Strategic procurement is the development of a true partnership between a company and a supplier of strategic value. The arrangement is usually long-term single-source in nature and addresses not only the buying of parts, products, or services, but product design and supplier capacity. Partnering agreements allow the mutual exchange of confidential information, proprietary restrictions, non-disclosure, non-compete, certification of processes, routine audits, delivery performance, quality performance, as well as the transfer of control of a process or product.
The relationship between partners is unlike the traditional adversarial relationship between buyer and seller, where the buyer pits one supplier against another frequently during the year, focusing entirely on unit cost. Under these conditions exists a mutual distrust between parties that is counterproductive to both. For the buying company, there generally exists an unleveraged multiple supply base that results in a competitive cost disadvantage. For the seller, he is continually negotiating price reductions at a disadvantage, kept in the dark, expected to "jump through hoops" in an instance, and generally kept subservient to the buyer.
In a strategic procurement agreement both companies view each other as equal partners, assisting each other with training, technical help, and developing a full trust. The buying company involves the supplier early in the new product design cycle, allowing the supplier to bring its expertise to the table. Simultaneous engineering is routine, and cost savings are generally shared for product or process innovations.
Within the buying company, procurement is elevated to the strategic level and included in the long-term planning process. Strategic objectives such as part number reduction, supply base reduction and new strategic agreements are assigned to the senior procurement officer and the procurement group for achievement. The idea is to leverage the procurement organization talent and assets for a competitive advantage.