Small and medium-sized businesses spend around 50 percent of sales revenue on the procurement of inputs. Businesses should consider procurement as an effective opportunity to reduce costs and improve efficiency. Even basic enhancements to the procurement process can cut procurement costs and promote strategic sourcing.
Small businesses have a unique set of challenges when it comes to procurement. For example, they may have informal business settings, less specialization in company functions, and fewer available resources. Management in SMBs likes to focus more on the overall operations and less on specific business functions such as procurement. Here, we present a few strategies that help SMBs in nearly any stage of their purchasing efforts.
Use the Latest Technology
The latest solutions give businesses more time and information while allowing for easier integrations. Faster devices operating on improved connections allow business tasks to move more quickly than ever. Small businesses are increasingly subscribing to cloud-based software services; the right technology can have a positive influence on a company’s strategic purchasing, logistics integration, and business performance.
However, technology can falter and be difficult to learn, and small businesses face greater financial challenges and risk when adopting new processes and tools. Well-developed, on-premise systems are expensive to implement. Companies should adopt online procurement management systems as a viable means of acquiring procurement tools.
Establish Strategic Supplier Partnerships
Strong vendor relationships for both direct and indirect spend categories provide great benefits for SMBs. Businesses should seek strategic partnerships with key suppliers. Buying from fewer suppliers saves time and resources while creating trust. A small firm owner can talk openly with a strategic partner and ensure the company is not overspending due to unnecessary costs. Moreover, if there are avoidable costs, the supplier will likely be motivated to assist in eliminating them as it likely makes their business operate more efficiently. Better supplier relationships lead to increased bargaining power in negotiations, as these discussions should revolve around mutually beneficial outcomes.
Enhance Internal Processes
Great technology is ineffective without a strong internal process. Small and medium-sized businesses should seek internal structural changes in their procurement process. Businesses should evaluate suppliers within a standardized system, and supplier performance over time in terms of flexibility, on-time delivery, price, and quality. This process will make clear any inefficiency and help prepare an ordering calendar for each individual category. The data collected here can be used to figure out the organization’s supply chain as a whole and locate any chances to shorten it.
Companies should include annual analysis of spend and demand, with supplier pricing reviews occurring semi-annually or even quarterly. They should implement spend analysis to detail all costs and terms linked with procurement and demand analysis to define important needs with a focus on enhancing cost and quantity.
The procurement processes in SMBs should resemble bigger businesses with rules in buying and structured employee training. Standard purchasing practices help control costs, provide accountability, enable tracking and monitoring of spend, make reporting easier, and set the stage for growth.