Procurement costs account for a large portion of operating expenses. With small business owners assuming multiple roles of day-to-day operations—staffing, financing, management, marketing, and customer service—it’s not a surprise that procurement becomes more of an afterthought rather than a priority.
Approach cost effective procurement as a strategy to practical opportunity to reduce costs and improve efficiency.
Often, small businesses are thought of as simply smaller versions of big firms. Though, research buying behavior shows unique challenges for small businesses. Small businesses typically have informal organizations, less business-function specialization, and fewer resources. They tend to focus more on overall operations and less on specific functions, such as procurement. When appropriate, small businesses benefit when they act like bigger organizations.
Here are four strategies to help your small business at all stages of your procurement efforts.
Invest in Technology
Large organizations know the benefits of cloud-based procurement software for mobility, budget insight, approval automation, requisition-to-PO process, and expense management. This technology was once cost prohibitive for small businesses and required IT specialists to implement and manage.
Today, cloud-based procurement software is not only affordable but comes with online deployment and support. With a wide selection to choose from, any business can find the solution for their business. Below are a few affordable procurement software options.
Fishbowl is a hybrid manufacturing and warehouse management solution designed for small and midsize companies. Key features include inventory control, material requirements planning (MRP), job shop floor control, work order management, manufacturer orders and bills of materials. The solution can either be deployed on-premise or hosted in the cloud.
Extensiv 3PL Warehouse Manager is designed to help logistics companies automate processes and bill items accurately. The software provides features like intuitive user design and logistics focused warehouse management module where users can easily add and remove customers and products. The software is designed to help logistics providers satisfy customers’ need for updated information and increase profits through process automation.
Precoro is a cloud-based purchasing software that streamlines procurement processes for small and midsize businesses. Key features include purchase order creation and delivery, blanket PO, visual analytics on spends by departments, billing, real-time budgeting, receiving, three-way matching, and catalog management with product links.
For a comprehensive list of cloud-based procurement software ranked by prices, ratings, company size, and industry visit https://www.softwareadvice.com/scm/procurement-software-comparison.
Build Strategic Partnerships
Strong supplier relationships for both direct and indirect purchases are beneficial for small businesses. As a small-to-medium firm, you should seek strategic partnerships with key suppliers. Purchasing from fewer suppliers saves time and resources while building trust. With a strategic relationship, a small business owner can talk openly with their partner and ensure the company is not overspending due to unnecessary costs.
Additionally, 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, too. For example, neither party benefits from unnecessary customization when a standard product serves the same purpose. Strong supplier relationships lead to increased bargaining power in negotiations, as these discussions should revolve around mutually beneficial outcomes.
For more information visit Tips for Creating B2B Partnerships.
Improve Procurement Processes
Improvements in technology and supplier relationships are your first steps to reducing operation costs and maximizing profit. Also look for internal structural changes in your procurement process.
By evaluating suppliers within a procurement software, a small business can track a supplier’s performance—flexibility, on-time delivery, costs, and quality—over time. This evaluation will identify inefficiencies. Use the data collected to gauge the company’s supply chain as a whole and to identify trends and opportunities for improvement.
Include an analysis of spend and demand in your procurement evaluations. Conduct supplier pricing reviews semi-annually or even quarterly. Use the spend analysis to review all costs and terms associated with procurement and demand analysis to define essential needs with a focus on improving cost and quantity.
Overall, try to resemble bigger businesses with your internal procurement processes. Se up rules in buying and structured employee training. Standard buying practices help control costs, provide accountability, enable tracking and monitoring of spend, make reporting easier, and set the stage for growth.
Consider a Purchasing Consortium to Increase Buying Power
A small business with the latest technology, improved procurement processes, and strong strategic partnership with suppliers can still fall short of optimal purchasing savings due simply to their relatively small size. That’s because small businesses inevitably have less purchasing power due to lower volumes.
The solution to this challenge can be purchasing consortiums. Partnering with other small businesses yields volume discounts and achieves savings. Consortiums put the benefits of economies of scale into effect for small businesses that would otherwise be left paying premiums.
In Summary
These recommendations should be considered together. Great technology is ineffective without a strong internal procurement process. Likewise, trying to organize with a buying consortium will not go over well if the company has not clearly analyzed and defined its own requirements.
Efficient procurement lowers operating expenses and increases profit, setting the stage for business growth. Investing in technology can leave a small business with a cash flow shortage. Allied Financial Corporation is here to help you with day-to-day expenses, expansion capital, or a line of credit. Contact us today to discuss accounts-receivable financing.