There are several reasons why SMEs should know more about procurement. However, many small businesses do not recognise the need to implement procurement processes until they grow much bigger. In fact, research was recently conducted into 260 UK businesses to find out how they approached procurement. The study found that 75% of businesses did not see the need to introduce procurement until £50 million in turnover was reached.
While this is the approach that most SMEs choose, it’s not necessarily the best route in terms of reducing risk and lowering costs. By establishing the groundwork now, small businesses can run much more efficiently and be prepared for the challenges that business growth brings.
This article covers why implementing an effective procurement process into your SME should be a priority.
Business Growth and Risk
If you run an SME, the chances are that you built your business with growth in mind. You probably have an already well-established business strategy where you have mapped out what risks threaten your business and have taken action to mitigate them. If you haven’t yet done this yet, you can follow our 5 simple steps to reducing risk by clicking here.
The point is that your business is (or should) be run with the future in mind; otherwise, it’s impossible to effectively meet and navigate future conditions with a strategy that will keep you thriving and ahead of the curve.
With that in mind, let’s say that your business experiences a high volume of growth over a relatively short period of time. If you have not been proactive in perfecting your procurement, you will likely lose control of spend and inadvertently lose money through the cracks until you take reactionary action to solve the problem, which is likely to cost more.
Reactionary v Proactive Approaches
If you think you haven’t done enough to prepare for procurement problems in the future, you’re not alone. Almost half of the businesses (48%) in a study said that they had implemented procurement processes in reaction to a negative situation. Only 31% stated the implementation was carried out proactively before any problems arose.
If you think about everything your procurement effects in the grand scheme of things, a proactive approach can have a significant knock-on effect on your business as a whole. The proactive companies in the study stated that their approach to procurement was also motivated by other areas of priority, including spend analysis, contract management and supplier relationship management (SRM).
What this proves is that effective procurement processes have the power to impact various aspects of your business dramatically. Prioritising it while you’re still a relatively small business will stand you in good stead for future success by optimising your profitability and reducing risks.
What Barriers Are There to Implementing a New Procurement Process?
Despite the benefits, implementing new procurement processes is not always straight-forward for SMEs. The same study mentioned earlier found that some businesses encountered barriers. Theses included the struggles of getting senior-management to agree, managing work culture alterations and a lack of internal knowledge.
Despite this, the businesses experiencing problems were in the minority. Additionally, each of the problems is far from impossible to overcome. For example, to deal with a lack of internal knowledge, you could think about providing staff with procurement training.
How Do You Know Where to Start?
Even if you tackle potential setbacks before they become a more serious issue, it can still be a challenge to fully fathom precisely where you need to begin to implement a new procurement process. There are various steps you can take to make it as simple as possible:
Get a procurement diagnostic:
Understanding the state of your procurement practices is essential to making targeted and meaningful change to benefit your business. The experts that run the diagnostic will also identify areas that need changes or overhaul. This needn’t be costly. There are plenty of free options which provide you with a full picture of your current processes. To read more about the procurement diagnostic, click here.
Use consultancy services:
Once you have had a diagnostic, you can save yourself time by outsourcing some of the tasks that need to be done to a process improvement consultant. Their level of knowledge means nothing will be missed as every stone of your procurement process is turned and addressed. While outsourcing requires an initial investment, the quality of work by the consultant should provide you with a high ROI.
Overall, procurement cannot be compartmentalised into a single isolated section of your business. It is something that has a broader knock-on effect to almost every process. Even if you believe your business is too small to address procurement seriously, you can benefit by at least making the most of a free diagnostic to see what areas you need to consider in the future. By not prioritising your procurement now, you’re resigning yourself to running into future risks and complications that could have easily been avoided. Being proactive in any business is key to being successful and maintaining the edge over your competitors; be proactive in your procurement and reap the rewards.