 365 Supply Chain Management, there are transaction workflows that can be configured to ensure the proper level of approval is completed before the transaction can finish processing. Procurement and sourcing workflows can be configured to help control both the purchase requisition and purchase order processes. Approval can be set by the dollar amount and/or the type of purchase being requested.
Multi-sourcing to reduce risk
For critical products and services within your organization, having the ability to source from more than one vendor allows you flexibility to ensure you can obtain the products or services when needed and when unexpected supply chain disruptions arise. Within Dynamics 365 Supply Chain Management, the procurement and sourcing teams can identify more than one vendor that will be used to source the needed products or services. The procurement team can also establish the percentage of materials or services they would like to order from each vendor. Having this established allows for procurement teams to quickly respond should there be disruptions within the supply chain that could cause delays in receiving the related product or service.
Reduction in total cost of ownership
While strategic sourcing isn't a required approach when developing your sourcing strategies, it allows your organization to continuously review and update your sourcing strategies to ensure you receive the best price, quality, and lead times. This includes an overall review of the total cost of ownership of the product or service, allowing you to make the best decision for your organization.
Next steps
If you would like to implement Dynamics 365 solutions to assist with the define procurement and sourcing strategy business process, you can use the following resources and steps to learn more. (Links are added, when the articles are ready.)
Define procurement and sourcing strategies (The article you're currently reading)
Related information
You can use the following resources to learn more about the define procurement and sourcing strategy business process in Dynamics 365.
Contributors
This article is maintained by Microsoft. It was originally written by the following contributors.
Principal author:
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