Eran is the CEO and co-founder of ingredient brothers, a natural ingredients importer.
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Why should procurement be a big deal in business? Isn’t it just the act of obtaining the raw materials that go into our products and offering our services?
Procurement isn’t about getting stuff. It’s about making a material difference in the way a business functions. So why is it that small businesses so often miss out on the true power of procurement?
Examining The Power Of Procurement
As liaisons with vendors, procurement teams are the main contact for something that makes up a significant amount of any business’s costs. As such, procurement is one of the pillars of business growth and is often even the very foundation on which the business is built.
So procurement can form a tactical part of day-to-day operations. Or it can be leveraged as something more strategic that extracts value out of suppliers.
The Perfect Procurement Party
While some readers may be well acquainted with the diversity of procurement roles and their value, others will look upon a comprehensive procurement team roster with disbelief and awe.
The Wisest Of The Wise: Chief Of Procurement
Chief procurement officers have the ability to think strategically about the role of procurement within the larger mission of the company. With a clear understanding of budgets and the relationships that can affect the success of procurement, CPOs can bring value to procurement by managing the web of relationships holistically.
The Point Man: Procurement Director
At the same time, the same level of experience can be put to more practical use as a procurement director. They bring a veteran-level understanding of procurement and a thorough awareness of the market and how procurement can be influenced by real-world events. The tactical advantage means they often favor proactive decision-making over a reactive stance.
The One That Sees It Through: Procurement Manager
Procurement managers create and maintain the workflows needed for effective and expedited on-the-ground execution. They’re the people who make sure that the plans created by people in top positions actually come together.
The Rest Of The Procurement Family
And within multiple enterprise-level procurement departments, you’ll find rosters that go the full nine yards and include roles like procurement analysts, procurement specialists, contract specialists, legal counselors and business controllers.
The Burden Carried By Small Businesses
That’s a mighty fine lineup made up of dynamic specialists in their own field, each bringing a unique value to the procurement cycle.
But it’s a roster that’s rarely available to small businesses. This means that hundreds of smaller businesses likely lack the dynamics and versatility that come from such a diverse team.
So while smaller businesses have fewer resources and less bargaining power than their big siblings, now they also have to contend with the lack of dynamic, in-depth procurement strategies due to limited operational roles.
Breaking Procurement Down By Tiers
To understand how small businesses can reach beyond these strategic limitations requires, we can break down the stages of the procurement cycle into three basic tiers:
Tier One
• Strategy creation and procurement planning.
• Selecting suppliers and maintaining relationships.
Tier Two
• Supplier negotiation and contracting.
• Purchasing, expedition and inspection of goods.
Tier Three
• Invoice clearing and payment.
• Documentation management.
This is far from an exhaustive list of all the tasks procurement teams may handle, but it does provide a rather comprehensive overview.
The first tier consists of the high-level thinking that makes procurement effective, as well as the deeper relationship-building that sustains supply relationships.
The second tier consists of the on-the-ground execution of orders; it involves making sure each purchase and deal is the best it can be and lives up to expectations.
The final tier entails the post-purchase actions that some see as simple admin. And it can be about those actions. Or it can be the stage where your business gets to analyze the impact of purchases and supply relationships.
Because of the natural constraints on smaller businesses, they often only hire for two or three of these procurement purposes, which can leave the procurement team underdeveloped and unable to make procurement a strategic part of business growth.
But maybe that can all change …
The Five-Step Plan For Small Business Strategic Procurement
Step 1: Provide The Right Amount Of Resources
Procurement is far from the most cost-intensive division of most businesses, and yet this team often lacks the resources needed to optimize their operations. The power of new technologies and development programs can go a long way in strengthening procurement teams — so I recommend investing in them ASAP.
Step 2: Define Destinations, Not Journeys
You need to make sure your procurement team knows exactly where they’re heading. But don’t dictate the path they need to take to get there. Giving your procurement team enough room to maneuver won't just help them figure out creative solutions; it will also help provide them with a sense of ownership in their role and influence.
Step 3: Base Your SLAs On The Right Metrics
For step two to work, you need to make sure service level agreements (SLAs) are set up according to the metrics that directly influence business growth. This lets you monitor performance without daily firefighting. In time, your procurement team will also be able to create new metrics or adjust existing ones as procurement takes on a more strategic position.
Step 4: Create Tools That Minimize Firefighting
As leaders, we should help our teams build tools to catch a spark before it can ignite a fire. That means creating detectors that monitor changes in supply/demand to support effective recognition and response. With analytical AI tools becoming increasingly accessible, small businesses are getting access to increasingly effective foresight capabilities. So why not make use of them?
Step 5: Be Realistic About Timelines But Check In Frequently
Creating a strategic procurement cycle takes time. While some of these steps can have an immediate effect on improved procurement, others will only bear fruit after months of effective adoption. The result, though, is worth it. Because when procurement plays an active part in the growth strategy, a business is laying the groundwork for whatever comes next.
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