Small Business Spend Management — Indirect Buying, Travel, Strategic Sourcing and Beyond (Part 4)

In the first few posts in this series (Part 1, Part 2, and Part 3, I shared some general advice I'm learned over the years not only as an observer and practitioner in the procurement market, but also as a small business owner who knows what it's like to focus on everything but what you actually buy. In the triage that often results from fast growth, the extent of procurement from an owner's (or management's eye) often focuses first in a binary manner. In other words, either keep the spending faucet flowing or shut it off, depending on cash flow. Aside from that, managing cash flow, growing revenue, focusing on the right hires and related areas often weigh far more heavily in a typical manager's mindset than does spending smarter. Still, in running a small business, there are number of additional tricks I've learned that will help companies not only spend less (than they previously were, for similar items/services) but hopefully improve the total vendor experience.

Perhaps first and foremost, it pays to look at your vendors (direct and services providers -- rarely indirect) in a portfolio model. By figuring out which suppliers are truly critical to your business and those that are disposable, you can quickly figure out where to focus initiatives (hint: the amount you spend is only a single factor in this equation). It's critical to think about a range of factors in this vendor segmentation including the ease with changing suppliers, innovations and ideas offered up by suppliers, vendor impact on revenue (directly or indirectly), balance of trade (in certain cases), etc. In our case, for example, one of our smallest suppliers this year is a conference company that manages events, yet we trust this organization so much -- and will be leaning on them more heavily in the future -- that keeping them happy and sharing ideas together to brainstorm concepts such as revenue generating activities, even in between assignments, is absolutely key.

This brings me to my next point: supplier development. Small businesses should spend far more time developing strategic suppliers than negotiating contracts with either new or existing ones (remember, if you read the earlier posts in this series, negotiating should be an outgrowth of knowing the market rather than a means to a unit-cost only end which can actually hurt the overall total cost picture). By setting expectations with suppliers and defining criteria for success -- which are really KPIs, but you don't need to describe them as such unless you want to -- and then holding everyone in the relationship accountable to meet these targets, you'll gain far more than haggling over a penny here and a penny there.

The final piece of advice I'll provide today is contrary -- how to spend more with your suppliers to get more. As an example, we're currently buying quite a lot of software development work as we roll out a new application on the MetalMiner side of the house. Unfortunately, many of the best individual developers and small shops for PHP aren't great project managers. But to incent one firm to come in on budget and on time, we're not only tracking to milestone-based thresholds baked into our statement of work. We actually added financial kickers for our vendor to meet or exceed certain targets. In the scheme of things, we'll probably end up spending in the low-to-mid four digits this year on an incentive basis. But to get work done right the first time, sometimes it pays to be the customer of choice -- not only because of the incentives we provide, but also because we're teaching our vendors how to up their overall PMO and delivery game.

Jason Busch

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