Good procurement practices for small businesses
Having a strategy in place is, without any doubt, a good procurement practice.
When it comes to SMEs, each team member wears many hats. As a result, procurement is often considered a low-priority issue and is overlooked.
But that’s one of the biggest mistakes small businesses can make. As most of the sales revenue is spent on procurement, not having a strategic approach could result in mistakes and losses.
A small improvement in procurement can have a significant impact on the business’ bottom line.
To help small businesses run a hassle-free procurement process, we’ve gathered some good procurement practices.
1. Hire a procurement specialist
Procurement is not the same thing as accounting. Hiring a procurement professional is one of the best investments you could make because they can keep you from losing money through your procurement department.
A procurement professional evaluates vendors and conducts negotiations. Even if you're tied up with the wrong vendor in a long-term contract, they can help you renegotiate your deal and use good procurement practices to save money.
Alternatively, if you can’t hire a procurement specialist, you can outsource your procurement needs.
2. Streamline your procurement process
While you might think that spending money on a procurement automation platform is only increasing your costs, choosing the right solution will help you save time and money in the long run.
3. Abandon decentralized supplier databases
Decentralized supplier databases lead to cash leakage, information duplication, outdated information, and more. This results in wasting money and time on repetitive work to update each database individually.
A centralized supplier database can help you:
Understand how and where your organization is spending money;
Understand your budget so you can plan for smooth cash flow;
Cut down on the number of vendors and orders;
Conduct a thorough vendor evaluation so you can narrow down vendors who offer the best price and quality;
Improve contract negotiations based on timely payments and past orders.
Thankfully, using an e-procurement platform can also help you build a centralized supplier database.
4. Build strategic partnerships with suppliers
There are many suppliers out there, but not all of them are a great fit for your organization. Once you find a supplier you have a great relationship with, make sure you keep them close.
Strategic partnerships get you opportunities to discuss your procurement needs and budget and enable you to negotiate the price with suppliers.
5. Associate yourself with other organizations to increase buying power
A small business that relies on technology, has improved its procurement process, and has strong strategic partnerships with suppliers can still fall short of optimal purchasing savings simply due to their relatively small size.
Inevitably, small businesses have less purchasing power due to lower volumes. A solution to this challenge comes in the form of purchasing consortiums. Partnering with other small businesses can yield volume discounts and achieves savings.
6. Report on a regular basis
Providing reports on what you are spending on a quarterly basis will make your team more effective in finding ways of additional cost savings. For example, reporting could reveal that you are buying office supplies from two different vendors, with the conclusion that it would make sense to consolidate into one vendor.
7. Manage risk in the extended supply chain
All companies experience risk, regardless of the size, but small businesses are more vulnerable due to a perceived lack of leverage and potential financial impact.
A potential solution can be having workarounds for supply disruptions. You need to ensure continuity of supply by identifying critical path suppliers in the extended supply chain.
A few things to be wary of are:
Credit lines: accessing personal and business credit lines are fine for office supplies, but banks want to see more substantial financial and contractual relationships with key suppliers. Be careful of inadequate credit lines and make sure to always pay your bills on time.
Reliance on samples: sometimes, suppliers will comp low-value parts that don’t meet an order minimum. However, they may be discontinued parts that are impossible to find or new parts that may cause havoc with your cost modeling or delivery schedules.
Confidentiality: it’s a good procurement practice to require all key suppliers to sign a non-disclosure agreement. If there are critical sub-suppliers, have them sign one as well.
So there you have it, some good procurement practices small businesses should follow. They might not be all easy to implement, but they will definitely improve your business and, ultimately, your bottom line.