Leveraging Your Suppliers As A Business Asset

Do you consider your suppliers to be an asset to your business? You should, because they really are.

All too many SMBs get this entirely wrong. They put so much focus, and rightly so, on their customers ensuring customer service is top-notch and every customer gets value for money.

Guess what?

That’s what your suppliers are doing for you. You’re their customer and they want to be doing right by you and ensuring you get value for money.

Or at least they should be. If they’re not, it’s perhaps not all on them. Some suppliers are a nightmare to work with and if you find that to be the case, it’s likely because you don’t have a good solid working relationship with at least one key decision maker in your suppliers business.

When you’re dealing with suppliers, they’re an extension of your network.

You have a network right?

We’ll assume you do because not many businesses prosper without developing a network of professionals. Some are in the same industry; some are in the finance sector, others in the fundraising, some in marketing etc.

Your business will have connections. It’s key to business growth. Without connections, you’re a standstill and not experiencing growth.

In the supply chain sector, the managerial positions go to those with experience because with the experience they’re networked.

They know the suppliers, they know the industry, and they know the value for money they can get.

The best in the game drive cost savings because they’re able to strike a balance that serves the needs of both businesses - your business and that of the supplier.

Every business needs a profit margin.

The worst customers for suppliers to deal with are the barking mad ones that want stuff at knockdown prices. Always trying to strip the fat away from the bone and eat into the profit margins of their suppliers.

Big companies might be able to get away with this strategy because they have huge volume, but you can guarantee, if the supplier isn’t getting a healthy profit margin, the customer service will be next to none.

You get what you pay for.

So the lesson is this… when negotiating with suppliers, consider the value you can bring to the table. Yes, by all means be a strong negotiator but go to the table with realistic expectations.

Everyone wants profit.

The best deals are met in the middle. Where you get a good deal and value for money and your supplier gets a healthy profit margin. Both businesses keep profits.

To get negotiations off to a good start, you need a good working relationship. It’s the same with your customers as it is with suppliers. Treat them well and they’ll reward you with loyalty.

Loyalty is what you need from your suppliers because without them, you’ll be without supplies and constantly at the RFQ (request for quotation) stage to get supplies and services for your business.

If you consider your business small to medium sized, and lacking the professional networks to get to the negotiating table, partner with someone who is.

At The Procurement Group, our specialists are well connected in a variety of verticals with years of experience networking with those in the know.

If you’re adamant on taking care of procurement yourself, we’ll give you some tips to steer you in the right direction.

1)      Before approaching, send a LinkedIn request

LinkedIn is the social network of the established experts. If you’re not known to someone through LinkedIn, you’re at a huge disadvantage.

The first stage of negotiating is not about figures. It’s about getting to know who you’ll be speaking with and the best way to do that is to enter their professional world.

Get to know them through LinkedIn first, follow them elsewhere and find out what they share online. 

That’ll give you some insights into who you’ll be speaking with and help you to find some common ground.

2)      Extend your network with multiple suppliers

Don’t just target one supplier when you’re researching. Establish who the right people are that you’ll be dealing with. Once you have a few people, you’ll get a feel for who the right person is for you to speak with.

It’ll be the person you feel more confident to pick up the phone and speak to, or to meet up with at a networking event. Even if they’re not the right fit, you can keep the meetings and conversations friendly because each person in your network has an extended network that could help you.

3)      Get your pricing right

You can’t go into talks looking to get a rock bottom price. It’s not going to happen. You need to have your maximum and minimum pricing in mind. Minimum pricing for supplies because you need to be supporting your supplier’s margins to ensure continuity of service.

Drive too hard a bargain and you’ll fall flat. The only time hard bargain deals are successful is when there’s multiple thousands in profits at stake.

4)      Find the middle ground

Find a good profit margin for you and your supplier and then work out the kinks in any service level agreements. What you don’t want to do is get a lower price because the level of service is reduced so your client can retain as much profit as possible.

Both sides need to be able to consider cuts in the margins. If any party is hesitant, it’s going to be a difficult working relationship when only one side is making changes, and the other making swaps.

5)      Keep in contact throughout your agreement

You’re your suppliers’ customer and whilst it doesn’t constitute constant communication, at least keep in contact in some form such as an occasional email to find out how they’re getting on.

The best time to contact a supplier is when you have to buy anything. Even if they don’t supply it, they may know someone who does and give you advice on dealing with them.

Your supplier becomes a part of your network. Nurture them as such and your long-term contracts will see you get better value from them. 

Image courtesy of poacpa.com.

The Business Case Triage Of Good Procurement In Action

Efficient purchasing in any business is essential to stay within budget and ensure that only necessary materials and supplies are being purchased.

To do that, there’s a minimum trio involved in putting together a business case for purchasing.

1.      Staff

All purchases begin with the user. Employees in any department will first identify what they need. In most cases, the suggestions are directed to supervisors, team leaders or line managers. These people represent the end user and direct the suggestions to upper management.

2.      Finance

Finance departments can’t just approve any purchase. In many situations, it’s a completely new purchase being introduced to the business, in which case, the business case must be made to justify the expense.

Finance departments are very prudent with funds available, ensuring they are only spent on necessary materials, or tools that will benefit business objectives.

When it’s something entirely new, funds should first be directed towards market research and this is where things can go wrong - when this stage is skipped.

Approaching any market blindly without sufficient knowledge of typical costs will result in paying a higher price, and often negligible contracts with minimum value due to a lack of market knowledge.

It happens in the copier industry, telecoms sector, and many other services where finance departments skip the most prudent part of a buying process. Assessing the market to find out what’s available, at what price, what contract options are available, and service level agreements. SLAs and contract finalisations is when negotiations should always be happening. Everything’s negotiable!

When approaching any unfamiliar sector, it’s best to assign a buyer to research the market and then compile a report detailing viable options before proceeding beyond this stage.

The core responsibilities on all finance departments are always to:

Assess the proposals from end users. It’s the responsibility of users to present the business case explaining the benefits of whatever’s to be bought, and explain the benefits of the purchase ensuring it supports business objectives.

Once users have made their case and sold it’s up to finance to assess budget implications and the financial impact of any purchase to ensure it’s viable.

Funding sources will be identified and a budget assigned to a buyer.

3.      Buyers

With the budget assigned, it’s then the buyer who has the final responsibility of ensuring they can source services or products within budget, and agree to contractual terms with suppliers.

Negotiation in the final buying stage is prudent.

Before final purchasing decisions are made, especially when the contract terms are long and expensive, input should be sought from end users prior to any agreements being formalised and finalised.

That’s the trio that should always be involved in a buying process and never solely left to one person in a finance team. Chances are that they will have no idea what the end user requires.

Every employee is a key stakeholder in all businesses and should be given the opportunity to provide input into what they feel would help them work more efficiently. It’s then up to your line managers to present viable solutions to finance. Finance should then review the business case put forward by line managers, sign off on it, identify funding sources and assign a budget to a buyer.

If your business does not have the finance teams or buyers in place, there’s a high chance you’re overspending due to the lack of resources put into purchasing.

Should that be the case, there are likely to be areas where you could significantly reduce your operational costs, by putting value adding contracts in place, sometimes cheaper than existing providers have you on, while maintaining quality and without disruption to service.

Should you find your expenses getting out of hand, our savings audit will highlight where your business is over spending.

For businesses with fewer employees, lacking the resources from those in finance and buyers who know their way around contractual law, it’s often best to bring in outside help from a professional procurement service. 

Image courtesy of supplychainstation.com. 

5 Ways To Improve Procurement Efficiency

Employees are constantly worried about job security, mainly because when they hear financial troubles are brewing, the only way they know to be the fastest cost cutting exercise is to let staff go.

It’s a worrying concern for employers too because it leads to low staff morale. For that reason, when budgets are being tightened, it’s imperative to get staff aboard so they know there are steps being implemented to save jobs, which are often front line positions and imperative to business growth.

5 Things Businesses Can Do To Improve Procurement Efficiency

1.      Have monthly board level involvement

MDs rely on their teams to be ensuring efficiencies are happening, however, at board level, procurement should always be visited. Best practice would be monthly because there’s always going to be somewhere with a high expense becoming worrisome.

For procurement teams and finance departments, some can feel as though they are on their own to deliver results.

When they can get board level involvement and support where applicable, they can then work with seniors and executives across all departments to ensure they are focused on priority issues. Priorities can change rapidly, which is why board level involvement on a monthly basis will help identify category risks, ensuring faster response times to addressing cost cutting opportunities.

2.      Encourage staff to improve work efficiency

There’s been many a survey completed to establish how employees feel about job security and you’ll know from each of them, it’s not good. Many feel their jobs are at risk, even if the company is sailing along with plenty of capital.

Employees know that it takes money to keep your business operational. What they don’t know is everything they can be doing to make their work more cost efficient.

It could be as simple as turning off computers when at lunch and looking up telephone contact details online, rather than dialling a directory service at premium rate numbers.

Whatever employees can do to lower the cost to your business, the majority will be happy to oblige.

3.      Put clear objectives in place for your procurement strategy

These days, procurement activities need to be strategised because of the expense involved. It’s not unusual for 50% of expenditure in procurement. You can be tactical about it but you’ll see better results with a clear strategy in place.

The best case scenario is when your finance team can obtain key finance information for transactions with only a few mouse clicks. Much of the buying process is now technology driven, with cloud services lending a major hand towards automation of frequent tasks.

If something can be automated, do that. If it can’t, improve efficiencies to ensure procedures aren’t too labour intensive, which become costly fast.

The best procurement strategies anticipate changes, and have adaptive supply chains so they can quickly react to circumstances that could disrupt logistics, putting merchandise and revenue at risk when supply can’t reach stores and offices. 

4.      Give sales reps on site time

Years ago it was common practice to employ sales reps, pay them a minimum salary with a commission per sale paid as a performance bonus. It’s still used, but these days those reps are not out consistently selling. They are in-house, viewing the product lines, reading over technical information and receiving training on the products they’re paid to promote.

You can’t expect your front line sales team to perform excellently when they aren’t familiar with what you do. A one-day training exercise doesn’t cut it. Every sector is far too competitive. This goes back around to #2 above – get your employees aboard.

5.      Always be monitoring risks

Risks are everywhere. You never know when they’ll strike but when you do, you must be on top of it and fast.

Risks can come from manufacturers failing to meet production targets, disruptions to logistics operations, retailer disruptions if stores can’t be opened for whatever reason, and also from customers reflecting poor experiences of doing business with your company, for which there are some firms now employing reputation management teams to monitor social media and also extend their customer service to third party platforms to mitigate risks posed by customers. If your company is outsourcing to a reputation management service then you need to work that into your procurement strategy too, ensuring you get best value.

Every supplier has costs and those that must be managed.

No matter how efficient you feel your business or department is operating, chances are, when you look deeper, there’s going to be cost saving opportunities somewhere. 

Image courtesy of trekglobal.com.

How The UK PSC Register Affects Procurement

The Register of People with Significant Control Register came into effect in April of this year. On the surface of things, the majority of businesses won’t be affected, other than the registration requirements. However, in the case of procurement, there is one thing every business owner absolutely must know.

That is…

How the Public Register of those with significant control will correlate to the Bribery Act 2010.

Back in 2011, Ruth McNaught, Solicitor of Harper Macleod LLP, wrote on the Govopps.co.uk website about the Bribery Act 2010 and its Effect on Procurement. In that article, Ruth wrote:

“Regulation 23⁽¹⁾ sets out the mandatory disqualification criteria: a contracting authority must treat a prospective bidder as ineligible and not select that bidder if it, or its directors, has been convicted of (among other things) conspiracy; corruption; bribery; fraud; or money laundering.

The contracting authority must have actual knowledge that the bidder, its directors or any other person who has powers of representation, decision or control of the economic operator has been convicted of these offences.”

As you can see from the information above, the persons with control in a business has been for a while now, a factor in the procurement process. What’s happening now though is with the register being publicly accessible, it will tighten the Bribery Act further by giving all commercial businesses access to information they’d previously only be able to acquire through some deep digging around and probing for information.

With the PSC register, anyone is able to get the names of each person with significant control of a business, making it much more accessible for commercial enterprises to know exactly who they are doing business with.

For the purposes of commercial contracts within procurement, where anyone named with control is known to have practiced unethical business in the past, it could rule your business out of the tendering process completely.

Back in 2011 when the Bribery Act came into effect, it set the UK as a global leader of anti-corruption, setting the bar for the highest of ethical standards. This new PSC register takes things a step further to champion the UKs strong ethical standards.

In order to comply with the Bribery Act 2010, the government issued guidance for businesses. You can find those guidance notes here. Section seven is important as it puts responsibility on business owners, requiring organisations to take active measures on preventing bribery from happening in commercial organisations.

The guidance notes don’t go further to give measures that business owners can take to prevent it however we did find a good resource at theQCA.com website, which you can view here.

All government publications regarding the People with Significant Control Register can be found here.

With the strengthening of anti-corruption legislations, and tougher sentencing, with the potential for disbarment as a company director, it’s putting a lot of pressure on SMBs to carefully consider who they have aboard their organisations and to ensure they are compliant with all relevant legislations, which is now not only relevant to business owners but also extending to those they trust with control over how business is conducted.

Anyone with significant control in any business must be trustworthy and most certainly not convicted of any offences relating to unethical trading, in particular in relation to the Bribery Act 2010.

As a member of the Chartered Institute of Procurement and Supply, we ensure that every supplier we deal with upholds the same high ethical standards as our firm, for which the PSC register will be able to help us trust who we partner with. There will be other businesses using the register too. It’s for this reason we advise business owners to carefully check who they are associated with as it could impact on tendering processes.

Image courtesy of theqca.com.