3 Lean Procurement Strategies For Small And Mid-Sized Businesses
How can SMBs optimize their procurement efforts despite the lack of resources? The key is to be Lean
Many small- and mid-sized businesses (SMBs) don’t have dedicated procurement teams in place. Thanks to limited resources and tight budgets, sourcing responsibilities often fall on the shoulders of one or two individuals — many of whom juggle responsibilities other than procurement. As a result, monitoring existing contracts and sourcing best-in-class agreements can be a tremendous challenge for these SMBs.
So how can SMBs optimize their procurement efforts despite the lack of resources? The key is to be Lean.
While Lean principles are common in manufacturing, they also offer advantages when it comes to procurement, as the approach focuses on limiting waste, freeing up time, and getting things done right the first time.
For many smaller organizations, thinking Lean often involves utilizing suppliers as often as possible (without paying too much of a premium) in order to free up internal resources to execute in core areas of the business. Striking the right balance between value-added services and the cost of goods and services can generate huge savings, in terms of both costs and time.
In addition to utilizing suppliers for non-core business functions, consider incorporating these four Lean approaches into your sourcing strategy:
Market intelligence can play a major role in identifying potential suppliers, as well as in understanding their competitiveness. Unfortunately for many SMBs, the cost of market research is prohibitive.
However, there are several free and low-cost market research and purchasing resources available. For example, the U.S. Small Business Administration, the U.S. Census Bureau, and FedStats offer free business data and statistics that make a great starting point for research. These reports identify trends in the industry and expose opportunities to potentially leverage in a sourcing initiative.
There’s no need to reinvent the wheel when you don’t have to. Leverage free or low-cost RFP and scorecarding materials, such as those offered by the Small Business Administration, whenever possible.
These templates can serve as the foundation for your sourcing process, and you can add your own unique requirements. Be sure to review and eliminate any extraneous questions that aren’t completely relevant to your requirements; you don’t want to waste your contending suppliers’ time.
GPOs provide better pricing by leveraging volumes from other small organizations. In addition, GPOs provide access to expanded resources and a broader network of suppliers while keeping your SMB in control of the initiative.
Include best-in-class service level agreements (SLAs) and penalties for non-performance or failures in direct materials categories. You want to make sure your suppliers are held accountable for their performance, so it is worth taking the time and effort to develop comprehensive SLAs.
A supplier that abides by the SLAs might have slightly higher unit costs; however in the long-run, higher quality and dependable services minimize downtime in the event of a supply chain breakdown.
Leveraging these Lean practices can help improve the bottom line and ensure smooth operation.