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

By Dr Sue Grinsted

5 of 5 Articles on Supply Chain Management for SMEs.

Procurement in SMEs: what if you are too small to justify employing  a CIPS-qualified professional? With this 3 step approach, you can significantly improve the efficiency of your procurement activity.

These methods are what distinguishes an analytical approach to procurement from “shopping”!

Although the procurement role will likely be part-time, the first step is to identify someone in the business who is willing to do the job and has the capability to involve themselves in developing procurement skills. It would be ideal if this person were also willing to undertake CIPS training, perhaps by evening class or correspondence, either paid by themselves or refunded by the business on successful completion of each course.

Nevertheless, this 3 step approach will move you a long way forward even without the formal training support.

Step 1 – Families

The first method is to classify all purchased items into “families”. For example, if you make furniture, the families for production materials could be wood, textiles, fixtures and fittings, fibreboard and haberdashery. The business is also likely to buy other families of goods and services e.g. office supplies, utilities, travel costs, etc. All business expenditure should be classified into a “family”.

 

 families
Step 2 – 80/20 Rule

 

The second method is the 80-20 rule, also known as Pareto analysis or ABC analysis. This is a really useful tool for many things so it is good to master it if you are not familiar with it already. Explanations and examples are widely accessible by Internet.

ABC-Analysis_5

 

See for example:

http://betterexplained.com/articles/understanding-the-pareto-principle-the-8020-rule/

http://www.businessballs.com/pareto-principle-80-20-rule.htm

The 80-20 rule can be used to sort the families of purchases and also items within the families. From our point of view, we want to spend our time efficiently and will therefore concentrate on sourcing in the best possible way the 20% of items or families that constitute 80% of spend, the 20% of items or families that constitute 80% of delivery headaches and the 20% of items or families that are most difficult to obtain. Identifying these items or families will involve some calculation and also talking to the production people, the accountant, the managing director or whoever has been responsible for procurement so far.

Step 3 – Priority Approach

 

Thirdly, we are going to use the Kraljic matrix to set up supply strategies for different families of items or individual items. Again, this is well-documented and accessible by Internet:

 

kraljic1

 

https://www.mindtools.com/pages/article/newSTR_49.htm

http://www.toolshero.com/strategy/kraljic-portfolio-purchasing-model/

Consider the families of purchased goods and items that you have identified and locate them in the appropriate quadrant of the Kraljic matrix. That was the easy part. Now consider what actions you can apply in each quadrant. For example, in the “leverage” quadrant, you want to group together as many items as possible that can be obtained from one supplier.

A typical example is the supply of steels given in the article “Procurement in SMEs : who should be responsible?”. There are usually plenty of suppliers for this type of material. It is necessary to collect together all the information about the specifications required, the future volumes required and outlook for the longer term, the delivery requirements and the potential ordering methods (Internet, lead times, minimum quantities etc) and then contact the suppliers in turn to see what sort of agreement can be reached. It is time-consuming but you are not going to make this effort for every family of items.

By giving the supplier some forward visibility and commitment for a period such as 1 or 2 years, you should be able to negotiate a good price and delivery agreement for these items, maximizing your purchasing power, even though you are only a small business.

Article 1 > What is Supply Chain Management?