Buying forms an essential part of every small business operation. But it is often overlooked as an area of focus when owners are looking to drive efficiencies and increase overall performance.
Buying better and optimising procurement processes can greatly benefit small businesses by reducing costs, improving efficiency, and enhancing overall business performance and margin. But buying better is a delicate balance of art and science. So how can SMEs make the most of procurement processes and practices to maximise the impact to the business?
Top tips for buying better
1. Choose your suppliers carefully
Conduct thorough research to identify reliable suppliers who offer quality products at competitive prices. But don’t necessarily always be motivated by price. Consider factors such as reputation, industry experience, product quality, delivery time, and customer service when selecting suppliers.
Also consider the opinions of those within your SME who directly work with your suppliers’ products or services. They will have valuable insight into the kind of suppliers that work well for the business.
2. Build relationships with your suppliers
Treating your suppliers fairly and with consideration can yield longer-term benefits for your business. Developing a culture of open communication and mutual trust can lead to better deals and preferential treatment.
Regularly reviewing and evaluating supplier performance and credentials in a transparent process ensures they meet your expectations and gives suppliers the opportunity to evolve as your business grows.
3. The art of negotiation
Negotiation can be a tricky part of dealing with suppliers. Remember that negotiation is not just about driving your supplier’s price as low as possible. Getting your supplier to commit to a deal that is not viable for them is not necessarily in your best interests.
A supplier who loses money on your account is more inclined to underperform on delivery or, worse case, go out of business. As well as price, remember to negotiate on volume discounts, payment terms, and length of contract.
Clearly define terms and conditions in supplier contracts to avoid misunderstandings and disputes. Regularly review and update contracts as needed.
4. Consolidation and bulk buying
Whenever feasible, you should try to buy in bulk to take advantage of volume discounts and reduce shipping costs. One way of achieving this is by consolidating orders to streamline procurement processes, minimise paperwork, and finance team time.
A key component here is understanding, and managing, your inventory effectively, so that you neither over- nor under-stock. You can find out more about effective inventory management here.
You may even consider forming a buying collective with other SMEs to increase your bargaining power with larger suppliers.
5. Maximising your buying options
At the same time, it may not be sensible to put all your eggs in one basket. Having more than one supplier of a similar type will give you alternative supply buying options if one of your suppliers can’t fulfil an order.
Having a roster of similar suppliers can also help you benchmark your cost of purchase and will encourage suppliers to be competitive with their products and service levels.
You may also consider diversity in your supply chain. Explore working with diverse suppliers, including small businesses and minority-owned enterprises. This can help drive innovation in your supply chain and may yield better pricing from firms with smaller overheads.
6. Consider ESG credentials
Environment, Social and Governance credentials are becoming increasingly important in modern business.
If you are working with a larger business, they may want visibility of the ESG credentials and commitments of your supply chain.
Having suppliers with ISO or B-Corp certifications can help give your onward buyers assurances about their ESG credentials.
7. Invest in technology and skills
Consider using e-procurement platforms and software to automate and simplify procurement processes, from requisition to payment.
Embracing these technologies will help deliver spend analytics, help contract management, and enhance your procurement capabilities. You may also want to consider up-skilling those responsible for buying on procurement practice and industry knowledge.
Buying better can significantly enhance an SME’s overall business performance. Reducing your cost base, building resilience in your supply chain, and driving efficiency in processes can all be achieved through better buying.
While the procurement needs and challenges may vary for each SME, all SMEs will benefit from regularly reviewing and adapting procurement strategies to stay competitive and achieving your business goals.
Some areas of buying better will involve investment before the cost-saving benefits can be reaped. If your business needs a short-term loan to help to boost its buying performance, please speak to one of our specialist advisors on 0800 151 0980.
Alternatively, you can check to see if you’re eligible for one of our loans with our online eligibility checker.
At Capify we offer a range of business loans to help support small businesses throughout their growth journey. Business loans can be used for any business purpose including investing in sales.
Check to see if you’re eligible for one of our loans with our online eligibility checker.
Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process.
Give us a call today on 0800 151 0980.
