3 Tips For Devising An Effective Procurement Strategy

B2B sales are extremely competitive, however, for early stage and growing businesses, the buying of such services can be complex, or more so than you may have imagined anyway.

The truth is that no matter what you’re buying, you’re always going to have to haggle a bit. Bartering isn’t always about cost either. It’s about getting the most value from suppliers, while paying a reasonable amount for the value you’re offered as part of whatever service you’re buying.

To ensure you get the deserved and required value, make sure you have the following three essentials worked into your procurement strategy.

1)      Use contract aggregation

When there’s a significant need in your business and you assess the market to discover there’s few suppliers large enough to accommodate what you need, it may be more effective to split your contracts into smaller lots. One of the main advantages you get with contract aggregation is you open the bidding process up to smaller sized business. This is particularly useful for working with local suppliers instead of large nationals.

It doesn’t always work out cheaper, and there will be more administration involved to oversee the contracts, however from a local economy standpoint, partnering with local suppliers can be highly advantageous.

2)      Open pre-procurement discussions with suppliers

This one should be obvious but unfortunately it isn’t always done. Before approaching the market for any supplies you need, research should be done. This isn’t just a case of researching online. Get on the telephone with representatives, go out and meet some suppliers and discuss what you need, find out what’s available and gain first-hand insight into what the market has to offer.

Efficiently researching the market by opening pre-procurement discussions will let you find out a lot more about what’s available and then use factual information to put together your written brief for inviting proposals from potential suppliers.

The more information you have and therefore can give, the more detailed an offering you can put out for tendering, leading to more informative bids from suppliers.

3)      Award contracts based on quality of proposals and cost

One of the worst things you can do for your business and customers is to accept the lowest bid from any service provider or supplier. There are some companies that will deliberately low-ball during the bidding process in an effort to seem competitive. Realistically though, the offer isn’t competitive at all. What it often can be is risky. If you contract with a supplier who provides a service at cost to them, meaning there’s no profit in it, they are likely to deliver a substandard service. That’s something you could definitely do without. The more obvious risk is that it won’t be sustainable therefore you’d need to find a new supplier eventually. And probably do some grovelling with disgruntled customers due to your suppliers’ impact on your service.

In conclusion

To drive the most value from any supplier, always engage in pre-procurement discussions as part of your market research. If you feel there’s a lack of sizeable firms able to accommodate your business needs, break things down to encourage smaller or local suppliers to put their proposals forward.

Always award your contracts based on the value you can get, with a realistic figure attached to the offer. Never award to the cheapest contractor, unless you’re confident and they are too that they can deliver the service with quality and make it monetarily worthwhile to partner with your business.

The suppliers you choose to award your contracts to will be a stakeholder in your business so make sure they are a company you’re comfortable working with before you engage them for the long-term duration of the contract. 

5 Questions To Answer When Developing Your Procurement Policy

Not every business has a procurement policy and in some cases it’s actually damaging not to have this document as public funding can stipulate that the requirements for funding requires you to have one. The reason being that it ensures transparency and that when you buy goods and services, you have a policy to follow ensuring you get consistent value for money.

Even if you aren’t applying for public funding, it’s still a good idea to have a procurement policy in place for you and your staff to follow. It sets the guidelines in clear terms for everyone to follow and consistently obtain value from selected partners.

Work your answers to these 5 questions into your procurement policy

1.      Will bulk purchasing discounts really reduce costs or add to storage costs?

The majority of B2B suppliers will look to get a favourable order on a regular basis. To do so, you’ll find bulk or combined services are offered in order to maximise billings for the supplier. This doesn’t always equate to value to you though as you could agree to bulk price discounts only to find you aren’t using what you pay for, which can increase your holding/storage costs.

2.      Will you need to engage knowledge partners to speed up the time it takes to obtain a specialist service?

For technical services for your IT department, or tech equipment you’re buying or leasing, do you have enough knowledge to know what you’re agreeing to?

For more expensive and what could be considered specialist services, you don’t really want to be relying on a supplier you haven’t done business with before. You’d be going on the recommendations of others at best.

A more informative approach would be to hire a knowledge partner or outsource to a specialist partner with the knowledge to listen to what you need, provide you with an assessment and engage with suppliers on your behalf. If you’re not confident in approaching certain sectors, it may be worth including in your policy what you’ll do in the event you need a specialist service.

3.      How many of your employees will have the authority to buy goods and services and to what amount?

As this will be a procurement policy for the long term, you want to make it as evergreen as possible. Plan it with growth in mind by including members of your staff who will be authorised to engage with suppliers for any goods and services their department requires.

It may also be worth having someone senior in your company named as a procurement officer who signs off on purchases before any other member of staff can proceed with ordering goods and services, or at least allocate budget amounts per department with anything exceeding the department budget requiring authorisation.

4.      What will be your selection criteria for awarding contracts?

It’s much easier to award contracts to the right supplier when you set out clear terms of what you’re looking for from them. As an example, you could choose to look for the following criteria for suppliers to meet:

·         Quality

·         Cost

·         Use of resources / green initiatives

·         Reputation

·         Guarantees

·         Service consistency

·         Customer service

In cases when there’s high competition, using a selection criteria as a checklist will help you narrow down your potential pool of candidates to progress into discussion with.

5.      How much information needs to be revealed while maintaining commercial confidentiality? 

      There are going to be some contracts requiring you to grant informational access to third party organisations. This is increasingly happening with e-services, operating via the cloud. You must be in complete control of confidential data within your organisation and should consider how much you really need to disclose to third party suppliers.

5 Ways To Ramp Up Profits With An Effective Procurement Strategy

Procuring business supplies could probably be done more cost efficiently than it already is. It’s the fastest way to increase profits – by reducing your expenses. Even what’s considered low value contracts; can over time, add up to a wholesome amount.

To really take control of your costs, a strong focus on your procurement process is vital.

5 Ways to Enhance Your Procurement Process

1)      Work with the Total Cost of Ownership

One of a few factors considered by anything for your business is cost. Typically, you can expect cheap to last a lot less time than more expensive products. When you buy something, you want it to last. It’s why there is such a thing as depreciation accounting.

Invest in the best and you won’t need to spend more capital on replacements. This applies equally to supplies that affect what your customers receive, which extends to every area of your business including your telecoms, as you need the service to continue working for customers to reach your support team.

Every operational expense you have requires a focus on the total cost of ownership at the initial discussions before contracting, rather than agreeing to the cheapest proposal put forward.

2)      Use demand planning for inventory management

The cost of over stocking can be exponential. In particular if you’re paying for square metres in storage costs using warehouses. Those costs can become extremely pricey if you’re ordering too much and holding.

This is particularly problematic when your supplier agreement is based on a minimum order quantity. That can see you get a good unit price but on bulk order pricing only, which results in you carrying an over-stock and therefore the savings are rendered useless as they’re just diverted elsewhere.

To manage your supplies and suppliers more efficiently, plan your orders according to what your customer demand is.

3)      Incorporate TBL into your business

John Elkington coined the phrase ‘Triple Bottom Line’ back in 1994. It’s an accounting framework referred to as TBL or 3BL. The framework has three parts to it.

·         Social

·         Environmental

·         Financial

In other words, green procurement/sustainable procurement are nothing new. It’s been around for decades but essentially it’s the same as the TBL approach which has helped many a business prosper.

These days, it’s not really an option whether you go green or not. Consumers are looking to buy green products and suppliers are building in green initiatives into their operations. In some cases of RFPs, it’s stated outright that all proposals are to include a copy of the green initiative the company uses.

4)      Use strategic sourcing as a pillar for growth

When you source strategically, you aren’t focusing on any one area, such as price alone. The needs of the customer, your employees, your business, and anyone that can be affected by quality or even by a social impact such as higher waste due to poor quality is considered. It can cost more upfront using strategic sourcing, but in the long-term, there’s extreme value to be had, including increased customer longevity due to the higher customer satisfaction, which will eventually bring your cost per customer acquisition down.

5)      Manage Your Alliances

Every supplier you work with brings a new business relationship with it. You need to manage that, but what some companies get wrong is assuming that supplier management is about taking control over the service being delivered.

It’s not.

It’s about two-way communication being used to align the supplier and buyer together so that they work collaboratively to bring better value, which eventually trickles down the supply chain to benefit your customers, again, lowering your cost of customer acquisition.

The more you focus on bringing costs down in-house, improve your working relationships with suppliers and focus on value acquisition, the more profits can be reaped, whilst simultaneously increasing customer satisfaction.  

How SMBs Can Control Costs With A Streamlined Buying Process

Buying items and services is a necessary evil of doing business, its operational costs. Smaller sized businesses tend not to pay too much attention to detail and it’s a costly mistake to make when it comes to growth.

The larger your company becomes, the more you need to buy in. That’s not just for raw materials for a production process either. Even hiring staff will eventually take a team of HR personnel to recruit the right talent to the right position. PR staff is needed to target media campaigns to get new customers through your doors and paying for your products and services.

The more your company grows, the more you’re going to need to spend.

For that reason, the best time to optimise your expenditure is before you expand. Having a clearly defined procurement procedure and policy in place is the ultimate way to gaining a huge competitive advantage.

Applying the two out of three process to procurement

When you’re at the beginning of a buying stage for any business supplies, there are only three words you need to remember.

1)  Fast

2)  Good

3)  Cheap

In a perfect world, you’d have all three of the above from a supplier. Thing is though… it’s not an ideal world so you can only have two. Pick.

·        Fast and good

·        Good and cheap

·        Cheap and fast

But never fast, good and cheap.

To strike the right combination, there are a couple of things you need to do. The first is to be exquisitely clear in your objectives.

If you’re renewing a print contract, why do you want to change supplier? Is it due to poor customer service? If that’s the scenario, then perhaps fast and good would be a good option to aim for. If on the other hand you were to be sourcing stationery for the office, cheap and good quality products may be a good combination.

The trick to effective sourcing is prioritising your needs. Basing it on the level of service you need. Do you need it fast? If so, expect it not to be cheap. 

Time is money after all and if you’re in a rush to get supplies, suppliers will be in a rush to add a mark-up for the speed of delivery.

Even the Royal Mail won’t give you a next day delivery service without insisting on a premium. They’re in the fast and good category. Cheap, it’s not if you want it fast. If you want cheap, it’s second class postage which will be good and cheap, with the sacrifice of fast.

So ask yourself what you need. A fast service, good quality, or is price the deciding factor?

Once you can honestly answer that, then you move onto the next question of where do you get what you need? This is the investigative stage and it’s where you’re identifying potential suppliers.

What makes a supplier considerable? 

You can break this down into a five step process…

1) Set a well-defined criteria that potential suppliers must meet

This could be things like the supplier must be:

a)  Local

b)  Have a stringent quality control process

c)   Have a reasonable minimum order quantity

d)  Reasonable payment terms and conditions of service

e)  A clear returns or guarantee policy

f)    Have verifiable references

What you’ll find at the early stage of buying any B2B service is there are a lot more suppliers than you initially thought.

2) Define the process you’ll use

When you have your potential suppliers lined up, you need a process and a time scale for assessing suppliers against your criteria. At this stage you should also be thinking about the method of outreach. Will a trade publication be sufficient in letting suppliers know what you need, or will you have someone appointed from within your company to put RFPs (requests for proposals) out to potential suppliers?

3) Ask for the bids to be submitted

The full details of the products you need or the services you need supplied to your business needs to be clearly stated in a written document so that suppliers can get a full understanding of what you require them to do. Clarity at this stage is crucial for getting a correct quotation and the negotiations set off on the right foot.

4) Evaluate each submission received to select a partner and negotiate terms

Evaluation can only be done when all the bids have been submitted. For this reason, in your briefing to suppliers, give them a reasonable deadline to have their proposals submitted for consideration. Once that deadline is reached, evaluate your responses to narrow the selection process and decide which supplier best meets the criteria you set at the beginning stage. Any supplier submitting a bid past the deadline should probably be dropped from the process as they’ll have missed a deadline before you start working together. Start the way you mean to go on. 

5) Monitor the supplier continuously

Even the best suppliers will have a hiccup here and there when something goes wrong therefore plan for that to happen by assigning someone as a named contact to oversee the contract. They’ll be responsible for performance reviews ensuring the supply provision is overseen and also for managing the relationship with any key person involved in the service provision.

In our experience, rapport has been essential to long-lasting relationships with suppliers, making it easy to sustain a healthy working relationship that benefits both businesses while making the renegotiating stages flow much smoother and more beneficial. 

Ultimately, the better the preparation is in the early stages of the buying process, the better clarity there is, resulting in clear communication with much less misunderstandings. 

Image courtesy of krostewitz.com.