Procurement in SMEs who should be responsible?

By Dr Sue Grinsted

4 of 5 Articles on Supply Chain Management for SMEs.

In many SMEs, procurement is carried out by several individuals, perhaps each of them buying just what they need for their area, or expenditure may be closely controlled by the owner-manager.

Neither of these cases is ideal…

The owner-manager wants to control the expenditure but does not have the time to study the market. This may be delegated to an assistant who will look at Internet and catalogues but does not have the skill to make the price-value judgement. In one company we visited, we saw two young employees searching for materials and components on Internet and then placing orders – their annual budget was around 5 million GBP….  In another company, 7 different people were buying similar steels – from different suppliers, with multiple deliveries, and multiple prices for similar specifications. Clearly, neither company was likely to find the best that the supply market had to offer.

So at what point should you consider hiring a procurement professional  – i.e. someone qualified by CIPS (Chartered Institute of Procurement and Supply, see www.cips.org )? What will a qualified person bring to the business? This person will analyze the needs of the business, classify the goods and services into families or groups of similar needs and develop different supply strategies for each family or grouping. The procurement professional will also set up and negotiate appropriate contracts and commercial agreements. This is particularly important where demand is ongoing or where supply is difficult. This is necessary to ensure smooth delivery and to protect the SME from unreliable or unscrupulous suppliers as far as possible. A procurement professional’s first interest is the overall benefit to the business of any purchase i.e. that money is well-spent.

As a very rough guide, let us say that to employ someone who will have an impact on the business, we need to pay a salary of at least £40,000 pa which will entail a total cost of around £60,000 pa. As a rule of thumb, we can estimate that a good procurement professional can reduce the annual procurement budget by approximately 10% over 2 years if it has not been closely managed before this. Secondly, the ongoing year-on-year reduction could be around 2% by improved organization and relationships. It can be calculated that a 2% saving of £60,000 means a procurement budget of £3 million.

In other words, if you are purchasing goods and services worth more than £3 million each year, you should hire a fully-trained procurement professional.

Article 5 > What if you are too small to employ a procurement professional?