Small business owners wear many hats and have many roles to play- viz. staffing, financing, inventory management, customer service, marketing etc. which quickly consume their time, focus and daily operations. Subsequently, procurement tends to be an afterthought, when it should be approached strategically!
Small businesses spend between 40% – 65% of sales revenue on procurement of inputs
Small businesses are often simply viewed as smaller versions of big firms. However, a research done on small business buying behaviors suggests they face a unique set of challenges. For example, small business have informal organizational settings, less specialization in business functions and fewer available resources.
Following are the 5 strategies that can help SMEs in nearly any phase of their procurement efforts.
- Technological Advancement
Technological improvements can give more time and information to entrepreneurs while allowing for easier integrations. Not to forget that smooth flow is a must in any kind of business. Faster devices and software allows business tasks to move more quickly than ever. For an instance, small business owners are rapidly subscribing to cloud based services, with 7% up than the previous company.
85% of the small businesses are planning to invest more in such services in the upcoming 5 years.
Several other examples of how technology is assisting procurement services is ERP software, accounting systems, supply chain software, eProcurement, digital storefront and supplier management systems etc. Studies have shown that the right technology can have a positive influence on a business.
- Build & Maintain Strategic Partnerships
Strong supplier relationship in both direct and indirect cost spend categories provide great business for SMEs. To this end, small businesses need to build strategic relationships with their key suppliers. Purchasing from small suppliers saves time and resources while building trust.
Small business owners can talk with a strategic partner and ensure the company is not overspending due to unnecessary absurd costs.
If there are avoidable costs, the supplier will likely to be motivated in eliminating them as it makes their business operate more efficient. Strong supplier relationships lead to increased bargaining power in negotiations, as these decisions should revolve round mutual benefit outcomes.
- Improved Internal Procurement Processes
Apart from technological advancements and maintaining a healthy relationships with the suppliers, entrepreneurs should seek internal structure changes in their internal procurement process.
By evaluating suppliers within a standardized systems, small business can track supplier performance over time against various metrics such as flexibility, costs, quality, and deliverability. This process will make the inefficiencies evident and help make an ordering calendar for each individual category.
Procurement efforts should also include annual analysis of spend and demand, with supplier pricing occurring annual or semi-annually or even-quarterly.
Overall internal procurement processes should try to resemble bigger businesses with rules in buying and structured employee training
- Organize With Other To Increase Buying Power
A small business with the latest and advanced technology, improved procurement processes and strong strategic partnership with suppliers can still fall short of optimal purchasing savings due to their relatively small size with the fact being small businesses inevitably have small purchasing power due to lower volumes.
The solution to this challenge comes in the form of purchasing syndicates. Partnering with other small businesses can yield volume discounts and achieve savings. Consortiums put the benefits of economies of scale into effect for small businesses that would otherwise be left paying premiums.
- Outsource Procurement Needs
Due to the hectic nature of roles in small businesses and the time and expertise required to successfully complete a procurement initiative, an entrepreneur should consider outsourcing the work to specialists which eventually may save a lot of work and money for the company’s business.
CormSquare is one such marketplace located in India to connect B2B buyers and manufacturers with the widest assortment of thousands of products and services across 12,000+ categories.
These recommendations are to be considered together. Great technology is ineffective without a strong internal procurement process. Similarly, trying to organize with a buying consortium will not go well if the company has not clearly defined its own requirements. A small business should be wary of generic procurement rules. Instead, each project should receive its appropriate diligence.
PS- Do you think there can be some more strategies to follow for SMEs which I am missing out on? Feel free to tell in the comment section. TIA!