The top priority for small and medium enterprises is allocating resources to go as fast as possible. In order to achieve this priority, it is important to recognize the role of procurement.
In this article, we will unveil everything regarding procurement and top strategies SMEs can incorporate to optimize processes for growth acceleration. Let’s dive into it!
What is Procurement for SMEs?
Procurement is the process of purchasing goods and services necessary for business operations. A few main types of procurement are:
- Direct procurement. This type of procurement involves purchasing goods/services directly connected with the production of the end product (wood to produce wooden furniture).
- Indirect procurement. In this type, businesses purchase goods and services necessary for business operations, yet not directly connected to the production of the end product (IT supplies, office supplies, etc.).
- Goods procurement. This type involves any type of physical goods and products obtained by the business necessary for business operations (can be both direct and indirect).
- Services procurement. In this type of procurement, businesses obtain a variety of services to support business operations. These can include consultancy, outsourced services, security, and so on.
All the above-mentioned types of procurement are vital for small and medium-sized enterprises to run smooth business operations. However, manual management makes the process increasingly difficult and prone to error. Thus, many procurement departments adopt digital procurement solutions for better procurement management.
Importance of Procurement Management for Small and Medium-Sized Enterprises
Good procurement management plays a crucial role in improving efficiency and maximizing returns on investment.
Improved Process Transparency
One of the main benefits of good procurement management is improved process transparency. A good procurement system allows the centralization of procurement activities and helps businesses gain greater visibility into the process.
For instance, contract and supplier management tools allow for tracking supplier performance and compliance with the set terms and regulations. It further helps to track PO to invoice matching and ensure high accuracy for fraud prevention.
Increases Efficiency
Another major benefit of a good procurement strategy and management system is enhanced efficiency. With a good procurement management system set in place, organizations can automate different processes to reach maximum results and a high ROI rate.
For instance, instead of manual PO to delivery to invoice matching, you can utilize an automated three-way matching system. Another way to improve efficiency is by automating approval workflows to speed up the process.
Saves Time and Resources
Good procurement strategy and management enhance operational efficiency by allowing time and resources to be saved.
For instance, with a procurement automation tool, employees can focus on more strategic tasks for the business instead of spending most of their time on administrative and repetitive tasks.
Helps SMEs with Risk Mitigation
Another important benefit of good procurement management is how it helps to mitigate risks for small and medium enterprises.
Many businesses make the mistake of incorporating safety measures after a negative event has already occurred. Small and medium businesses consider risk mitigation an additional expense before facing a costly error. That is why you should never consider it an expense but rather an investment.
In order to mitigate risks, clear procedures and policies regarding procurement must first be established. Afterward, implement appropriate safety measures and software.
Quality procurement management tools with a good strategy will help SMEs prevent and mitigate risks in order to avoid unplanned expenses. This is possible due to greater control measures and improved visibility into the procurement processes.
Profit Margins Protection
Also, a procurement strategy will help to protect your profit margins.
One of the main goals of procurement is to obtain goods of the highest quality at the best price possible. A good strategy and software solution will allow you to negotiate more favorable contract terms and identify areas for cost reduction.
It will help to protect profit margins and improve cash flow.
Improves Spend Visibility
Finally, the procurement system provides organizations with greater control and visibility into business spend. These features allow you to identify business spending patterns and cost-saving opportunities easily.
Besides the opportunity to identify cost-saving areas, spend visibility provides employees with greater productivity opportunities. Instead of waiting on approval to make a spend due to lack of visibility, employees can instantly check the budgets and whether or not it’s all right to make a spend.
Procurement Strategies for Small and Medium Enterprises
As far as we are clear on the benefits of procurement management, it is time to dive into the practical section of today’s guide. In this section, we will unveil tested strategies and tactics for improving procurement processes for small and medium enterprises.
Strategy 1 - Leverage Technology
To improve procurement for SMEs, you need to leverage the power of modern technology.
Digital transformation of procurement is currently one of the top goals on many organizations’ agendas. By incorporating the right technology, you can optimize different procurement processes, whether you are a small or medium business owner.
For instance, a good procurement management tool will allow you to:
- Improve spend management by providing analytics and spend visibility features.
- Track and manage supplier performance.
- Collaborate with suppliers in real-time and improve negotiations.
- Optimize inventory management and automate POs to manage stock levels better.
- Save time and resources by automating approval workflows.
- Leverage a three-way matching system to mitigate risks associated with double payments and fraud.
- Improve overall management by storing data in one centralized system.
- Increase productivity among the teams by assigning clear user roles and permissions.
There are many other ways that procurement software will help to improve processes, efficiency, and profits. In fact, many studies prove the positive influence of the right technology on business performance.
Strategy 2 - Build Strategic Partnerships
Another good procurement strategy for small and medium enterprises is to build strategic partnerships. As a small or medium-sized business, the main aim is to expand and increase profits. To do so, you must focus your efforts on negotiating better deals while getting higher-quality products to maintain your business reputation.
Thus, focus on building strategic partnerships and improving relationships with your vendors. For instance, real-time communication tools can be used in vendor management systems to negotiate better deals. To build trust, ensure that payments are made on time.
Instead of purchasing small amounts from different vendors, focus on bulk purchasing and build a trusted supplier base with fewer vendors. You can expand with the company expansion. Regular orders and timely payments will help you improve relationships with the vendors, securing you more favorable deals in the long run.
Strategy 3 - Leverage Analytics Tools for Informed Decision-Making
To improve internal processes, start leveraging the power of data analytics. You should conduct regular spending and demand analysis. It will allow you to gain useful insights into the costs associated with procurement, define what your business actually needs, and save on unnecessary expenses.
Strategy 4 - Utilize Tracking Tools
Also, you can use real-time tracking tools for better inventory management. As a small or medium enterprise, it is crucial to maintain a good business reputation and avoid the possibility of not meeting the demand.
For instance, you can set certain thresholds with a good inventory management system. A PO will automatically be placed when the stock level drops below the mentioned threshold. It will help to avoid stopckouts. Utilizing tracking tools for inventory management will improve decision-making regarding purchases and avoid unnecessary costs associated with storage fees and logistics.
Strategy 5 - Improve Internal Procurement Processes
Start improving internal procurement processes. First, you will need to assess the current process to find its strengths and weaknesses. Afterward, you should create an actionable plan for addressing the weaknesses.
Incorporate technology and other measures for supplier performance tracking. The right tool, such as Tradogram, will provide you with actionable insights regarding supplier performance. It will allow you to ensure their compliance with the set terms of the contract and choose top performers for further collaboration.
Another way to improve internal processes is to create automated approval workflows for POs and invoices. It will save time on manual processes, increasing operational efficiency within the organization.
Also, do not forget about the vitality of good employee training. In fact, your procurement management should resemble bigger and more successful companies to achieve the same level of efficiency. Thus, proper employee training should be conducted to ensure that everyone is aware of new policies and knows how to optimally use new technology.
Strategy 6 - Increase Buying Power by Purchasing Consortiums
As a small business, bulk-purchasing to negotiate more favorable deals might not be a realistic option. However, in this case, you should focus on increasing buying power by collaborating with other small and medium-sized companies.
Building partnerships with other SMEs will allow you to optimize purchasing and saving by ordering more and securing volume discounts. These partnerships are called purchasing consortiums. Consortiums help SMEs to leverage the benefits of economies of scale.
Enhance Procurement within Your SMEs Starting Today
If you are looking for an optimal software solution for your small or medium-sized company, you are in the right place. Tradogram is a robust procurement tool that comes in handy with all the necessary features to boost business growth.
Tradogram offers features ranging from automation and inventory management to spend visibility and supplier relationship management tools. Schedule a free demo to find out more about how we can help you maximize your business’s growth.
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