Business procurement involves sourcing and acquiring resources, goods, and services for operations. Optimal processes reduce costs and eliminate waste. With ongoing supply chain issues, small and medium businesses (SMBs) face greater challenges. Developing a procurement strategy helps leaders overcome barriers related to reliability and quality.
Since many startups and small companies don’t have dedicated procurement specialists, this role often falls on the business owner’s shoulders, or the owner and a couple of managers juggle the responsibility. As a result, certain aspects can fall by the wayside. With a strategy, your team can manage procurement and achieve company objectives. Learn what procurement is, why SMBs should prioritize it, and best practices for improving your procurement process.
Understanding the basics of procurement
Procurement is a business process. Companies use it to obtain goods, services, and resources from external parties. The procurement process encompasses several components, including purchasing and sourcing. Manufacturers that produce products develop direct procurement strategies to efficiently source raw materials, goods, software, or services. Organizations use indirect procurement methods for acquiring office supplies or internal software solutions.
Goods procurement refers to any physical item, whether office supplies or raw materials, whereas service procurement ranges from software as a service (SaaS) to facilities repair services. Since procurement expenditures are often a significant portion of a company’s revenue spending, managing the process effectively can substantially improve the organization’s financial health.
[Read more: How This Organic Skin Care Product Business Navigated Supply Chain Challenges]
Components of a procurement process
Although we tend to use terms like purchasing, sourcing, and procurement interchangeably, procurement is the process, and purchasing and sourcing are merely two of the steps. Procurement procedures differ according to your company’s unique needs and goals. Your policies should reflect your business’ ethics and vision. Moreover, the process must be repeatable.
When developing a business procurement process, address these points:
- Negotiation and proposal review.
- Vendor selection.
- Contract and supplier relationship management.
- Business spend management.
- Purchasing, ordering, and delivery.
- Data analysis.
- Purchase order management.
- Future spend planning.
Diversifying your supply chain is a great place to start, but follow procurement best practices to streamline your approach for long-term gains.
Why SMBs need a plan for procurement
Your procurement process ensures a consistent supply of raw manufacturing materials or retail goods. A practical approach can increase profitability and minimize risks. That’s welcome news to the 79% of SMBs that told Anvyl “that they’ve suffered consequences due to supply chain disruptions since the onset of the pandemic.” Likewise, 56% reported changing suppliers in 2022, with consistent delays and costs “being the two top reasons.”
Aside from negotiating payment terms and better prices, a procurement strategy helps develop and maintain strong relationships with suppliers. These connections may provide more pricing transparency and allow you to arrange better deals. Procurement planning also involves demand forecasting, improving decision-making, and reducing financial losses from excess inventory or stockouts.
Of course, the benefits of an effective procurement process extend beyond business operations. Supply chain issues affect customer satisfaction, so any improvements impact shopping and delivery experiences. Additionally, increased productivity levels give your teams more time to focus on customer success instead of administration tasks.
[Read more: Do You Have a Supply Chain Backup Plan? How to Plan Ahead]
SMB procurement best practices
Careful planning and ongoing communication with suppliers can help small businesses procure materials at the right price and time. Additional benefits stem from establishing clear policies and repeatable processes. Diversifying your supply chain is a great place to start, but follow procurement best practices to streamline your approach for long-term gains.
Here are tips to optimize the procurement process:
- Use free research and purchasing resources: The U.S. Federal Statistical System, the U.S. Small Business Administration (SBA), and the U.S. Census Bureau provide free statistics and business data. The reports help identify industry trends and sourcing opportunities.
- Consider cooperative procurement options: According to Capterra, “64% of SMB supply chains have joined or plan to join a group purchasing org (GPO) to help manage procurement costs and challenges.” GPOs can offer better pricing, more resources, and broader supplier networks.
- Leverage procurement technologies: Procurement software automates tasks, reduces human error, and offers real-time visibility. It handles contracts, purchase order processing, and vendor selection.
- Require SLAs for direct material suppliers: Service-level agreements hold suppliers accountable. This may increase unit costs but result in more consistent, higher-quality services with less downtime during a supply chain breakdown.
- Establish procurement metrics: Monitor key performance indicators (KPIs) to pinpoint areas for improvement and make informed decisions. Metrics may include supplier performance, cost savings, and delivery times.
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